A CPO s PLAYBOOK TO NAVIGATING INDIRECT

Transcription

1 We explore the frontiers of supply management to inspire the profession to greatness. A CPO s PLAYBOOK TO NAVIGATING INDIRECT ISM Indirect Procurement 2017 Room: Breakers EFKL November 30, 2017 Deborah Stanton, Executive Director, CAPS Research

2 ABOUT CAPS RESEARCH A non-profit research center established in 1986 by our founding partners: We explore the frontiers of supply management to inspire the profession to greatness. Define your starting point through BENCHMARKING Expansive set of SCM topics Current and trending metrics Actionable KPIs Members and non-members are welcome to participate Reveal your destination through RESEARCH Unbiased, academic rigor Thought-provoking, yet practical and relevant Researchers from universities around the world Network to create your transformation through EVENTS Exclusive, member events Very interactive and engaging International events USA, Europe, China Sales-free, consultant-free

3 A JOURNEY THROUGH INDIRECT Tactical Focused on PO processing Sourcing was 3-bids-and-abuy Contract processes primarily manual Activity limited to only certain spend categories Indirect suppliers were not part of our Supplier Programs Reactive engagement with internal partners did what they told us to do! How? Strategic Supply Management Drive efficiency and focus on strategic activity. Engaged in EVERY spend category Develop Category Strategies Put our indirect suppliers into formal Supplier Programs Proactive & high levels of engagement with internal partners Shared dashboards with depts. Move from cost focus to value creation Deliver business solutions

4 SUPPLY MANAGEMENT DESIGN Most Common Supply Management Structures Centralized 43% Centralized Central Reporting: All SM professionals reported through the CPO hierarchy. Center-led Decentralized 9% 48% Not Centrally Located: SM professionals were NOT physically centralized, but rather co-located throughout various departments, i.e. Marketing, HR, IT Source: The Metrics of Supply Management - CAPS Research 2017

5 BUILDING AND DESIGNING THE INDIRECT TEAM INDIRECT Strategic vs. Tactical INDIRECT employees colocated within other departments (% of companies) 56% 44% 46% YES Strategic Tactical

6 BUILDING AND DESIGNING THE INDIRECT TEAM INDIRECT Strategic vs. Tactical Do you have your transactional purchasing activity consolidated into a Purchasing Operations Center? 56% 44% 70% Strategic Tactical

7 TRANSITION FROM TACTICAL TO STRATEGIC A drive to more strategic levels: Transactional POs 3-BIDS & A BUY Next Frontier? BUSINESS INTEGRATION, PREDICTIVE, BIG DATA, ROBOTICS Advanced SUPPLIER PROGRAMS CATEGORY MANAGEMENT Consolidate PO activity to POC Outsource tactical activities to make room for strategic Invest in new roles: relationship managers, value chain, data scientists, tech savvy resourcespredictive and robotics in procurement Improve collaboration - bringing solutions to the business Move into all spend categories

8 DEFINITION OF SPEND Total Spend Sourceable Spend Managed Spend All external purchases Excludes employee salaries Purchases or spend categories that could be sourced by SCM whether they currently are/are not Typical exclusions: gov t taxes, legal fees, charitable donations Purchases or spend categories that are sourced, managed or influenced by SCM by having policies, procedures, commercial agreements or category strategies in place that define the way the purchase is executed or managed. Touched Spend (Annually) Purchases or spend categories that are addressed in the current annual period by SCM, i.e. bid, negotiations, category strategy development

9 EXPANDING OUR INVOLVEMENT AND INFLUENCE Legal Managed Spend Average by Industry Marketing H.R. 84% I.T. Real Estate Energy All Industry Average Logistics Capital Equipment Professional Services Office & Admin Facilities MRO

10 A DISCIPLINED APPROACH TO MANAGED SPEND WHY should Supply Management MANAGE SPEND? Make informed, unbiased business decisions Skilled to get the most value for your company Minimize RISK to your company With Limited Involvement from Supply Management bad things happens! POORLY DEFINED SCOPE 5% 6% 27% 42% 20% SUPPLIER WRITES THEIR OWN SOW 14% 20% 16% 41% 9% DELIVERABLES NOT INCLUDED IN SCOPE 6% 16% 34% 31% 13% AGREE TO PRE-PAIDS 25% 18% 31% 18% 8% IP NOT PROTECTED 30% 35% 19% 11% 5% 1 - Less Frequent 5 - Very Frequent

11 A DISCIPLINED APPROACH TO MANAGED SPEND HOW? Business Partner Engagement Category Management Metrics & Dashboards

12 A DISCIPLINED APPROACH TO MANAGED SPEND HOW? Business Partner Engagement Category Management Metrics & Dashboards

13 A DISCIPLINED APPROACH: CATEGORY MANAGEMENT Category Strategy Playbook or Template 1. Internal Analysis Internal Spend Analysis Spend by business unit, geographical region, by product, etc Current Contracts Compliance, Terms, % Share of Category 2. External Analysis Industry/Category Characteristics Supplier Landscape Risk, Innovation, M&A, Emerging 3. Porters Five Forces; SWOT Analysis 4. Should-cost Models; Value Chain Mapping 5. Business Requirements and Strategy Development 6. Category Action Plan

14 INTERNAL SPEND ANALYSIS MARKETING CATEGORY EXAMPLE Company Marketing Metrics Company Spend by Supplier $765,922 23% $725,150 22% Marketing Spend by Company Business Unit $1,000,000 22% $2,000,000 45% $364,424 11% $418,728 13% $1.98B annual total spend $1.72B through agency 14 Suppliers $443,162 14% Internal Spend Profile Current contracts with xxx, xxx, xxx $538,142 17% $450,000 $375,000 $300,000 $225,000 $150,000 $1,500,000 33% Business Unit A Business Unit B Business Unit C YTD Spend by Top Supplier and BU BU C BU B $75,000 $0 BU A

15 INTERNAL ANALYSIS - SUPPLIER PROFILE FOR CATEGORY Incumbent Marketing Supplier Status Supplier Sub-Category Spend Total Supplier Spend Contract Status Payment Terms Performance Score Supplier 1 $129M $129M Active to 08/17 60 Days 4.2 / 5 Supplier 2 $100M $100M Active to 12/17 90 Days 3.75/5 Supplier 3 $864M $334M Active to 8/18 60 Days 4.7 / 5 Supplier 4 $864M $098M Active to 8/18 60 Days 2.9/5 Supplier 5 $3.97MM $880M Active to 06/19 90 Days 3.5/5 Supplier 6 $3.97MM $676M Active to 06/19 90 Days 4.5/5

16 EXTERNAL ANALYSIS INDUSTRY CHARACTERISTICS Marketing Industry Background Category Description: The marketing industry is complex and has many subcategories of spend. Some of these sub-categories are: creative agency, advertising, media production, sponsorships, trade show, digital, etc. Suppliers can offer a large variety of services as well as niche suppliers that focus on a specialty of these subcategories. Many large global suppliers have many subsidiaries that specialize in certain areas of marketing services. Key Suppliers: The large global suppliers in this space are WPP, Omnicom, Publicis, xxx Long Term Forecast: Xxx New Market Dynamics: Xxx Other: xxx Source: xxx Market Share 8% 7% Industry Breakdown 11% Supplier 1 Supplier 2 Supplier 3 Supplier 4 Supplier 5 Other Supplier Financial Indicators Supplier 1 Supplier 2 Supplier 3 Supplier 4 Supplier 5 Revenue $23.51B $10.48B $20.59B $20.18B $14.96B Gross Profit Margin -7.1% 6.00% % % 84% Return on Equity % 8.30% % % 9.47% Debt to Equity Ratio N/A % 14% 13% Market share based on revenue EBITDA $1.25B $1.58B M $1.70B $696.00M

17 17 EXTERNAL ANALYSIS - KEY SUPPLIERS Profile of WPP WPP at a Glance Top Business Sectors/Units Number of employees over 205,000 (including associates and investments) Number of offices 3, % 31% Number of countries 112 Reported revenues Reported billings 14.4bn (as at December 2016) 55.2bn (as at December 2016) 4% 6% 8% 21% Market capitalization 21.4bn (as at April 2016)

18 18 EXTERNAL ANALYSIS - KEY SUPPLIERS WPP Area of Business Advertising Global, national and specialist advertising services from a range of top international and specialist agencies, amongst them Bates CHI&Partners, Grey, JWT, Ogilvy & Mather and Y&R. Media Investment Management Above- and below-the-line media planning and buying and specialist sponsorship and branded entertainment services from GroupM companies MediaCom, MEC, Mindshare, Maxus, plus tenthavenue and others. Data Investment Management (formerly known as Consumer Insight) WPP's Kantar companies, including TNS, Millward Brown, Kantar Futures and many other specialists in brand, consumer, media and marketplace insight, work with clients to generate and apply great insights. Public Relations & Public Affairs Corporate, consumer, financial and brand-building services from PR and lobbying firms Burson-Marsteller, Cohn & Wolfe, H+K Strategies, Ogilvy Public Relations, Finsbury and others. Branding & Identity Consumer, corporate and employee branding and design services, covering identity, packaging, literature, events, training and architecture from Addison Group, Brand Union, FITCH, Lambie-Nairn, Landor Associates, The Partners and others. Direct, Digital, Promotion & Relationship Marketing The full range of general and specialist customer, channel, direct, field, retail, promotional and point-of-sale services from AKQA, Geometry Global, OgilvyOne Worldwide, RTC, VML, Wunderman and others.

19 19 EXTERNAL ANALYSIS - KEY SUPPLIERS WPP Locations Risk Assessment

20 20 PORTERS FIVE FORCES ANALYSIS Threat of Entry Threat of Rivalry Threat of Buyers Threat of Suppliers Threat of Substitutes Low Neutral High Low Neutral High Low Neutral High Low Neutral High Low Neutral High Definition Economies of Scale Product Differentiation Cost Advantages Independent of Scale: a. Proprietary technology b. Know-How c. Favorable Access to Resources d. Favorable Geographic Locations e. Learning Curve Cost Advantages Contrived Deterrence Definition Large number of competing firms Competing firms are the same size and have similar influence Slow industry growth Lack of product differentiation Product capacity added in large increments Definition Number of buyers is small Products sold to buyers are undifferentiated and standard Products sold to buyers are a significant portion of a buyer s final costs Buyers are not earning significant economic profits Buyers threaten backward vertical integration (buyer can enter your market) Definition Suppliers industry is dominated by a small number of firms Suppliers sell unique or highly differentiated products Suppliers are not threatened by substitutes Suppliers threaten vertical integration Firms are not important customers for suppliers Definition Substitute products meet the same customer need but in different ways Substitutes place a ceiling on the prices that firms can charge Government Policy Analysis xxx Analysis xxx Analysis xxx Analysis xxx Analysis xxx

21 CATEGORY STRATEGY Strategy Strategy involves maintaining cost effective providers and leveraging the company s buying power. xxx xxx Category Goals & Plans Plan Items Comments Savings $744M $283M YTD June 2017 $600M Renegotiate contract with supplier 1 Competitively bid xxxx Key Strategy Elements Renegotiate current agency for sponsorship Competitively bid xxxx Unbundle creative agency from other services that historically have been done by the large agencies.. Move to a global supplier for xxx Implement a structured performance management system Implement standard Terms and Conditions Total Suppliers (under negotiated contracts) Payment Terms Perf Mgmt Adoption Agency 8 Media 10 Spons 4 Agency 6 Media 5 Spons 3 Agency 4 Media 3 Spons 3 Reduce number of suppliers for agency, media, and sponsorship days 60 days 90 days Move all pay terms to company standard 25% suppliers in program 50% 100% Implement performance management for top tier suppliers

22 A DISCIPLINED APPROACH TO MANAGED SPEND Business Partner Engagement Category Management Metrics & Dashboards

23 LEVEL OF BUSINESS PARTNER ENGAGEMENT What is your level of business partner engagement? Tactical Transitional Strategic 15% 62% 23% Mostly transactional support to business. Reactive to business partner needs. Business partners make decisions and tell Supply Management what to do. Growing engagement and more proactive with business partners. Strategic conversations begin with business partners. Business partners review category strategies. High level of collaboration with business partners. Supply Management proactively bring solutions to solve business challenges. Align Supply Management objectives to business strategies shared dashboards.

24 STEPS TO BUSINESS PARTNER ENGAGEMENT Business Partner Engagement CONDUCT CATEGORY REVIEWS WITH BUSINESS PARTNERS? CATEGORY STRATEGY SIGN- OFF BY BUSINESS PARTNER? 27% 51% 49% Yes 73% Yes Yes No Yes No 2017 CAPS Research Business Engagement

25 STEPS TO BUSINESS PARTNER ENGAGEMENT INVOLVED IN THE BUSINESS PARTNER BUDGET PROCESS? SHARED SCORECARD WITH BUSINESS PARTNER? 57% 43% Yes Yes Yes No No 52% 48% Yes Educate, educate, educate! Bring your unique perspective. Be a storyteller, but keep it simple.

26 A DISCIPLINED APPROACH TO MANAGED SPEND Business Partner Engagement Category Management Metrics & Dashboards

27 DELIVERING VALUE COST SAVINGS TOTAL COST SAVINGS - AS A % OF MANAGED SPEND 6.5% 5.1% 5.6% 9.7% All Companies Manuf Process Services Reduction Avoidance COST SAVINGS Definitions Cost Reduction: Yearover-year savings based on previous price. Range: <1-30% Cost Avoidance: Negotiated reduction (when no previous price exists) from initial quote, qualified bids, or other valid price baseline Range: <1-8%. Source: The Metrics of Supply Management 2017 CAPS Research

28 DELIVERING VALUE NEW MEASURES TO DEFINE VALUE 97% Measure COST REDUCTION (for Indirect Spend) New Metrics to Show Value (% of Companies with the Defined Metric) CONTRIBUTION TO INCREASED MARGIN 25% 60% RISK MITIGATION 55% 47% 82% Measure COST AVOIDANCE TOTAL COST OF OWNERSHIP CONTRIBUTION TO REVENUE 50% 36% 40% 46% INNOVATION 19% 26% INDIRECT ALL SPEND

29 DELIVERING VALUE IMPACT TO BUDGET Show me the money Cost Reduction Year-over-Year Previous Price $150,000 Current Price $120,000 Cost Reduction $30,000 Budget Impact Scenario 12 Budget $160,000 $120,000 Current Price $120,000 Budget Impact $40,000 $ 0 Enable re-investment or savings to the bottom line

30 DELIVERING VALUE SUPPLY MANAGEMENT ROI ROI = Cost Savings (Reduction + Avoidance) SM Operating Expense Return $7.23 $8.38 $8.92 $3.04 SM Operating Expense $1.00 $1.00 $1.00 $1.00 All Discrete Process Services Companies Mfg Source: The Metrics of Supply Management CAPS Research

31 DELIVERING VALUE SUPPLY MANAGEMENT ROI BY INDUSTRY ROI by INDUSTRY 7.2X 8.9X 11.0X 2.3X 2.9X Aero & Def Industrial Mfg Petroleum Financial Serv Utilities Source: The Metrics of Supply Management CAPS Research

32 THANK YOU Q&A