The Impact of Effective Tail Spend Strategies across the Corporate Value Chain

Transcription

1 The Impact of Effective Tail Spend Strategies across the Corporate Value Chain Compro Tom Connors Global Sourcing Director Perfect Commerce Vernon Warner SVP

2 About Perfect Commerce World-class sourcing and procurement software and services to the enterprise and public market sectors for true END-TO-END, global spend management. Trusted solution provider used by more than 1.3 million users in over 150 countries, 18 languages, and 50 currencies. Owns and operates the world s single largest independent supplier network, with over 500,000 suppliers. 99% renewal rate THIS JUST IN September 2015: Perfect Commerce ACQUIRED Hubwoo

3 The Impact of Effective Tail Spend Strategies across the Corporate Value Chain Business Process Outsourcing Offerings: Tail Spend, Procurement Sourcing Projects, Strategic Sourcing and their Intersections with the typical Spend, Activity and Resource Dynamic Tom Connors Compro Procurement Business Process Outsourcing (BPO)

4 Agenda Business Process Outsourcing (BPO) The Chasm BPO Dependencies for Success BPO Intersections with the Spend, Activity and Resource Graph Tier 3: Tail Spend/Catalog Case Study Tier 2: Procurement Projects Case Study Tier 1: Strategic Sourcing Case Study Wrap Up/ Q & A 4

5 BPO: Services BPO Services are an important element in a company s Procurement Strategy. BPO provides a combination of Tail Spend Management through Strategic Sourcing. All BPO services are focused on impacting the bottom line via reduced material, lead time and operational costs. BPO impacts the bottom line in ways that an internal Procurement Team cannot. We will delve into some examples of this unique capability as case studies for discussion. 5

6 BPO Keys to Success: Tail Spend, Procurement Projects and Strategic Sourcing Support, empowerment and communication of the commitment to the project at the highest level of the organization is key. Access to current and comprehensive spend data is required to take the first major steps. Establishing a high level Steering Committee: Set clear expectations for results, process and ownerships Govern the agreed upon process Act as final arbiter of inevitable conflicts and concerns Approve final results in accordance with pre-agreed upon metrics Establishing an Operational Committee: Consisting of Departmental Management Chartered with governing process changes and disseminating new process internally 6

7 The Chasm, I m not telling you anything you don t know 7

8 Spend The Typical Spend Activity and Resource Profile: Spend A company s Spend Profile follows this theoretical graph. In typical rule fashion 20% of the spend activity contributes 80% of the value 8

9 The Typical Spend, Activity and Resource Profile: Transactions Similar to the previous slide, the number of transactions follows the rule as well but in an inverse proportion. 80% of the activity delivers only 20% of the value. Transactions 9

10 Number of Suppliers The Typical Spend, Activity and Resource Profile: Suppliers The number of suppliers on-boarded and maintained to support the transaction profile follows a similar proportional graph with a similar rule with 80% of the supply base delivering 20% of the value 10

11 Spend Number of Suppliers The Typical Spend, Activity and Resource Profile When viewed cumulatively the disparity between activity, resource and value becomes clear. This chasm is the space where BPO delivers significant value. The Chasm Transactions 11

12 Spend Cum # of Suppliers Segmentation and BPO Offerings Tier 1 Tier 2 Tier 3 The Chasm Transactions Tier 1 Offering: Strategic Sourcing Tier 2 Offering: On-site and Remote Procurement Projects Tier 3 Offering: Tail Spend Management, Leveraged Catalog 12

13 BPO Tier 3 Operation: Tail Spend Management 13

14 Spend The Typical Spend Activity and Resource Profile Tail Spend 14

15 HITACHI HIGH-TECH ULTRA PURE SOLUTIONS, INC. LINDE PHILIPPINES, INC. NAT Peripheral (H.K.) Co., Ltd. DIC SEIMITSU PHIL.,INC. TEIJIN FRONTIER CO., LTD. Micro Point PRO Ltd. SIM MARKETING AZ ELECTRONIC MATERIALS MTE Precision Toolings Inc. COMPETITIVE GLOBAL MFG SEEMEX TECHNOLOGY Bruker AXS Pte. Ltd. RED INDUSTRIAL Basic 1 Business Solutions Tsukiden Electronics Nitto Denko (Philippines ESSENSA, S.A. DE C.V. DOU YEE ENTERPRISES (S) TDI International Inc. Ni-gatsu Saisei Corp. Creative Metal Products PILIPINAS GAS, INC. USHIO ASIA PACIFIC PTE LTD Nikon Engineering Co. Ltd. Air Liquide Philippines, Inc. AGVA TECHNOLOGIES PTE Powerstar Trading, Incorporated Zenith Technology Inc. DREX-CHEM TECHNOLOGIES YIELD CO., LTD. Elektrochemie, Inc. ALL LIGHTS AND FESHAN PHILIPPINES INC. TRADE GENERATED MOUNTZ, INC. Eis Inc RS COMPONENTS LTD. KATRIN FIELD INC. ST and F Precision Technologies PAN PACIFIC INDUSTRIAL Ure-shii Technologies Inc. TRADECOM BUILDERS SUPPLY Okano Electric Co. Ltd. HARADA CORPORATION RAMSEG ENTERPRISES, Accent Micro Technologies, Inc. Eternal Chemical Co., Ltd SPECTRIS PTE LTD. MAYDEN CLEANING Compass Industrial Sales and d WESTERN MAGNUM Actual Spend Profile (Tails can be really long!) $6,000, MRO Spend by Supplier $5,000, $4,000, $3,000, $2,000, $1,000, $- 15

16 BPO Tail Spend Management Tail Spend is roughly defined as ad-hoc purchases and routine relatively low dollar purchases. Tail Spend usually involves MRO items but is not limited to MRO only. Tail Spend usually demands the most supplier on-boarding and supplier maintenance costs. Dedicating Internal Procurement resources to low dollar pursuits has significant drawbacks. Expense Morale Price Efficiency In reality even the best internal tail spend management contributes little to a company s competitive advantage or bottom line. 16

17 Number of Suppliers The Typical Spend, Activity and Resource Profile: Suppliers Tail Spend Suppliers 17

18 BPO Tail Spend Management: Advantages BPO Tail Spend Reduces your supplier on-boarding and maintenance costs. You establish one supplier, the BPO, they handle all future on-boarding and maintenance. BPO leverages their total business with suppliers, often far greater than a single company has alone. Most BPO transactions take less than one business day, often only hours. BPO manages supplier invoices. Through leverage, BPO provides better unit pricing and total turnaround time. Tail Spend Management fees are less than internal per PO cost. 18

19 BPO Tier 3: Leveraged Catalog (as opposed to your catalog) A Leveraged Catalog is based upon compiling the spend of multiple companies Focused on MRO and built from multiple Tail Spend clients, a leveraged catalog delivers significantly lower part cost than a single entity can garner Typically a company produces their list of MRO or catalog type items in order to engage a catalog house. In response catalog companies offer a percentage discount off their list price for the list provided The nature of MRO and Tail Spend is that there is a large percentage of ad-hoc and non-repetitive spend often those items do not see the percentage off list price quoted The reality is that the published list prices are inflated and have little relevance to cost and margin By combining the spend from several companies, BPO s can exert this leverage to achieve pricing much lower than list and based upon cost and margin. Simply put, the catalog game is a volume game, the most volume garners the best pricing 19

20 On-Site and Remote Procurement Projects 20

21 On-site and Remote Procurement Projects This BPO Operation usually embeds Procurement Managers at the Client s Locations The focus is on Spend Projects that have significant savings potential but the Client is resource constrained to pursue internally. This service can also operate remotely to engage on larger, ad hoc or one time projects Procurement Managers engage with other functional teams to identify projects and qualify/implement results As Procurement Managers, we draw upon our experiences and those of our colleagues at other locations to develop solutions By being embedded we have access to internal process that often provide significant savings opportunities 21

22 On-site Procurement: Case Study Client Profile A leader in the Disk Drive Industry Multiple global locations, each focused on different parts of the overall manufacturing process Client exists in an extremely competitive market thus is resource constrained. Cost reduction was a key management measurement Company operates a tightly controlled High Tech process, solutions must endure rigorous qualifications 22

23 Procurement Project Case Study Client receives the benefit rom Pt. reclaim >$3M to date 23

24 On-site Procurement Project Results No Supplier Displacements No Disruptions of Process No Qualifications Required Savings of $3 Million to date 24

25 BPO Strategic Sourcing, Tier 1 25

26 Strategic Sourcing Advantages Delivering a fresh global perspective derived from prior global sourcing experience. Often, as an outside entity the outsource (consultative) team is best suited to challenge internal paradigms to migrate the client s sourcing strategy towards improved profitability. Internal Procurement teams are saddled with running the plants challenges whereas the consultative team can focus totally on the strategic task at hand. Outsourced teams are engaged on a task basis, usually a specific commodity, once the results are achieved the engagement ends, no long term staffing burden for the client. 26

27 Strategic Sourcing Client Profile: Case Study Leader in the Truck Component Industry Company was built through acquisition >10 related global companies Engagement was Commodity Specific (Tooled Product) >$50M Annual Spend Regional Sourcing was the paradigm, no global synchronization > 60 Suppliers many with less than $1M in spend 27

28 Strategic Sourcing Process Develop Spend Cube Analyze Incumbent supply base Research Alternate Global Suppliers Visit and evaluate Candidate and Incumbent Suppliers Establish consensus with Operational Team on Supplier down select Construct RFQ, distribute, analyze results and negotiate Develop LTAs and finalize 28

29 Strategic Sourcing Case Study Results Savings based on the most conservative no risk Award Process Savings are inclusive of all Freight, Currency Exchange Rates and Duties Reduction of Supply base from >60 Regional Suppliers to 10 Global Suppliers By following all the process steps Year over Year Savings Realized >20% 29

30 Wrap Up and Questions Tom Connors Compro Vern Warner Perfect Commerce 30

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32 Session #29 The Impact of Effective Tail Spend Strategies across the Corporate Value Chain Tom Connors Compro Vern Warner Perfect Commerce Download the App: bit.ly/sigcaapp Tweet: #SIGfall15

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