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S ix S igma Best Practices for Defining and Managing the Services Spend Category Presented By: H. Lee Muller, C.P.M.

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Presentation on theme: "S ix S igma Best Practices for Defining and Managing the Services Spend Category Presented By: H. Lee Muller, C.P.M."— Presentation transcript:

1 S ix S igma Best Practices for Defining and Managing the Services Spend Category Presented By: H. Lee Muller, C.P.M.

2 S ix S igma OVERVIEW OF LEARNING The Growing importance of Services The Growing importance of Services GDP GDP Employment Picture Employment Picture SG&A SG&A Evaluating your Current Situation Evaluating your Current Situation Services In your Company Services In your Company Collecting Data Collecting Data What to include? / What not to include? What to include? / What not to include? Initial Subcategory Assessments Initial Subcategory Assessments Developing a Strategy for Services Developing a Strategy for Services Services e-Procurement Services e-Procurement Implementing a Strategy for Services Implementing a Strategy for Services Managing and Continuously Improving Services Suppliers Managing and Continuously Improving Services Suppliers

3 S ix S igma Hazer Lee Muller Name: Hazer Lee MullerExperience Georgia-Pacific Corporation (2001 – Present) Director of Services Honeywell (AlliedSignal) (1985 – 2001) Regional Materials Manager, Operations Support Global Sourcing & Transitions Mgr. Various Supplier Quality assignmentsEducation Bachelors Degree in Economics (Montclair State University, NJ) MBA Graduating Spring 2003 (Colorado State University)Certifications Six Sigma Black Belt ASQ-C.Q.A. ISM-C.P.M. RAB Certified ISO9000 auditorBIO

4 S ix S igma Fortune top 10 Companies then and now 1954 1. General Motors 2. Standard Oil (NJ) 3. U.S. Steel 4. GE 5. Swift & Co. 6. Chrysler 7. Armour 8. Gulf Oil 9. Socony-Vacuum Oil 10. DuPont 2001 2. Exxon Mobil 3. General Motors 4. Ford 5. Enron 8. Chevron Texaco 10. Philip Morris 1. Wal-Mart 6. GE 7. CitiGroup 9. IBM Source: http://www.fortune.com/lists/F500/index.html Services companies are growing in Economic importance and Impact

5 S ix S igma GDP $381 Billion GDP $9,872 Billion Source: http://www.bea.gov/ Services as Component of GDP Services have more than Doubled as Component of GDP since 1954

6 S ix S igma Employment in Services Vs Manufacturing 1991 - 2001 Source: http://stats.bls.gov/ 40,907,000 17,695,000 In ten (10) years from 1991 to 2001 jobs in the Services sector increased by In ten (10) years from 1991 to 2001 jobs in the Services sector increased by 12,634,000 (45%) 12,634,000 (45%) The manufacturing sector lost 711,000 (-3.9%) jobs The manufacturing sector lost 711,000 (-3.9%) jobs Services increasingly important economic role reflected in employment Also

7 S ix S igma SG&A / Revenue SG&A / Revenue According to an annual CFO magazine survey, cutting one percent from SG&A will tweak earnings by 2.3 percent on average. In this survey, the average net profit margin for companies is 5.06 percent; so slicing SG&A by one dollar has the same bottom-line effect as boosting sales by thirteen dollars. Source: http://www3.best-in-class.com/

8 S ix S igma SG&A / Revenue Example: SG&A / Revenue Example: One percent in SG&A translates to: 17,197,000,000 x 1% = 171,970,000 One percent in SG&A translates to: 17,197,000,000 x 1% = 171,970,000 171,970,000 / 7,713,000,000 = 2.2% in Net Income 171,970,000 / 7,713,000,000 = 2.2% in Net Income IBM ROS is 9% (7,713,000,000 / 85,866,000,000) IBM ROS is 9% (7,713,000,000 / 85,866,000,000)

9 S ix S igma SG&A / Revenue / Various Industries SG&A / Revenue / Various Industries http://www.cfo.com/printarticle/0,5317,6625,00.html

10 S ix S igma Step I Evaluating your Current Situation Evaluating your Current Situation Step I Evaluating your Current Situation Evaluating your Current Situation

11 S ix S igma Universe of Indirect Materials and Services Subcategories

12 S ix S igma History of purchases (G/L) Unit prices by suppliers (invoice files) Volume purchased by supplier (A/P) Seasonality of purchase (A/P, G/L) Information on current and past suppliers Unit prices Price and pricing bases Supplier characteristics Capacity Quality Location Term of payments Supplier constraints Product specs Potential suppliers Spend Analysis Software Product specs Potential suppliers (name, capabilities, quality) Current supplier (capability, quality, certification) Bill of material structure Possible alternative products Seasonality of end product Sales Dept. requirements to Purchasing Dept. (local, content, advantaged suppliers…) Target sales markets Incoming quality history Volume by site Seasonality of usage Volume history Pricing Service performance Technical specs Sales Dept.Manufacturing DeptSuppliers/Others Accounting DeptPurchasing DeptTechnical/Engineering Dept. Sources of Preliminary Category Information

13 S ix S igma Potential Services subcategories Category Structure Category Structure SG&ASG&A Indirect MaterialsIndirect Materials Operation SupportOperation Support MROMRO ServicesServices Management Level Segmentation Management Level Segmentation Company levelCompany level SBU levelSBU level SBE levelSBE level Site levelSite level Scoped Category Company SBU SBE Site Scoping Services for Your Organization Scoping Services for Your Organization

14 S ix S igma Potential Services subcategories Category Structure Category Structure SG&ASG&A Indirect MaterialsIndirect Materials Operation SupportOperation Support MROMRO ServicesServices Scoped Category Things to Consider when Scoping the Category Structure Things to Consider when Scoping the Category Structure Things to Consider: Things to Consider: Industry Industry Geography Geography Procurement Organization Procurement Organization Structure Structure Functional Organizations structure Functional Organizations structure Resources Resources Skill Sets and Expertise Skill Sets and Expertise Things to Consider: Things to Consider: Industry Industry Geography Geography Procurement Organization Procurement Organization Structure Structure Functional Organizations structure Functional Organizations structure Resources Resources Skill Sets and Expertise Skill Sets and Expertise

15 S ix S igma Management Level Segmentation Management Level Segmentation Company levelCompany level SBU levelSBU level SBE levelSBE level Site levelSite level Scoped Category Company SBU SBE Site Things to Consider: Things to Consider: Opportunity for leverage Opportunity for leverage -Used by all segments -Used in all regions -Size of Spend Geography Geography National Potential National Potential Regional Potential Regional Potential Where does the expertise and experience for the category reside? Where does the expertise and experience for the category reside? How is the subcategory currently sourced? How is the subcategory currently sourced? Things to Consider: Things to Consider: Opportunity for leverage Opportunity for leverage -Used by all segments -Used in all regions -Size of Spend Geography Geography National Potential National Potential Regional Potential Regional Potential Where does the expertise and experience for the category reside? Where does the expertise and experience for the category reside? How is the subcategory currently sourced? How is the subcategory currently sourced? Things to Consider when Segmenting the Category Things to Consider when Segmenting the Category

16 S ix S igma Scoped, Segmented Services Subcategories

17 S ix S igma Company Level Segment Services Subcategories

18 S ix S igma SBU, SBE, or Site Level Segment Services Subcategories

19 S ix S igma Step II Initial Subcategory Assessments Initial Subcategory Assessments Step II Initial Subcategory Assessments Initial Subcategory Assessments

20 S ix S igma Initial Evaluation of Current Situation Gather Initial Supply base Intelligence Assess: Assess: Issues / Barriers Assess: Assess: Opportunities / Risks Current supplier(s) Subcategory spend Functional area ownership Recently sourced? Contract(s) Contract expiration dates Diversity Opportunity? P-card opportunity Subcategory description Initial Subcategory Assessment

21 S ix S igma Subcategory Status: Prime - Addecco Kelly, Olsten, CDI, Manpower Not sourced subcategory includes: 1) Light Industrial, 2) Clerical 3) Professional Contracts expiring Q32003 Diversity Opportunity: First and Second tier P-Card Opportunity: Investigate Initial Subcategory Assessment Summary 4up

22 S ix S igma Initial Evaluation of Current Situation Gather Initial Supply base Intelligence Assess: Assess: Issues / Barriers Assess: Assess: Opportunities / Risks Major suppliers Overall size of the Industry Industry trends Current supplier(s) Subcategory spend Functional area ownership Recently sourced? Contract(s) Contract expiration dates Diversity Opportunity? P-card opportunity Subcategory description Initial Subcategory Assessment

23 S ix S igma Market data Note key: D = Diversity, IN = International, N = National, R = Regional Industry has experienced some consolidation -Adecco / Olsten merger 1999 - Alert forms partnership with Adecco in 1997 - Alert Staffing filed for chapter 11 protection in July 2002 Sluggish economy has impacted this industry $94 billion Industry world-wide 16 providers represent 29% of US Market (~7000 providers in US) Sources: Staffingtoday.net, SI Industry report Major Providers -Manpower (IN) -Addecco SA (IN) - AOC - AJILON -TAD - LEE HECHT - Jonathan Wren - Adecco Technical -CDI (N) -Kelly Services (IN) -Olsten (franchises) (R) -Georgia TEMP (R) -Staff Workers (R) -Alert Staffing (D) -Act I Personnel (D) -Personnel Connect (R) - NEW - SNELL Personnel Subcategory Status: Prime - Addecco Kelly, Olsten, CDI, Manpower Not sourced subcategory includes: 1) Light Industrial, 2) Clerical 3) Professional Contracts expiring Q32003 Diversity Opportunity: First and Second tier P-Card Opportunity: Investigate Initial Subcategory Assessment Summary 4up

24 S ix S igma Initial Evaluation of Current Situation Gather Initial Supply base Intelligence Assess: Assess: Issues / Barriers Assess: Assess: Opportunities / Risks Major suppliers Overall size of the Industry Industry trends Current supplier(s) Subcategory spend Functional area ownership Recently sourced? Contract(s) Contract expiration dates Diversity Opportunity? P-card opportunity Subcategory description Known complexities Known obstacles Regulatory Statutory Political Social Initial Subcategory Assessment

25 S ix S igma Market data Issues / Barriers to Sourcing HR Strategy for Temp labor unclear Internal resource does not currently compete with external suppliers Some pressure to move away from existing agreements with incumbents -- killing credibility within industry Subcategory Status: Prime - Addecco Kelly, Olsten, CDI, Manpower Not sourced subcategory includes: 1) Light Industrial, 2) Clerical 3) Professional Contracts expiring Q32003 Diversity Opportunity: First and Second tier P-Card Opportunity: Investigate Note key: D = Diversity, IN = International, N = National, R = Regional Industry has experienced some consolidation -Adecco / Olsten merger 1999 - Alert forms partnership with Adecco in 1997 - Alert Staffing filed for chapter 11 protection in July 2002 Sluggish economy has impacted this industry $94 billion Industry world-wide 16 providers represent 29% of US Market (~7000 providers in US) Sources: Staffingtoday.net, SI Industry report Major Providers -Manpower (IN) -Addecco SA (IN) - AOC - AJILON -TAD - LEE HECHT - Jonathan Wren - Adecco Technical -CDI (N) -Kelly Services (IN) -Olsten (franchises) (R) -Georgia TEMP (R) -Staff Workers (R) -Alert Staffing (D) -Act I Personnel (D) -Personnel Connect (R) - NEW - SNELL Personnel Initial Subcategory Assessment Summary 4up

26 S ix S igma Initial Evaluation of Current Situation Gather Initial Supply base Intelligence Assess: Assess: Issues / Barriers Assess: Assess: Opportunities / Risks Major suppliers Overall size of the Industry Industry trends Current supplier(s) Subcategory spend Functional area ownership Recently sourced? Contract(s) Contract expiration dates Diversity Opportunity? P-card opportunity Subcategory description Know complexities Know obstacles Regulatory Statutory Political Social Estimate potential benefits Estimate potential Risks Initial Subcategory Assessment

27 S ix S igma Opportunity to reduce cost Low High Risk Med Market data Risk Elements: Potential divergence from overall Temp labor strategy? Opportunity Elements: Not Sourced TCO / Make-buy / BV Large, fragmented spend Develop Sourcing Strategy Validate market pricing Issues / Barriers to Sourcing HR Strategy for Temp labor unclear Internal resource does not currently compete with external suppliers Some pressure to move away from existing agreements with incumbents -- killing credibility within industry Subcategory Status: Prime - Addecco Kelly, Olsten, CDI, Manpower Not sourced subcategory includes: 1) Light Industrial, 2) Clerical 3) Professional Contracts expiring Q32003 Diversity Opportunity: First and Second tier P-Card Opportunity: Investigate Note key: D = Diversity, IN = International, N = National, R = Regional Industry has experienced some consolidation -Adecco / Olsten merger 1999 - Alert forms partnership with Adecco in 1997 - Alert Staffing filed for chapter 11 protection in July 2002 Sluggish economy has impacted this industry $94 billion Industry world-wide 16 providers represent 29% of US Market (~7000 providers in US) Sources: Staffingtoday.net, SI Industry report Major Providers -Manpower (IN) -Addecco SA (IN) - AOC - AJILON -TAD - LEE HECHT - Jonathan Wren - Adecco Technical -CDI (N) -Kelly Services (IN) -Olsten (franchises) (R) -Georgia TEMP (R) -Staff Workers (R) -Alert Staffing (D) -Act I Personnel (D) -Personnel Connect (R) - NEW - SNELL Personnel Initial Subcategory Assessment Summary 4up

28 S ix S igma Step III Developing a Strategy for Services Developing a Strategy for Services Step III Developing a Strategy for Services Developing a Strategy for Services

29 S ix S igma Opportunity to reduce cost Low High Risk Med Benefits Benefits Temp Labor Temp Labor Professional Services Professional Services Wireless Wireless Office Supplies Office Supplies IT Consulting IT Consulting Janitorial Janitorial Opportunities DeskTops DeskTops Rental Cars Rental Cars Insurances Insurances Subscriptions Subscriptions Waste Disposal Waste Disposal Hotels Hotels Office Equipment Office Equipment P-Card P-Card Relocation Service Relocation Service Uniforms Uniforms Small Pkgs Small Pkgs Developing a Strategy for Services Aggregate Risk / Cost Reduction Analysis

30 S ix S igma Developing a Strategy for Services (Cont) Planning and Prioritizing the category Wave 3 Wave 2 Wave 1 Possible Implementation Waves Priority Screening Drop - Business Impact - Potential Savings ($ MM) Wave 1 Wave 2 1. Ease of Implementing Alternate Sourcing Strategy LowHigh M L D J H F P O I B A E C G T S N Q K $1.25 $1.00 $0.75 $0.50 $0.25 Wave 3 Note: (1) Size of circle represents total expenditure for the category

31 S ix S igma Things to think about What is the cultural climate within the organization? What is the cultural climate within the organization? What is the companies value discipline(s)? What is the companies value discipline(s)? -Operational Excellence? - Product leadership? - Customer Intimacy? What are the companys strategic objectives? What are the companys strategic objectives? - Cost control? - Sales growth? - Earning growth? - Diversity? Are there SBU/SBE/Site issues or objectives that should be considered? Are there SBU/SBE/Site issues or objectives that should be considered? - Specific service issues - Specific cost reduction opportunities - Specific opportunities Possible Screening criteria

32 S ix S igma Things to think about: What is the strategic objective of the purchasing organization? What is the strategic objective of the purchasing organization? - Internal process Improvement? - Supplier process Improvement (productivity)? - Strong supplier partnerships? - Commodity trading? - Supplier Alliances? - Strategic Sourcing? What are the resources available to work the strategy? What are the resources available to work the strategy? - Analytic support? - Category management? What is the current economic climate? What is the current economic climate? -Buyers market? - Sellers market? Do unusual opportunities exist in specific categories? Do unusual opportunities exist in specific categories? - Distressed industry - New technology Possible Screening criteria Cont

33 S ix S igma Supply Strategy Decision Tree (Trident)Supply Strategy Decision Tree (Trident) Technically Complex ? High Spend ? Price Volatility ? Market Difficulty ? Strategic Importance ? Savings Potential ? Savings Potential ? Strategic Alliance Close Relationship Partnership Commodity Trading Simple TenderLeverage Relationship Focus Cost Focus High Low Yes No Low Approaches

34 S ix S igma 2002 Services Category Wave Plan Summary:

35 S ix S igma Step IV Implementing the Strategy for Services Implementing the Strategy for Services Step IV Implementing the Strategy for Services Implementing the Strategy for Services

36 S ix S igma AnalyzeCurrentSituation Initial GO 1243 Assess Supply Base Determine Strategic Sourcing Strategies to Apply Strategy GO Engage Suppliers Execution GO 5 DevelopTransitionPlan Determine Strategies Gather Information Implement Strategy 6 Manage Supply Base And the Category Strategy is? Leverage and cost reduction focused? Leverage and cost reduction focused? Leverage and cost control focused? Leverage and cost control focused? Relationship and process Improvement focused? Relationship and process Improvement focused? Diversity focused? Diversity focused? The overall Category Strategy will Set the tone for how you approach the sourcing process

37 S ix S igma Step V Managing and Continuously Improving Managing and Continuously Improving Services Suppliers Step V Managing and Continuously Improving Managing and Continuously Improving Services Suppliers

38 S ix S igma AnalyzeCurrentSituation Initial GO 1243 Assess Supply Base Determine Strategic Sourcing Strategies to Apply Strategy GO Engage Suppliers Execution GO 5 DevelopTransitionPlan Determine Strategies Gather Information Implement Strategy 6 Manage Supply Base Define Appropriate Management Structure Contract Management Issue Resolution Market Dynamics - suppliers position relative to market New Products,services & technology New suppliers Competitor evolution Pricing relative to market Communication Plan Confirm goals Understand issues & current metrics Create metrics Confirm collection methods Set up review procedure Take action based on metrics Communicate results The degree to which these attributes are required is dependent on the category and the supplier Supplier Management Set Goals Review progress Communicate results Structured Process Improvement Relationship ManagementMetrics

39 S ix S igma Low High Opportunity to reduce cost (including delivery of savings) Risk Spec Chem Office Supplies Fleet Insurance Wireless Med Supplier Management Understand risk/opportunity inherent with supplier Understand Risk/Opportunity

40 S ix S igma A similar risk/opportunity matrix to the one developed in understanding the risk/opportunity inherent with the supplier can be used to show the appropriate management structure for supplier management. Define appropriate Management Structure Low High Opportunity to reduce cost (including delivery of savings) Risk to G-P Small Team No Steering Team Cross-functional team Steering Team One person Team not necessary No Steering Team Increasing complexity of process and resources required Supplier Management Relationship Management


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