CIPS: Procurement benefits, partnering and returns ROSMA - Procurement measured on its return Geneva, 24 November 2014
Agenda Your A.T. Kearney team today What is ROSMA? Why is ROSMA needed? Path forward: Procurement performance as brand A.T. Kearney xx/00000/unique Identifier 2
Your guests from A.T. Kearney today Thank you for the invitation DDr. Michael F. Strohmer Partner Areas of expertise Strategic Sourcing for global clients Procurement transformation & Change Management programs for large corporations Head of Supply Management Practice in Switzerland, Austria and Germany (DACH region) Michael is an expert on raw material strategies, procurement transformation, post-merger management, and large scale CAPEX projects. He has published several books (including The Purchasing Chessboard, The CPO, TrueSRM) and articles and he is a frequent speaker at international conferences. Axel Erhard Partner Areas of expertise Large-scale procurement transformation Strategic Sourcing of indirect & direct categories Trainer at A.T. Kearney Sourcing Academy Axel is an expert in large scale cost transformations, pre-merger planning / post-merger integration and supply chain optimization initiatives in the consumer goods and pharma industry. He has extensive international experience in the US, Europe and Asia working with multinational companies on M&A transactions and transformation programs. Expert Strategic Operations & Procurement Europe Expert Consumer Goods & Procurement Europe Source: A.T. Kearney A.T. Kearney xx/00000/unique Identifier 3
Agenda Your A.T. Kearney team today What is ROSMA? Why is ROSMA needed? Path forward: Procurement performance as brand A.T. Kearney xx/00000/unique Identifier 4
Let s start with result first: What is usually keeping the CPO awake at night? Do I achieve my savings as forecasted last year? How can I see that I have the right resources and talents in my organization? Are my category leads following our negotiated contracts and prices? Is my spend fully managed by my organization? How can I speak the same language as my CFO colleague? How do I measure the procurement performance in the best way? Source: A.T. Kearney A.T. Kearney xx/00000/unique Identifier 5
ROSMA SM links procurement performance and financial impact in value management terms What is ROSMA SM? ROSMA SM Financial results delivered Invested supply management assets A Classic Financial Ratio ROSMA SM is a framework to support leadership performance management efficiency metric, steering mechanism, talent enabler and more A.T. Kearney xx/00000/unique Identifier 6
ROSMA SM is the ROI of your procurement team delivering financial value to your organization Return on Supply Management Assets (ROSMA SM ) ROSMA SM 7 Main Drivers Financial results delivered Invested supply management assets Spend coverage x Category Compli- Velocity x Additional Period yields x ance + benefits costs + Structural investments Do we cover all spend? Can we source more frequently Can we save more? Do we capture all potential? Can we impact the full value agenda (e.g. innovation, working capital)? What running costs do we have? Do we have the right enablers? Questions that keep the CPO awake at night Source: A.T. Kearney A.T. Kearney xx/00000/unique Identifier 7
ROSMA SM Performance Check is the output of our commitment to help the profession establish a common language Embeds value management into the language and behaviors of procurement to enable improved alignment and support/respect in C-suite Helps with the credibility gap between finance and procurement through a framework/metric that resonates with the financial community Can be used to annually benchmark against global market and industry peers "The ROSMA Performance Check offers our professionals another component in their toolkit and provides a robust demonstration of their function's financial value. -- David Noble, CIPS group CEO A.T. Kearney xx/00000/unique Identifier 8
ISM, CIPS and A.T. Kearney formed an alliance to increase the recognition of supply management as key driver for value Visibility of the profession s value worldwide was a critical first step: Help it engage the CFO/Finance community regarding value Establish a common productivity and financial performance standards/ metrics similar to those other functions have used to demonstrate value A.T. Kearney xx/00000/unique Identifier 9
Now, let s talk about the 2014 results of ROSMA SM : how are the procurement champions doing? ROSMA SM score from 2014 surveys b Bottom 25% 0.8 Top 25% 11.4 ROSMA SM Financial Results Delivered Invested Supply Management Assets Spend Coverage Velocity Category Yields Compliance Additional Benefits Period Costs Structural Investment Top Quartile Performer on ROSMA 70.4% 74.2% 8.0% 93.4% 34.8% 0.4% of spend is influenced of influenced spend is addressed in year % Savings % Compliance as a % of Total Savings 2 Procurement cost as a % of Total Spend 3 % Difference Between Top and Bottom Quartile Performers 9.3% 20.7% 63.3% 18.2% 100.0% -66.4% 1. a % of total spend Better in Breed was developed from the 75% percentile value on each of the financial results drivers and only average on procurement cost as 2. Additional Benefits shows the additional hard benefits as a percentage of total savings for those participants that submitted additional benefits; 3. Amortized costs not collected in AEP 2014 Source: A.T. Kearney AEP 2014 and ROSMA Performance Check 2014 Kearney xx/00000/unique Identifier A.T. 10
The ROSMA SM participants represent a broad mix of geographies and industries 2014 ROSMA SM Participants by Region This report is distilled from more than 400 completed, qualified, and accepted cumulative benchmarks along with more than 170 submissions focused on 2013 results 1 Data comes from a combined dataset of ROSMA SM participants and AEP participants who provided financial data Source: A.T. Kearney A.T. Kearney xx/00000/unique Identifier 11
Retail, Telcos and financial institutions are in the leading group - but the variations are wide and everyone can improve ROSMA SM Average and StdDev by Industry (Selection) All Others -σ 0.4 4.4 +σ 8.3 Avg. ROSMA SM +/- 1 StdDev Food, Beverage, and Nutrition Chemical, Oil, and Gas 0.7 5.3 9.9 1.9 6.1 10.3 Industry 1 Financial Institutions/Banking Telecommunication Services Pharmaceuticals 2.0 8.1 14.2 1.7 8.3 15.0 0.8 4.5 8.3 Where do you position your own company? Automotive Building Materials Retail -0.2 5.4 11.0-0.5 3.7 8.0 3.1 10.1 17.0-1 4 9 14 19 1. Industries with 10 or more data points; Most current responses used for all companies Source: A.T. Kearney ROSMA SM Benchmarks Database 2011-2014 A.T. Kearney xx/00000/unique Identifier 12
Agenda Your A.T. Kearney team today What is ROSMA? Why is ROSMA needed? Path forward: Procurement performance as brand A.T. Kearney xx/00000/unique Identifier 13
Growing inequality in procurement performance since 2011 The bottom 75% didn t improve and the bottom quartile remains dilutive For most, influence has dropped off There is a great hunger to measure procurement performance A.T. Kearney xx/00000/unique Identifier 14
Companies are increasingly recognizing the need to measure Procurement performance Procurement Metrics and KPIs Aligned, Tracked, and Transparent Internally (% Companies selecting Fully ) Procurement Metrics and KPIs Tracked and Transparent with Other Stakeholders (% Companies selecting Fully ) 62% 42% 42% 27% 2011 2014 Transparency and credibility form the basis for stronger alignment between Procurement and stakeholders A.T. Kearney xx/00000/unique Identifier 15
Top Performers are defining performance KPIs and ensuring that their teams are efficient and effective Procurement Organization Characteristics and Performance Management (% Companies Selecting Fully Applies to our organization ) Top Quartile Bottom Quartile 76% 64% 40% All proc. managers (responsible for spend, suppliers, etc.) have defined targets and are measured on an ongoing basis Procurement staff are measure on the performance KPIs & individual compensation is linked to performance Measured performance on defined KPIs is translated into resource development plans 52% 41% 11%. Source: 2014 AEP, A.T. Kearney A.T. Kearney xx/00000/unique Identifier 16
Therefore, ROSMA SM can be used to set priorities, explore gaps and steer in the right direction Management tool illustration See more Cover more Influence more Financial Results Delivered ROSMA SM Upskill Automate High performing teams Invested Supply Management Assets Spend Coverage Total Spend Visibility Spend Governance Optimize frequency Collaborate through SRM Source: A.T. Kearney Velocity Executed Sourcing Events Sourcing Strategies Advanced Conventional Category Profile More impact New lever combinations Category Yields Sourcing Initiative Yields Benefit Stream Forecast Compliance Extended TCO benefits Value-in not only cost out Policy Visibility Enforcement Benefit Stream Realized Additional Benefits Balance of Trade & Barter Deferred Revenue Negotiated Value From Prior Periods Working Capital Improvement in Inventory in DPO e(pv) From SM Enabled Innovation Supplier Performance & Exchange Amortized Onetime Costs LESS Losses Due Supplier Performance Issues Period Costs People Costs Roles FTEs Rates External Support Costs Other Structural Investment Process Technology Infrastructure Capabilities Recruiting Training Knowledge Management Focus on strategic impact Increase resource leverage A.T. Kearney xx/00000/unique Identifier 17
Agenda Your A.T. Kearney team today What is ROSMA? Why is ROSMA needed? Path forward: Procurement performance as brand A.T. Kearney xx/00000/unique Identifier 18
There is a difference in the brand building stories of Top and Bottom Performers Top Performers Strong brand Better financial results Better processes and practices Bottom Performers Weak brand Weaker financial results Less consistent and less productive processes and practices A.T. Kearney xx/00000/unique Identifier 19
Top performers have better processes and practices, and they are more consistently applied Partner with business to accelerate value creation Are far more transparent and are actively optimizing their procurement productivity Are specifying objectives, establishing hard number financial goals, and measuring progress More actively manage their compliance which helps them realize more of their identified benefits Work on plans that bring in other additional benefits Define performance KPIs and ensure that their teams are efficient and effective A.T. Kearney xx/00000/unique Identifier 20
Building the brand is critical for the profession, our procurement people and career success Pathway to credibility, reinvestment and recognition Embrace value management processes, practices and the language Engage with financial community to enroll them into the procurement value management narrative.speaking the same language Rack up wins, manage for consistency, show steady improvements across the value drivers Coach and celebrate a winning/best athlete team Without credibility, reinvestment and recognition, there is no compelling career path story for acquiring, developing, retaining and advancing great talent A.T. Kearney xx/00000/unique Identifier 21
Thank you for your attention! A.T. Kearney xx/00000/unique Identifier 22