Proc tools 1 © The Delos Partnership 2005 Procurement Masterclass The processes and tools to create a negotiating advantage..

Proc tools 2 © The Delos Partnership 2005 Processes and Tools 3 Process & Tools – Awareness & Use

Proc tools 3 © The Delos Partnership 2005 Processes and Tools 1.Marketing and Sales Awareness Tool 2.Leverage Tool 3.Product & Supplier Classification Tool 4.Global Market Evaluation 5.Process Negotiation Process 6.e Procurement / Auction Tool

Proc tools 4 © The Delos Partnership 2005 How do Sales and Marketing people operate ? THEM US

Proc tools 5 © The Delos Partnership 2005 Sellers use Customer Relationship Management (CRM) CRM covers the Marketing, Sales and Business strategy Customer and Market strategy and positioning is agreed Price, Volume and Growth targets are set by Customer & Market

Proc tools 6 © The Delos Partnership 2005 Opening and Closing Sales Sales promote products & services (brands) Contact is made with internal customers and influencers/approvers. Procurement involvement in the overall process varies...

Proc tools 7 © The Delos Partnership 2005 Account Management Technical “Buyer” Budget Holder Order Placer = Procurement Let’s see if I can get the technical buyer to specify it, and then the budget holder can sanction it, and purchasing sign it off.

Proc tools 8 © The Delos Partnership 2005 Getting the most from the Brand Real Cost And Value To You Perceived Brand Value Brand “Premium” Brand Management Marketing Spin

Proc tools 9 © The Delos Partnership 2005 Getting the most from the Brand Marketing champion the brand, and determine product and price strategy. –Innovation pricing –Market skimming pricing strategy –Price elasticity [revenue versus volume] Differentiated brands are premium priced – some of which is related to the innovation cost. –Marketing preserve “brand equity” –Create Market segments – same product: different price "Price is a function of perceived value and emotion". The heart is 50x more electrical and 1000x more electromagnetic than the brain. than the brain. (e.g. Coca Cola, Virgin) "Price is a function of perceived value and emotion". The heart is 50x more electrical and 1000x more electromagnetic than the brain. than the brain. (e.g. Coca Cola, Virgin)

Proc tools 10 © The Delos Partnership 2005 How Sales Penetrate & Exploit Look to exploit the lack of internal communication and integrated supplier strategies Gain knowledge through telesales and engaging the over-communicators. Penetrate poor security and easy site access Use switchboard, networks, direct calls to locate key influencers & decision makers Try to avoid Procurement involvement until as late as possible

Proc tools 11 © The Delos Partnership 2005 Supplier Penetration & Access Board & CEO R&DEngineering Sales & Marketing Business Development Quality Business Centre I.T.LegalFinance Direct into functional head or team members Top Down Bottom Up How can Procurement maintain leverage given widespread penetration and access?

Proc tools 12 © The Delos Partnership 2005 Workshop 1.What methods & channels do suppliers use to penetrate your business? 2.How can you stop them? 3.Should you even try to stop them? 4.How do you make sure that you get to the pay for the intrinsic value of the product?

Proc tools 13 © The Delos Partnership 2005 Creating Leverage in your favour Processes and Tools

Proc tools 14 © The Delos Partnership 2005 The Collaborative Supply Chain Innovation Innovation Vision Strategy Prioritisation Prioritisation Demand Support Supply Innovation Innovation Vision Strategy Prioritisation Prioritisation Demand Support Supply Innovation Innovation Vision Strategy Prioritisation Prioritisation Demand Support Supply Understand and try to use the potential leverage from the collaborative supply chain Your SuppliersYour BusinessYour Customers  Common Spends? – Common Suppliers?- Common Customers?  Strategies, Opportunities, Threats across the complete supply chain?

Proc tools 15 © The Delos Partnership 2005 The Delos Model For Business Integration Innovation Innovation Vision Strategy Prioritisation Prioritisation Demand Support Supply Leverage

Proc tools 16 © The Delos Partnership 2005 DOGS PROBLEM CHILDREN CASH COWS STARS PRODUCT VOLUME PRODUCT PROFIT Leveraging Product Types KeyLeverageType KeyLeverageType

Proc tools 17 © The Delos Partnership 2005 TIME (CAN BE MONTHS) 0% PRODUCT MARKET SHARE LAUNCHGROWTHSTAGNATIONDECAY 1990’s 2000’s 50% INNOVATION Leveraging Product Life Cycles KeyLeverageTime KeyLeverageTime

Proc tools 18 © The Delos Partnership 2005 Leveraging the Supply Side Bargaining Power & Leverage Supply Side Value delivery (£) Standard Costing Pricing, Market Structures & Agreements Managing Supplier Procurement Costs Collaborative vs. Confrontational Leverage Supplier Development – Value Stream & Lean Managing Supplier Development Plans Supplier Performance Assessment

Proc tools 19 © The Delos Partnership 2005 Standard Costs Review basis of calculation Admin o/head = 1.5 X Labour : why ? Mfg O/h = 3 x Labour: why ? What are standards based on ? Is Raw material cost “standard” or current ?

Proc tools 20 © The Delos Partnership 2005 Lean Costing How much could Admin costs be reduced by lean approach ? How much could setup costs etc. be reduced by Lean ? Why allocate overheads, and why should you pay for them ? What purchasing leverage have they got and do they use ? Do they use ABC Costing; if not why not, and could they reduce the costs to you if you reduced transactional costs ?

Proc tools 21 © The Delos Partnership 2005 Intellectual Property Management Adequate protection for Customer and Internal I.P. Controlled supplier access to sensitive projects, parts of the plant etc CDA from the beginning Joint Development Agreement with specifically named project members Joint Exploitation Agreement Potential licence fees and royalty income from all joint supplier inventions

Proc tools 22 © The Delos Partnership 2005 Intellectual Property Management This is the second customer who has talked to me about this great new product opportunity and shared their expert knowledge. I'll even try to get a photo of the product from them.., This is the second customer who has talked to me about this great new product opportunity and shared their expert knowledge. I'll even try to get a photo of the product from them.., I have a problem. Let me talk to you about it, and what I am doing with the internal experts & other suppliers. I have a problem. Let me talk to you about it, and what I am doing with the internal experts & other suppliers.

Proc tools 23 © The Delos Partnership 2005 Intellectual Property Management " I think I've got something that could really help you. We've just invented it and filed for a patent... Patent in the name of the supplier Patent in the name of the supplier That’s really good; it is just what we wanted. I did not realise that you had got a patent on it though ! Could I have a sample and price?

Proc tools 24 © The Delos Partnership 2005 Intellectual Property Management They'll pay top prices but I'll give a discount which they will value. There are other development projects I want to exploit

Proc tools 25 © The Delos Partnership 2005 Standardisation and Rationalisation Many companies suffer from the "cost of complexity" –historic specifications –obsolescent specifications. This in turn can lead to expensive set-up costs

Proc tools 26 © The Delos Partnership 2005 Standardisation 80 % of the cost is built into the product at the design stage If designers do not build in commonality and standard products/components then costs increase

Proc tools 27 © The Delos Partnership 2005 Specials vs. Commodity 1.What you think is special may not be special 2.Suppliers will try and create “special” to extract value 3.Suppliers will try and sell to your people and force you to specify “special” 4.You try and create “commodities” but they will want “specials”

Proc tools 28 © The Delos Partnership 2005 Vertical Functional Organisation MD Sales Marketing Technical Operations Finance HR R&DR&D R&DR&D MKTGMKTG MKTGMKTG SALESSALES SALESSALES OPSOPS OPSOPS ACCTSACCTS ACCTSACCTS HRHR HRHR Directors Managers Supervisors/Team Leaders Procurement

Proc tools 29 © The Delos Partnership 2005 Workshop What is required to create maximum leverage within your organisation for the Demand Side Supply side Innovation and Support sides of the business?

Proc tools 30 © The Delos Partnership 2005 Procurement Masterclass Product & Supplier Classification Tool

Proc tools 31 © The Delos Partnership 2005 Process for classification Complete a Product & Supplier Classification Measure your leverage and take global benchmarks Identify constraints Identify strategic options Select best product strategy Select best supplier strategy Plan Strategy Implementation Implement Measure results against KPI’s

Proc tools 32 © The Delos Partnership 2005 TOTAL VALUE DELIVERY PROCUREMENT LOYALTY 0% 100% 100% 0% SUPPLIER DEVELOPMENT (Capable of becoming strategic) STRATEGIC SUPPLIERS (Normally few – major competitive edge) APPROVED SUPPLIERS (Majority of Suppliers) SUPPLIER ELIMINATION (Low / No value & service delivery) Supplier Classification

Proc tools 33 © The Delos Partnership 2005 CRITICALITY TOTAL ANNUAL COST HIGH LOW HIGH STRATEGIC CRITICAL NUISANCE LEVERAGE Positioning Matrix

Proc tools 34 © The Delos Partnership 2005 STRATEGICCRITICAL NUISANCELEVERAGE Ensure Supply - Even pay a premium Build close relationships. Work to reduce the critical impact Purchasing Card / Blanket orders Minimise attention. Review annually Use dynamic strategies to drive profit Global Market awareness. Consider Indirect Leverage Top level relationships. Key Account Management Continuous joint total value creation USE e FOR ALL Resulting Actions

Proc tools 35 © The Delos Partnership 2005 Strategy Goal PERCEPTIONDESIRED REALITY

Proc tools 36 © The Delos Partnership 2005 CREATE STRATEGY OPTIONS SELECT YOUR STRATEGY Summary The total value strategy must classify the major product and Service, so that everyone is clear on the resources and strategies required to develop and deliver product & service optimum value. For high spend products & services the classification should involve a team discussion Classifying products & services ensures coordination & support of actions. Taking a two - way (you & supplier) view is essential –If not, procurement has not recognised supplier actions and taken appropriate (counter) measures. Purchasing must manage suppliers & their value generation and not allow supplier sales and marketing to manage you. Strategic products & services require high resource levels to develop and maintain internal & supplier relationships Prior to starting the journey, make sure that the product & service is strategic or critical.

Proc tools 37 © The Delos Partnership 2005 Workshop What products and services are strategic critical in your business? How can they be moved to leverage? Does leverage affect Supplier Partnering and Relationships?

Proc tools 38 © The Delos Partnership 2005 Procurement Master Class Global Market Evaluation Process

Proc tools 39 © The Delos Partnership 2005 Product Improvement Goals Define the Product status in the company and global market Define future improvement opportunities Start to implement improvement priorities now

Proc tools 40 © The Delos Partnership 2005 How to define the product status Current year product or service deal summary & Strategic Actions Current year deals – Key Issues Product volumes and market segments. Supplier analysis. Key customers Market prices and selling strategy Manufacturing and technologies Supply and demand Product Procurement summary

Proc tools 41 © The Delos Partnership 2005 Market Segment Analysis

Proc tools 42 © The Delos Partnership 2005 Expert Summary 1.Prices are... 2.The customers and countries with the lowest thf prices are... 3.Product & supplier profits are... 4.Key manufacturing process for the future is... 5.We are partnering with supplier x because...

Proc tools 43 © The Delos Partnership 2005 Procurement Masterclass E-Procurement

Proc tools 44 © The Delos Partnership 2005 The Internet Equation - a word of warning OO + NT = EOO Old Organisation + New Technology = Expensive Old Organisation

Proc tools 45 © The Delos Partnership 2005 Supplier Internet strategy Dell ValueChain.com Discussion Areas Fast Tech Score Cards Forecasts

Proc tools 46 © The Delos Partnership 2005 Claimed Procurement Benefits Controlled spending and elimination of maverick buying Restricted internal customer choices (Standardisation) Global benchmarking Consolidated Ordering Increased Productivity (no salesman lunch & lingo) Consortium Buying Restricted bidding & tenders Reverse Auctions Transactional Process Cost Efficiency – People & Paper elimination

Proc tools 47 © The Delos Partnership 2005 e Procurement Summary Many e-Procurement leaders remain unprofitable over many years. Entry / Usage costs are high & R.O.I. will be challenging to write. Continuing adoption by the marketplace but slower than predicted Internal I.T. system complexities are significant. Too many products + common B2B standards. Vertical Sectors are not integrated. e Procurement is not needed to achieve many of the claimed savings Supplier resistance - Brand Values will not be surrendered. Over dependency risks. e Reverse Auction can deliver major savings with commodities.

Proc tools 48 © The Delos Partnership 2005 Masterclass Exercise What is your e-procurement / e-auction experience? What are the key steps in implementing? How many auctions have you/will you run this year?