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Sony Pictures Entertainment Procurement Assessment & Wave 1 Status Update
August 20, 2013 2th August 2013
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Executive summary: achieving savings
SPE has a significant procurement cost reduction opportunity: FY14 impact could be $20M to $24M if implementation is launched in August 2013. Cumulative cost reduction of $72M to $98M (excluding media planning and placement) by the end of FY15. A procurement “surge” could contribute an additional $240M in cost reduction over 5 years (according to the SPE cost benefit analysis1). At a 6.5% margin this is equivalent to $3.7B in additional revenue over the same period. Achieving these surge savings will require 25 FTEs for the balance of CY13 (and fewer in CY14). Successful implementation will require communications, change management and continued governance by the Procurement Operating Committee (DCFOs + Legal). Cost reduction opportunities would be pursued in waves, attacking the categories with the best return on investment in the first wave. Note: Savings are gross cash flow calculated as the difference between baseline costs and estimated future costs. 1Cost benefit analysis calculated on midpoint of the savings range.
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$4.4B considered non-addressable for driving procurement savings
Approximately $3.6B of SPE spend is potentially addressable by procurement, based on CY12 data. Development finance Inter-company receivables Third-party share payable Credit union clearing Walt Disney Castle Rock MGM Holdings CBS Comcast NBC Paramount DW Studios Warner Bros Others Entertainment Partners Beachwood Services Rights Participations Unions and guilds Royalties Residuals Licensing Sony Corporation of America SPE Corporate Services Sony Pictures Television Intl. Sony Sony Pictures Releasing Corday Productions Others MPG M&D: $978.1M MPG: $875.6M TV: $719.0M HE: $479.9M $4.4B considered non-addressable for driving procurement savings Corp: $590.1M Source: Ariba Spend Visibility Tool; EY analysis, CY 2012 data
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Addressable spend segments into six discrete category families that cross divisional boundaries.
Production – $608M Post production – $348M Marketing – $1,441M Distribution – $348M Technology – $189M SG&A – $501M Rental equipment, $72M Lighting rental, $23M Camera equipment, $15M Audio/visual equipment, 11M Heavy equipment, $15M Production trailers, $8M Visual effects and 3D, $120M Creative, $109M Packaged media creation, $121M Media planning and placement, $1,001 Post production, $103M Language dubbing, $26M Duplication, $19M Transcoding, $13M Subtitling, $13M Audio fulfillment , $9M File transfer, $6M Encoding, $5M Miscellaneous, $5M Quality control, $4M Film scan/transfer, $3M Pick, pack, $40M Merchandising, $19M Basics, $79 Marketing print, $29M Corrugate displays and standees, $23M Promotional items, $9M TV and radio spots, $9M Print ads, $3M Trailer creation, $6M Production payroll services, $39M2 Film prints and trailers, $168M Stage rentals, $29M Site locations, $19M Services, $68M Wardrobe purchases and rentals, $16M Broadcast, $34M Production catering, $16M Publicity and events, $92M Post production other, $125M Telecom, $32M Production security, $5M Market research, $42M Makeup, $2M Hardware, $30M Set design, $30M Promotions, $17M Software, $23M Production other1, $380M Marketing other, $101M IT other, $2M Travel – $88M Commercial air, $18M Lodging, $17M Private jets, $9M Limo, $9M Rentals cars, $3M Travel other, $32M Labor-based services – $176M Finance, $78M Legal, $61M Consulting, $20M Temp staffing,$17M Facilities – $207M Freight, $64M Rent, $69M Food service, $4M Janitorial, MRO and building maintenance, $18M SG&A other, $21M HR – $30M Compensation and benefits Planning, $23M Health and welfare, $4M HR services, $3M Utilities, $12M Reprographics, $6M Office supplies and furniture, $5M Corp. security, $8M Source: Ariba Spend Visibility Tool; EY analysis, CY 2012 data Note: $139M of spend is unclassified 1Production Other includes Vista spend not classified in Ariba Spend Visibility(ASV), production advances and other production related spend. 2Production payroll services are estimated at 6% of the related salaries from Entertainment Partners ($648M).
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Implementation roadmap sequences capability development over three years to capture and sustain benefits. Strategy and governance SPE Procurement future vision Governance and Change Mgmt Transactional staff additions SRM Policy refresh Organizational design and staffing FY16 Category sourcing wave 4 People and organization Category sourcing wave 3 Organizational design and staffing Category management implementation eSourcing tools Category sourcing wave 2 FY15 Category management and SRM Category sourcing wave 1 Optimize the spend channels Ongoing monitoring and reporting Category sourcing wave 0 Refresh Ariba Spend Visibility tool Working capital improvements Implement KPIs FY14 Technology Internal stakeholder management Purchase-to-pay Performance management
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A rigorous category sourcing approach is critical in achieving best terms and pricing for SPE purchases 1 Develop category profile Develop category savings strategy 2 3 Execute TOC reduction strategy 4 Implement and realize benefit 5 Sustain the results Objectives Deep dive assessment of category profile and supply market condition Develop strategies to reduce Total Operational Cost (TOC) Prioritize cost savings strategies, develop execution plan then execute accordingly Implement change and operationalize for sustainable results On-going reviews of the market and business needs to refine program(s) Key activities Understand business requirements Develop demand profile Confirm business requirements Assess category spend usage, compliance level and potential savings leakage drivers Review industry and supply markets Conduct initial assessment of supply base for rationalization, SRM strategy and risk management Conduct category profile analysis across spend and compliance Determine TOC reduction opportunities (e.g. policies, enablement, processes, KPIs, demand mgmt, compliance, etc.) Identify potential risks, challenges and opportunities to implement savings strategies Operational Cost: Prioritize and select appropriate strategies to execute Develop execution plans, determine resource needs and gain stakeholder buy-in Engage with internal and external stakeholders Conduct appropriate analysis and assessment Sourcing: Determine appropriate sourcing strategy, techniques & tools (e.g. RFx, offshore, eTools) Engage suppliers Define supplier assessment criteria and approach Develop appropriate implementation plan(s) Develop appropriate change management plan Develop strategies around contract mgmt, buying channels, etc.) Identify risks and challenges to change and develop & execute against mitigation plan Define KPIs , metrics and tracking tools Define savings realization strategy Define SRM strategy (governance, segmentation, development, etc.) Monitor market conditions Assess technology and leading practices impact Determine opportunities to re-assess category Conduct on-going performance review and process improvement initiatives with internal stakeholders and with suppliers Review performance reports and develop plans to drive continuous improvement
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Implementation is structured in four waves that prioritize savings opportunities and balance workload. Wave 0 Reprographics DADC-Manufacturing DADC-Manufacturing, ROW Merchandising - SPAR Wave 0 Wave 3 Aug 1 Jan 1 FY14 May 1 Sep 1 FY 15 Wave 1 Wave 4 Wave 2 Wave 1 Media planning and placement SG&A compliance (freight, office supplies and furniture, temporary staffing, software, and hardware) Publicity and events Telecommunications Marketing print, corrugate and promotional Items Production - Equipment and rentals (lighting, heavy equipment, audio-visual, trailers and camera equipment) Travel (lodging, private jets, commercial air and limo) Post production (subtitling, audio fulfillment, file transfer, film scan and transfer, and miscellaneous) Wave 2 Market research Facilities (utilities, building maintenance, janitorial, MRO and corporate security) Production (wardrobe, security, makeup, stage rentals, catering and set design Post production (VFX, 3D, transcoding, film prints and trailers) Wave 3 Merchandising (non-SPAR) IT services Professional services (HR services, legal and consulting) Marketing basics and creative Wave 4 Post production (language dubbing, duplication, encoding, QA) Real estate and rent Distribution - pick, pack HR (compensation and benefits planning, health and welfare) Site locations Broadcast Marketing - promotions Food service (Wolfgang Puck) Rental cars Source: Ariba Spend Visibility Tool, EY analysis, CY 2012 data
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Wave 1 project team structure (1/3)
Media Planning and Placement ($687M) TV spend is less than 1% SG&A – Compliance ($59M) Publicity & Events, and Promotional Items ($76M) Marketing Print, Displays ($39M) MPG M&D MPG M&D Corp MPG 48% 47% MPG M&D 90% 44% 18% 18% 10% 1% Corp 3% Corp 10% HE 9% 18% TV HE 28% 12% 31% 26% 2% MPG TV HE HE MPG TV Sheraton Kalouria Kathy Shane Bill Stellman Stephen Andujar Ron McNair 28% Andre Caraco Nigel Clark Sheraton Kalouria* Kathy Shane* Drew Shearer Sheraton Kalouria Kathy Shane Drew Shearer Bill Stellman Mark Weinstock Lexine Wong Sponsors Stefanie Napoli Lexine Wong Finance: TBD Lucienne Hassler * HR: Paul Martin * Dave Mastalski* IT: Manish Saraswat* Finance: TBD TV: Joy Husband* MPG: TBD Finance: TBD HE: Steve Belmont TV: Vanessa Gottlieb Greg Shack HE: Corinne Tuttle MPG: Mark Walker* DADC: TBD Stakeholders W/S Lead: TBD SMR: Rick Gonzalez Sourcing: Helen Chao Procurement: Nozomi Okabe Jane Mohon W/S Lead: Arun Casuba Sourcing: Arun Gajendran Analyst: TBD W/S Lead: John McAleer* Sourcing: Mike Brown Sourcing: Phil Liu Procurement: Crystal Ryu Analyst: Nicole Radcliffe Analyst: Tilmann Gruber (or Irene Christiansen?) W/S Lead: Nozomi Okabe Sourcing: AJ Prabhu Sourcing: Jared Ward Kenneth Glover John McAleer Joan Villaros Core Team MP M&D Rep HE marketing rep IT: Jeff Ballard HR: Jim Bogard Freight: Mark Muramoto * MPG marketing rep HE marketing rep TV marketing rep MPG corrugate rep TV corrugate rep MPG marketing print rep TV marketing print rep Part Time Team SPE Procurement EY Corporate MP M&D TV HE MPG Note: Spend in category heading reflects anticipated impacted spend.
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Wave 1 project team structure (2/3)
Production Equipment & Rentals ($53M) Travel ($34M) Post Production ($27M1) Corporate spend makes up 75% of the $27M and the remaining divisions make up the remaining 25%. Telecommunications ($12M) Corp MPG Corp TV 15% 48% 42% 8% MPG 47% 38% 14% Corp 18% 8% 30% 32% HE MPG HE TV TV Ed Lammi Stefan Litt Drew Shearer * Scott Valentine * Ron McNair/Mickey Corcoran* Chris Cookson * Ed Lammi Stefan Litt Stephen Andujar Sponsors Glenn Gainor Andrew Given/ William Corral * Greg Manson * Dawn Taylor * TV Operations TBD Michael Hernandez* Finance: TBD MPG TBD Grover Crisp * Terri Davies Greg Manson * John Naveira IT/Telco: TBD Finance: TBD Stakeholders W/S Lead: Thomas Hershey * Procurement: Nathan Constantinescu Sourcing: Michael McCreary Sourcing: Jonathan Volta Analyst: Trevor Rubatzky Prodn Finance: Wing Hom W/S Lead: Pamela Aberg or Gary Stevenson* Procurement: Susan Ross Sourcing: Ray Paragas Analyst: Lisa Dodd* Martin Lowery W/S Lead: Arjun Grover Category SMR Sourcing: Alex Bust Analyst: MPG W/S Lead: Dennis Bond (or IT nomination) Sourcing: Charlotte Yates Core Team Line coordinators Production coordinators Janel Clausen MPG rep TV rep WPF rep: John Carlson (or delegate) Production rep Jeff Grover Part Time Team Notes: Spend in category heading reflects anticipated impacted spend. 1Post production spend shown does not yet include MPG post production spend. SPE Procurement EY Corporate MP M&D TV HE MPG Other 3rd party
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Wave 1 project team structure (3/3)
Working Capital Nielsen ($12M) TV MPG M&D 35% Corp 35% 15% HE HE 13% 5% 1% MPG MPG 64% 51% TV Lawrence Aldridge Ron McNair/Mickey Corcoran* Amy Carney David Kaminow Sponsors Dave Mastalski Niloo Rezai James Petretti* Dawn Taylor* Sony Music TBD Stakeholders IT: Kate Davies PCard: Anthony Kimball* Accounts Payable: Kristine Milanes* Treasury: John Tholen* Laurie Thumin W/S Lead: Ted Svehlik MP M&D: Andrew Ferguson* TV: Wayne Goldstein* MP M&D: Abe Recio* TV: Chad Woodrick* Analyst: Tilmann Gruber* EY: Jeanette Ho Core Team Part Time Team Corporate:TBD SMR: Ted Block Sony Music TBD SPE Procurement EY Corporate MP M&D TV HE MPG Other 3rd party Sony Music
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