Stream Y Category Management How Does Category Management (hard-cost reduction) Procurement Affect Supplier Relationship Management? Copyright 2013 Kestrel OPS GmbH112th Annual PCT Congress Bill Young, Kestrel OPS, Switzerland

Contact Details Copyright 2013 Kestrel OPS GmbH212th Annual PCT Congress Bill Young Kestrel OPS GmbH

Contents Evolution Strategies Value Drivers Performance Commitment Maturity Phases Dealing with Procurement 12th Annual PCT CongressCopyright 2013 Kestrel OPS GmbH3

Procurement Evolution Copyright 2013 Kestrel OPS GmbH4 Perform- ance Demand Challenge Total Cost of Operating Purchase Cost Reduction Supply Assurance From CIPSA/Hackett 12th Annual PCT Congress

Performance Demand Challenge Total Cost of Operating Purchase Cost Reduction Procurement Evolution Copyright 2013 Kestrel OPS GmbH512th Annual PCT Congress

Procurement Strategy - Kraljic 6Copyright 2013 Kestrel OPS GmbH BottleneckStrategic TacticalLeverage High Low High Procurement Difficulty Spend Number of Suppliers Low 12th Annual PCT Congress

Value Drivers Copyright 2013 Kestrel OPS GmbH712th Annual PCT Congress

Value Driver Examples Copyright 2013 Kestrel OPS GmbH8 Cost Performance Value Drivers Horizon (years) Price-down Efficiencies Brand-image Simplification TCO reduction Market share Risk reduction Capabilities Culture Corporate image Innovation 12th Annual PCT Congress

Hard-Cost Reduction Incentivises Late engagement Cost-focused tender Walkaway - no handover – no SRM Copyright 2013 Kestrel OPS GmbH912th Annual PCT Congress Value is only created during successful operation...

Performance Commitment Value is created during successful operation... Services easy to get Evolve with business need Risk actively managed Continuous innovation 12th Annual PCT CongressCopyright 2013 Kestrel OPS GmbH10

Supplier Management (SM) Copyright 2013 Kestrel OPS GmbH11 Agree services levels Ensure operability of agreement Train users Assess delivery performance Monitor compliance Resolve issues within agreement Escalate issues outside agreement Manage and administer agreement Monitor development of needs 12th Annual PCT Congress

Copyright 2013 Kestrel OPS GmbH12 Evolution of SM-to-SRM Cost & QuOTIF Survey & Opinion Supplier Categorisation Activities Teardown workshops Rangefinding Idea labs Open innovation Performance Metrics $ projects from supplier ideas Proportion of new products

Procurement Maturity Copyright 2013 Kestrel OPS GmbH13 Procurement Maturity ClassicalCategory Centralised Strategy Global Processes & Policy Knowledge Management Early Engagement Client- Integration Local Procurement Heads Business Planning 12th Annual PCT Congress Performance (SRM)

Procurement Maturity Copyright 2013 Kestrel OPS GmbH14 Difficulty of Implementation Low High Cost  Performance  Control and leverage Reduced overheads Easy to implement Sophisticated targets New skills and organisation Difficult to implement ClassicalCategory Procurement Maturity 12th Annual PCT Congress Performance (SRM)

Procurement Maturity Copyright 2013 Kestrel OPS GmbH15 ClassicalCategory Procurement Maturity 12th Annual PCT Congress Performance (SRM)

Procurement Maturity Copyright 2013 Kestrel OPS GmbH16 ClassicalCategory Procurement Maturity 12th Annual PCT Congress Performance (SRM)

Procurement Maturity Copyright 2013 Kestrel OPS GmbH17 ClassicalCategory Procurement Maturity 12th Annual PCT Congress Performance (SRM)

Procurement Maturity Copyright 2013 Kestrel OPS GmbH18 ClassicalCategory Procurement Maturity 12th Annual PCT Congress Performance (SRM)

Procurement Maturity Copyright 2013 Kestrel OPS GmbH19 IndicatorQuestionResponse Performance metrics How is procurement assessed? Price1 Total cost of ownership2 Business impact3 Supply intelligence Resources for supply market information? None1 When needed2 Dedicated resource3 Internal influence How is procurement regarded within client? Price negotiator1 Gatekeeper2 Team member3 Grade difference Between decision-maker and buyer? Three grades or more1 Two grades2 Zero to one grade3 Table 1 Maturity Assessment Tool 12th Annual PCT Congress

Table 1 Maturity Assessment Tool Classify Maturity of Procurement Scoring <7 points = Classical 7 – 9 points = Category >9 points = Performance Procurement Maturity Copyright 2013 Kestrel OPS GmbH2012th Annual PCT Congress

Procurement Complexity Copyright 2013 Kestrel OPS GmbH21 IndicatorQuestionResponse Purchase history How new is requirement? Regular and routine 1 Irregular or altered 2 New purchase 3 User familiarity What is needed for staff to use new services Nothing 1 User communications 2 User training 3 BudgetWhat is the status of the budget? Budgeted 1 Unbudgeted 2 New authorisation 3 Approvals How high up organisation are approvals needed? C level – 2 1 C level – 1 2 C-level 3 Table 2 Procurement Complexity Indicators 12th Annual PCT Congress

Table 2 Procurement Complexity Indicators Classify complexity of Procurement Scoring < 7points= Low complexity 7 – 9points= Mid complexity >9points= High complexity Procurement Complexity Copyright 2013 Kestrel OPS GmbH2212th Annual PCT Congress

Sales Strategy Matrix Copyright 2013 Kestrel OPS GmbH23 Creative Savings Respect and Challenge Continuous Improvement Price to Premium Deal with Decision Maker Inform and Coach Two-Way Support Clear Requirements Evidence and References Procurement Maturity Procurement Complexity ClassicalPerformance High Low Category Mid 12th Annual PCT Congress

Copyright 2013 Kestrel OPS GmbH Creative Savings Respect and Challenge Continuous Improvement Price to Premium Deal with Decision Maker Inform and Coach Two-Way Support Clear Requirements Evidence and References Procurement Maturity Sales Complexity ClassicalPerformance High Low Category Mid Deal With Decision Maker 24 Classical Procurement is out of place in a high complexity purchase Seller maintains direct contact with the real buyer, the Decision Maker Purchase Complexity 12th Annual PCT Congress Procurement Complexity

Copyright 2013 Kestrel OPS GmbH Creative Savings Respect and Challenge Continuous Improvement Price to Premium Deal with Decision Maker Inform and Coach Two-Way Support Clear Requirements Evidence and References Procurement Maturity Sales Complexity ClassicalPerformance High Low Category Mid Clear Requirements 25 Category procurement reduces complex services to unit price before the requirements have been defined Get a clear definition of what the right solution for the customer looks like. Postpone price discussions until requirements are clear Purchase Complexity 12th Annual PCT Congress Procurement Complexity

Copyright 2013 Kestrel OPS GmbH Creative Savings Respect and Challenge Continuous Improvement Price to Premium Deal with Decision Maker Inform and Coach Two-Way Support Clear Requirements Evidence and References Procurement Maturity Sales Complexity ClassicalPerformance High Low Category Mid Two-Way Support 26 Performance Procurement can create the business case and help the business through implementation Seller offers diagnostics, consultation and project support alongside the client’s team. They can openly ask Procurement for guidance on how to deal with other buying influences. Deal Complexity Purchase Complexity 12th Annual PCT Congress Procurement Complexity

Copyright 2013 Kestrel OPS GmbH Creative Savings Respect and Challenge Continuous Improvement Price to Premium Deal with Decision Maker Inform and Coach Two-Way Support Clear Requirements Evidence and References Procurement Maturity Sales Complexity ClassicalPerformance High Low Category Mid Price to Premium 27 Classical Procurement discounts the benefits of a premium product Seller agrees that customer should buy only what is needed, rejecting comparisons with a service the customer does not need Deal Complexity Purchase Complexity 12th Annual PCT Congress Procurement Complexity

Copyright 2013 Kestrel OPS GmbH Creative Savings Respect and Challenge Continuous Improvement Price to Premium Deal with Decision Maker Inform and Coach Two-Way Support Clear Requirements Evidence and References Procurement Maturity Sales Complexity ClassicalPerformance High Low Category Mid Inform and Coach 28 Category Procurement can appreciate total cost of ownership, beyond immediate cost of purchase Seller coaches Procurement on the downstream cost-reduction benefits Deal Complexity Purchase Complexity 12th Annual PCT Congress Procurement Complexity

Copyright 2013 Kestrel OPS GmbH Creative Savings Respect and Challenge Continuous Improvement Price to Premium Deal with Decision Maker Inform and Coach Two-Way Support Clear Requirements Evidence and References Procurement Maturity Sales Complexity ClassicalPerformance High Low Category Mid Evidence and References 29 Both performance and cost reduction are valued Seller provides hard evidence from independent appraisals and reference-clients Procurement has significant influence on the decision maker Deal Complexity Purchase Complexity 12th Annual PCT Congress Procurement Complexity

Copyright 2013 Kestrel OPS GmbH Creative Savings Respect and Challenge Continuous Improvement Price to Premium Deal with Decision Maker Inform and Coach Two-Way Support Clear Requirements Evidence and References Procurement Maturity Sales Complexity ClassicalPerformance High Low Category Mid Creative Savings 30 Classical Procurement can be creative in how it reports savings Standard discount for volume Difference between first offer and final price Difference between budget and purchase price Seller finds out how to give the buyer savings without giving them money Deal Complexity Purchase Complexity 12th Annual PCT Congress Procurement Complexity

Copyright 2013 Kestrel OPS GmbH Creative Savings Respect and Challenge Continuous Improvement Price to Premium Deal with Decision Maker Inform and Coach Two-Way Support Clear Requirements Evidence and References Procurement Maturity Sales Complexity ClassicalPerformance High Low Category Mid Respect and Challenge 31 Procurement wants to tender everything Seller offers objective advice on buying process Positive support creates trust and respect and influences the buying decision Deal Complexity Purchase Complexity 12th Annual PCT Congress Procurement Complexity

Copyright 2013 Kestrel OPS GmbH Creative Savings Respect and Challenge Continuous Improvement Price to Premium Deal with Decision Maker Inform and Coach Two-Way Support Clear Requirements Evidence and References Procurement Maturity Sales Complexity ClassicalPerformance High Low Category Mid Continuous Improvement 32 Procurement wants efficient and infrequent buying events Seller delivers this through continuous- improvement under long term relationships These deliver year-on-year benefits to client and create opportunities for higher value services Deal Complexity Purchase Complexity 12th Annual PCT Congress Procurement Complexity