1. Proc Cost 1© The Delos Partnership 2005 Procurement Masterclass Cost, Cash and Spend Management

2. Proc Cost 2© The Delos Partnership 2005 Cost & Cash Spend Management 2 Cost, Cash & Spend – Management & Control

3. Proc Cost 3© The Delos Partnership 2005 Workbook Introduction

4. Proc Cost 4© The Delos Partnership 2005 Cost, Cash & Spend Management 1.Cost Leadership 2.Creating a Total Value Plan 3.Getting Organized

5. Proc Cost 5© The Delos Partnership 2005 Cost Leadership Assumption Low cost producer strategy normally entails : Non Core competency outsourcing Efficient capacity P&L spending control and Balance sheet optimisation State of the art equipment Global Sourcing Cost minimalisation Transaction efficiency

6. Proc Cost 6© The Delos Partnership 2005 Cost Leadership Assumption Procurement is therefore normally focussed on supply side cost improvement strategies which will allow companies to move towards a lower cost producer status and deliver the cost improvement goals.

7. Proc Cost 7© The Delos Partnership 2005 Marketplace Reality Upstream cost increases cannot be influenced (straight cost pass on) Customer resistance to your justified price increases refused Risk of being the "meat in the sandwich" - powerful upstream suppliers & downstream customers Pure cost cutting has damaging effects on business & people A better approach is to engage Suppliers and generate business wide value gains through streamlining the supply chain and improving Total Value

8. Proc Cost 8© The Delos Partnership 2005 It is essential to engage the commitment from your suppliers to your company and value improvement projects and have suppliers correctly positioned... Supplier Partnerships are Critical Its a great that we are working together on this project which means we can go faster and at much less cost

9. Proc Cost 9© The Delos Partnership 2005 Cost and Cash Management Creating a Total Value Plan

10. Proc Cost 10© The Delos Partnership 2005 The Delos Model For Business Integration Innovation Innovation Vision Strategy Prioritisation Prioritisation Demand Support Supply Total Value Plan

11. Proc Cost 11© The Delos Partnership 2005 Total Value Procurement Goal “Increase total value by a minimum of 10% in the first year and 20% over the next 3 years by safeguarding S.H.E. and simultaneously improving Quality, Delivery and Service, Cost & Cash and driving Innovation across the six procurement dimensions”.

12. Proc Cost 12© The Delos Partnership 2005 Total Value Leadership Demonstration that all costs are influencable Accurate forward demand forecasts Negotiation power and no fear factor Cross functional teams Project Focus & Measurement System Spending & authority restrictions and control

13. Proc Cost 13© The Delos Partnership 2005 Total Value Tools Supplier Funding & Supplier Cash Flow TOWC Reduction Direct Flow – Inventory, Waste & Space Reduction Process Improvements Simplification and Standardisation

14. Proc Cost 14© The Delos Partnership 2005 Total Value Tools Appropriate Quality and User Requirement Specification RFTQ 100% OTIF Product Re-engineering Supply Demand vigilance & Market knowledge sharing Alternative technology

15. Proc Cost 15© The Delos Partnership 2005 Cost Improvement Examples Current xxx Cost (£000's) Forecast Cost Improvement £000's s 6 months Immediate Focus Full Year xxx 1. Increase leverage across the complete cost & spend map Add Data Agree what are short and longer term priorities (Focus) and agree goals 2. Introduce an immediate price freeze Add Data Agree what are short and longer term priorities (Focus) and agree goals 3. Achieve Direct and Non-Direct supplier price improvement Add Data Agree what are short and longer term priorities (Focus) and agree goals 4. Achieve Direct Materials cost improvement Add Data Agree what are short and longer term priorities (Focus) and agree goals 5. Use E Procurement Add Data Agree what are short and longer term priorities (Focus) and agree goals 6. Introduce / Reinforce Company Policies (Procurement Policy, Authorisation Policy, Travel, Expenses, Company Card, Fuel Policy, Overtime Policy) Add Data Agree what are short and longer term priorities (Focus) and agree goals 7. Use Consortium Buying Add Data Agree what are short and longer term priorities (Focus) and agree goals Set Improvement Goals

16. Proc Cost 16© The Delos Partnership 2005 Summary - Cost & Cash Improvement Cost & Cash Improvement Category Six Months Medium term Direct Materials - Cost & Value Improvement (Top 20) Direct Materials – Cost & Value Improvement (B&C items) Indirect Costs – Cost & Value Improvement All Costs Improvement - Avoidance & Soft Costs (A, B & C) Quality – Non Compliance Cost Improvement Balance Sheet – Cash and RONA Improvement Process, Workflow & Structure – Cost Improvement TOTAL

17. Proc Cost 17© The Delos Partnership 2005 Use Six Sigma DMAIC Stages Define, Measure, Analyse, Improve, Control Create Cost Improvement Projects

18. Proc Cost 18© The Delos Partnership 2005 Problems Opportunities Risks & Concerns  Customer Assessment Education Tools Benchmarking  Assessment & Definition of Total Value Improvement targets  Supplier Agreed Value + Projects  Sponsor  Assessment, Education, Projects and Timescales  Defined Value goals  Selection of Tools  Deliverables & Measurement system Team in place and projects underway Total Value Project Approach Procurement

19. Proc Cost 19© The Delos Partnership 2005 Cost, Cash and Spend Management Get Organised

20. Proc Cost 20© The Delos Partnership 2005 Ideal Procurement Structure Covers the complete Customer and Cost, Cash & Spend Map. Has clear responsibilities for Customers and Category Management Has clear responsibilities for Suppliers and Supplier Management Has support resources (R2P Process, Sourcing, Research etc)

21. Proc Cost 21© The Delos Partnership 2005 Ideal Procurement Structure Has education & development to promote the "Culture of Procurement Leadership“ Is project, lean & agile and added value focussed Recognises and uses Global and Indirect Leverage. Stays up to date with business and market changes & innovations.

22. Proc Cost 22© The Delos Partnership 2005 Procurement Customer Focus Category A Category B Category C Category D Operations Finance/HR/IT Sales/Marketing Headcount / Budget / Spend £? Common Vision Lean, Agile,Customer Focus

23. Proc Cost 23© The Delos Partnership 2005 Organising - Customer & Category Procurement objective is a complete e-driven spend map by –Procurement Category –Cost Centre –Major Customer The Spend Map is the basis of product & service strategies, reporting and project driven procurement.

24. Proc Cost 24© The Delos Partnership 2005 Matrix Responsibility PROCUREMENT CATEGORIES 1. Raw Materials/Production Consumables. 2. Packaging 3. Logistics (Inbound/Outbound Freight) 4. Utilities 5. Technical & SHE 6. Goods & Services 7. Capital/MRO & Engineering THE 4P's OF PROCUREMENT 1. People 2. Policies 3. Processes 4. Programmes

25. Proc Cost 25© The Delos Partnership 2005 Matrix Responsibility Each category leader needs to, 1.Complete Customer, Spend & Demand roadmap 2.Review current agreements (verbal and written) 3.Categorise Products, Services & Suppliers 4.Determine the Sourcing strategy 5.Create Business & Customer driven projects 6.Decide the Category Supplier Management strategy

26. Proc Cost 26© The Delos Partnership 2005 Within the team there needs to be ownership of the 4 P's of Procurement so that procurement intellectual property is developed, maintained and cascaded internally. Within the team there needs to be ownership of the 4 P's of Procurement so that procurement intellectual property is developed, maintained and cascaded internally. Matrix Responsibility