1. All Rights Reserved - Sarmento Silva, C.P.M. Development of Channel Partners “Critical Supplier Issues- Moving Toward Enterprise Spend Management” 2004 Northeast Supply Chain Conference September 21, 2004

2. Supply Chain People, Process & Technology “What’s Missing” Purchasing Professionals Suppliers Strategic Commodities Sourcing the Best Suppliers Building Relationships Understanding Contracting Transition through Enterprise Spend Management (ESM)

3. STRATEGIC COMMODITIES Conduct spend diagnostic Validate Commodities Drive opportunity capture initiatives –Perform high-level spend analysis –Identify strategic sourcing opportunity areas –Define scope of each initiative –Lay out preliminary cost savings ideas –Estimate savings potential –Generate, validate and prioritize potential cost savings ideas –Develop implementation plan around agreed upon ideas and syndicate with relevant stakeholders –Develop Strategic Sourcing Initiatives –Develop tracking and reporting mechanisms –Build hard savings estimates into budgets

4. STRATEGIC COMMODITIES High Low Potential savings* EasyHard Ease of capture** CSOs Line Equipment Consulting Consumer advertising Professional promotions Investigator payments CROs Travel Meetings Computer hardware Electric Fleet Maintenance and repair Legal services HR Freight Contractors Special media Journal ads Sample Commodity Charting MRO Direct Materials

5. Purchasing Professionals Suppliers Strategic Commodities Sourcing the Best Suppliers Building Relationships Understanding Contracting Transition through Enterprise Spend Management (ESM) Supply Chain People, Process & Technology “What’s Missing”

6. STRATEGIC SOURCING INITIATIVES Create a Strategic Sourcing Team within the Purchasing Organization to facilitate and lead Utilize cross functional teams to create “Buy In” Approve additional Purchasing staff to maintain organization’s ability to maintain infrastructure support while working to drive other on-going cost savings efforts Allow budget dollars for team initiative needs such as contractors, market consultants, temp labor, etc. ORGANIZATIONAL DESIGN

7. STRATEGIC SOURCING INITIATIVES Maintain manageable number of high impact teams at any one time Allow time for initiative planning Drive identified opportunities Continue to drive other on-going efforts around smaller opportunities in parallel to major initiatives Focus on identifying and capturing quick hits first Provide periodic status reports to executive management PROCESS PRINCIPLES

8. STRATEGIC SOURCING INITIATIVES SAMPLE WORKPLAN Phase 1 Define analysis/scope Establish team Conduct initial analysis Develop cost saving action plans Develop cost tracking/ reporting system Phase 2Phase 3Phase 4Phase 5 Define specific categories (segments) for analysis (within defined scope) Define basic team structure, objectives and responsibilities Identify specific team members Identify and secure potential additional resources Generate potential cost saving ideas Establish baseline spend and savings targets Identify initial data requirements and collect initial data Substantiate cost saving ideas and savings estimates Prioritize ideas Gather additional data to resolve issues Develop implementation plans around agreed upon ideas as well as contingency plans Develop procedure for measuring actual savings vs. baseline over time Establish formal system to report actual savings vs. target 6–8 weeks

9. STRATEGIC SOURCING INITIATIVES GUIDING PRINCIPALS Objectives Identify and realize significant savings for individual spend category Train broad cross-section of internal customers in best- practice purchasing methodology Milestones6-8 weeks per team for cost savings idea identification Several weeks/months thereafter for implementation and realization Approach Teams facilitated by full time experienced staff from purchasing organization Resources Typically 4 - 6 part time members per category team (coaches, internal customers, finance) Role of teams Generate, analyze, and commit to cost savings opportunities Role of internal customers Identify team members for each initiative Provide access to data, opportunity identification, and sequence

10. STRATEGIC SOURCING INITIATIVES Sufficient participation and buy-in from internal customers Senior management support to promote idea generation, drive implementation, and capture budget savings Appropriate timing and sequencing of initiatives to reinforce sense of urgency Early syndication of strategic sourcing team mandate Savings not at the expense of quality of service “Outside the box” idea generation Emphasis on achieving compliance KEYS TO SUCCESS

11. Purchasing Professionals Suppliers Strategic Commodities Sourcing the Best Suppliers Building Relationships Understanding Contracting Transition through Enterprise Spend Management (ESM) Supply Chain People, Process & Technology “What’s Missing”

12. Building Relations Building a strong relationship with critical suppliers is the greatest challenge for Supply Chain professionals. Suppliers need to be handled with the same “care and feeding” you give to customers …

13. Building Relations … but suppliers need to understand that the Pharmaceutical Industry has changed and that today we all face ‘shark infested waters.’

14. Building Relations Because suppliers faces similar challenges in technology and process changes, Supply Chain staff should help suppliers understand the benefits and impacts of being the “Best of the Best” through... Aligned Objectives Teamwork

15. Building Relations Pharmaceuticals faces the challenge of slowing “top line” sales. … to focus on controlling the bottom line. In the past top line sales drove revenue and profit but now these market pressures has driven the industry… Revenue Spend Profit

16. Building Relations Benefits for Suppliers: Increased sales and establishment of strategic relationship due to leveraged volume spending Improved customer satisfaction due to improved product and process visibility Improved market share within customer’s organization due to reduction in maverick spending Process efficiencies through use of electronic transactions WIIFM Supply Chain Professionals must focus suppliers attentions on the Benefits of working together.

17. Building Relations The bottom line is that suppliers want to perform beyond our expectations because they understand the benefits of working to become a valued partner in our individual supply chains.

18. Purchasing Professionals Suppliers Strategic Commodities Sourcing the Best Suppliers Building Relationships Understanding Contracting Transition through Enterprise Spend Management (ESM) Supply Chain People, Process & Technology “What’s Missing”

19. Understanding Contracts Teamwork A critical piece of the puzzle is building the contracts that organize, define and and clarify how we will do business with our suppliers.

20. Understanding Contracts Good contracts are more than words on a piece of paper … …more than drawings, diagrams, and legal terms … … more than prices or signatures. Contracts define the working relationship between us and our suppliers. They should also define the relationship of our suppliers with their suppliers. … and so on. True Supply Chain

21. Understanding Contracts Good contracts mean all parts … … going in the same direction Specifications Terms and conditions Pricing Logistics and Inventory Master Agreements Statements of Work Outline Agreements Intellectual Property Deliverables Service Levels Warranties and Guaranties Remediation or Termination StrategicTacticalTransactional

22. Understanding Contracts Cross Functional Review A critical component of contracting is thorough cross functional review especially utilizing: Finance Legal Safety, Health & Environment Quality Management Engineering Manufacturing Information Services

23. Understanding Contracts Good contracting saves time … … and time is money

24. Strategic Commodities Sourcing the Best Suppliers Building Relationships Understanding Contracting Transition through Enterprise Spend Management (ESM) Purchasing Professionals Suppliers Supply Chain People, Process & Technology “What’s Missing”

25. “Enterprise Spend Management” Business Challenges “Spend data is too time consuming to compile, and often there isn’t enough data or available data is not accurate.” “The sourcing process takes too long to complete…I am swamped with paper forms and spreadsheets, and analyzing vendor responses is like comparing apples to oranges.” “Everyone does his/her own purchasing… no one knows we have preferred suppliers and negotiated contracts.” “The requisition transaction is complicated and not everyone has access to the ERP system.” “Invoices are sent to the requesters who keep them for weeks, even months. Our suppliers are upset that they are not getting paid on time and the AP department has no visibility to the outstanding payables.”

26. “Enterprise Spend Management” Aligned Strategy Strategic Supplier Partnerships Global Leverage Business Strategy Development Optimized Organization Continuous Learning Cross-Functional Involvement Global Organization Coordinated Processes Strategic Sourcing Process Process Efficiency Supplier Process Linkage Enabling Technology ERP Leverage Efficient Data Exchange Data Collection and Analysis Measured Results Balanced Scorecard Total Cost of Ownership Measurement Transaction Volume Metrics Aligned Strategy Measure d Results Enabling Technology Optimized Organization Coordinated Processes

27. “Enterprise Spend Management” The objective of spend management is to focus on spend for sustainable savings: “Spend-centric" focus — systematically aligning the organization's mission, resources, and processes around effectively managing spend Implement closed-loop management processes that deliver continuous feedback by capturing spend data and supporting best practice spend management strategies Enable companies to constantly measure and improve their results — so they can find the savings, get the savings, and keep the savings on an ongoing basis Spend Management Solutions include: Data Warehousing & Analysis Solution Electronic Sourcing Solution Electronic Procurement Solutions including: eBuying, eContracts, and eInvoicing platforms

28. “Enterprise Spend Management” A Key Priority Pharmaceutical organizations must recognize the opportunity to drive business value and process efficiencies in its procurement operations. Commit to achieve expense reduction goals in delivering value through spend management. Spend management becomes a key priority. Drive initiatives with targeted benefits. Develop projects to drive value through spend management processes, tools and techniques.

29. “Enterprise Spend Management” Traditional Purchasing: Time intensive, paper based transactions Transaction processing, tactical focus Limited time & focus on supplier management Limited competitive landscape Lack of visibility to negotiated contracts and preferred suppliers Maverick spending Lack of spend data, limited spend analysis Spend Management: Electronic transactions, intuitive user interfaces Reduced purchasing intervention Reduced cycle time in sourcing activities Increased time and focus on spend and supplier management Full visibility to contracts and preferred suppliers Reduction of maverick spending Improved spend data capture and reporting capabilities Improved spend leverage Improved process effectiveness Increased purchasing savings

30. “Enterprise Spend Management” To be successful in spend management, an organization must recognize the change impacts to various groups of stakeholders. Two groups of stakeholders that will experience significant changes in the area of spend management are suppliers and purchasing professionals. Lessons Learned Potential Impacts to Suppliers:  Technical requirements to participate and support new technology  Adoption of new processes to support new technology  Training of personnel to perform new roles and responsibilities  Less competitive, non-strategic suppliers may not retain/gain business with existing customers Benefits for Suppliers: Increased sales and establishment of strategic relationship due to leveraged volume spending Improved customer satisfaction due to improved product and process visibility Improved market share within customer’s organization due to reduction in maverick spending Process efficiencies through use of electronic transactions

31. New Technology Training on the use of new technology enablers Technical support to ensure uptake Monitor usage and performance to ensure successful implementation New Processes Early and active involvement in design of to-be processes Communication and training of process changes Establishment of supportive policies New Roles & Responsibilities Clear role and responsibility definition Communication and training of new activities and tasks Supportive structure to ensure smooth transition New Technology Training on the use of new technology enablers Technical support to ensure uptake Monitor usage and performance to ensure successful implementation New Processes Early and active involvement in design of to-be processes Communication and training of process changes Establishment of supportive policies New Roles & Responsibilities Clear role and responsibility definition Communication and training of new activities and tasks Supportive structure to ensure smooth transition Purchasing professionals face a number of challenges to achieving spend management capabilities. “Enterprise Spend Management”

32. Enterprise Spend Management creates greater business visibility and speeds reaction time by creating a centralized data model and rapid enablement of best practices across a corporation.

33. “Enterprise Spend Management” For the next generation of Supply Chain excellence, ‘Managing Spend’ is not optional; deciding how intelligently you will do it is the only issue at hand. Executives must create a culture of fiscal discipline and back that up with an enterprise spending management system that enables every employee to participate in keeping their own companies competitive. Do this and you create a legacy of increasing value in the long term while providing solid and impressive results in the short term.

34. Sarmento Silva, C.P.M., is a 25-year career Purchasing Professional, currently serving AstraZeneca Pharmaceuticals as Director, Purchasing System Development and Re-engineering on assignment as Leader for their current mySAP ERP and Ariba Buyer implementation project. AstraZeneca is a Global leader in the Pharmaceuticals industry whose 2002 sales totaled more than $8 Billion in the US. Prior to coming to AstraZeneca, Mr. Silva was Global Manager of Packaging and Printing for Rubbermaid© Corporation. He is a Life Certified Purchasing Manager carrying the certification since 1984. He has been an active member of the Institute for Supply Management (formerly NAPM) since 1980 and has served at every level of the organization including National Vice Chairman for Membership Activities. He currently serves on the Editorial Review Board for “Inside Supply Management” ISM’s signature Magazine. He has a BA in Communications and a MBA in Marketing. In 1993 he was awarded the Distinguished Service Award from the Western New England Purchasing Management Association, Massachusetts House and Senate and received a citation from the Governor’s office for statewide excellence. About our Speaker