Author: A.T. Kearney Presenter: Arie Ben Shmali, Mashik

July 1, 2014

Procurement Conference

Measuring the value of Procurement to become the star

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Feel free to contact us to learn more

■ Mr. Jan Van Der Oord, Partner, A.T. Kearney, Jan.vanderOord@atkearney.com

■ Mr. Arie Ben Shmali, Mashik, Arie@mashik.com

■ Mr. Zlatko Bazianec, Director, A.T. Kearney, Zlatko.Bazianec@atkearney.com

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The 2014 Assessment of Excellence in Procurement is the eighth study in a series that started in 1992

Research Objectives

How has Procurement progressed since 2011?

How ready is Procurement for the future?

What can we learn from leading Procurement organizations?

Leader Identification

Over 800 elements benchmarked across 33 leadership practices covering 8 dimensions of Procurement

Selected and verified leaders in Americas, EMEA and Asia-Pacific across all key industries based on:

– Top overall scores

– Strong, world-class performance in at least 3 dimensions

– Above average overall performance and ROSMA score

Participants

Almost 200 companies have submitted responses

Survey remains open; tracking to 500+ participation

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• Yes, Procurement is accepted internally as important and able to deliver additional value to the company

• As Procurement is becoming more integrated and complex, the Procurement Plan becomes crucial

• Leaders measure the Value of Procurement

• Procurement’s Brand Challenge is still wide open, build it up

• Opportunity can come only after you align all the rules with your peer stakeholders

• What and How? Play the Scorekeepers Game

• The best practice is to connect all scores into ROSMA model to be transparent about overall performance of your Procurement

• We have 5 games to win to be recognized for our performance and move ahead of other benchmarks in the Procurement championship

Main messages of today

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Yes, Procurement is accepted internally as important and able to deliver additional value to the company

■ Procurement needs to be an integrated part of every company’s strategy.

■ Materials and services account for 60-80% of the total cost and supply markets are crucial to drive innovation and achieve growth ambitions.

■ Procurement is top of the spear in this continues effort for cost control and profitability.

■ Yet, having a ‘seat at the table’ is still the main battle procurement leaders have to fight.

■ How to make this now finally happen?

• We recommend Procurement to plan all opportunities, align them with internal stakeholders and make the performance transparent…in particular the benefits

Position yourselves as what you are: valuable contributor to profitability!

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Procurement Plans are becoming more and more complex

Hot topics addressed by specific programs and capability building

Source: A.T. Kearney

Procurement as integrated part of the company strategy

Expanding scope of procurement Raising the bar of the team

Top supplier management becoming a norm

Ongoing quest for response to commodity volatility

Risk management

Continuous performance management and transparency

Demand management in focus…challenging the internal business customers

Extensive use of analytics Recognition of the need for capability building

Sustainability as a new factor in procurement decisions

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Your Procurement Plan 2015 makes all planned objectives transparent for all stakeholders

PMO activity

Close urgent capability gaps

Strategic sourcing Wave 1

Strategic sourcing Wave 2

Superior IT development path

Allocate resources based on

opportunities

Continuous alignment with the

business stakeholders

Year 1

Quick wins

Year 2

Strategic sourcing Wave 3

Get more out of top suppliers

Align plan and expectations with business stakeholders

Plan your contribution in financial and strategic objectives

Provide adequate Information system support

Mobilize procurement team

Consolidate IT and enable

Global spend transparency

Quick wins out of

TOP supplier

Continuous growth program

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2

3

4

5

Global SRM TOP

Strategic suppliers

Source: A.T. Kearney

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Leaders measure the Value of Procurement

■ Demonstrating the value of the procurement team and our athletes

■ Clarifying performance expectations...."what's measured gets done"

■ Process and resource performance tracking

■ Value and needs based justification for resource mix, levels and investments

■ Benchmarking…..”how are we doing? can we do better?”

■ ….

No need to keep procurement the company’s best kept secret…

Source: A.T. Kearney

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Procurement’s Brand Challenge is still wide open, build it up

■ The “CFO Community” at large is the ultimate scorekeeper…. they are your prime audience to convince with facts and to market your successes

■ Procurement has often not established the full understanding, support or confidence with the CFO Community that is needed to be effective and respected

■ We assessed the CFO Community’s perceptions and perspectives on a dozen key questions about the measurement and performance of procurement...”the voice of the Scorekeepers”

Procurement’s “brand positioning” with scorekeepers is not good enough

Source: A.T. Kearney

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Opportunity can come only after you align all the rules with your peer stakeholders

Rules - aligning with the Scorekeeper's scoring system is required to be in the league

Game - embracing and driving results against the Scorekeeper's scorecard creates brand value, credibility, broadens recognition and enables the ability to access, develop and retain best athletes

Bonus - extending the Scorekeeper's awareness of the value from procurement on top of success against their scorecard

Source: A.T. Kearney

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What and How? Play the Scorekeepers Game and establish Procurement Scorecard and ROSMA

Balanced Scorecard

Procurement

Scorecard

and ROSMA

Value

Management

Framework (e.g. EVA)

Source: A.T. Kearney

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Procurement Scorecard example gives many important elements to track and focus on

Financial Perspective

YOY financial results delivered (e.g. contribution to EBITDA)

Productivity or EVA of procurement resources

Business specific financial metrics (e.g. PPV, working capital, etc.)

…..

Customer of Procurement Perspective

Supplier enabled innovation

Advantaged customer service levels

Diversity spend/agenda

….

Internal Process Perspective

Effective spend coverage

Project management excellence (e.g. cycle times, results, quality)

CFO validated results and compliance

Productivity vs best practices

…

Learning & Growth Perspective

“Best place to work and learn”

Procurement as a valued rotation

Best athlete program success

Methods/capabilities mastery

……

Cascade the CPO scorecard elements down to the individual procurement athletes and connect it to ROSMA

Source: A.T. Kearney

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The best practice is to connect all scores into ROSMA model to be transparent about overall performance of your Procurement

■ Return on Supply Management AssetsSM developed by A.T. Kearney

■ Framework for steering Procurement’s performance

■ Logic offering insight into procurement value drivers

■ Productivity measure relating hard financial results to the invested assets in Procurement

■ Change management tool for establishing a “results mindset” in the organization

What is ROSMASM?

ROSMA©

Financial results delivered

Invested supply mgmt. assets

Spend cove-rage

Velo-city

Cate-gory

yields

Com-pli-

ance

Addi-tional bene-

fits

Period costs

Struc-tural

invest-ment

Various sub-drivers (e.g., spend governance, sourcing strategies, …)

> 500 best practices

…

Source: A.T. Kearney

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Spend Coverage

Velocity Category Yields

Compliance Additional Benefits

Invested Supply Management Assets

• Total external expenditures influenced by procurement

• Amount of external expenditures sourced by Procurement

• Number of sourcing events

• Yield of spend sourced by

Direct

Indirect

CAPEX

Goods for Resale

• % of addressed spend sourced by procurement that complied with the new agreements over last 2 years

• Procurement has the full mandate to explore additional value creation opp. (innovation, profit inc., etc.)

• Cost of procurement as % of influenced spend

• Spend influenced by Proc./ # of Procurement FTE

94% 85% & 2145 8.2% 90% 77% 0.8% & $32m

72% 64% & 880 6.4% 79% 38% 1.1% & $26m

+31% +28% +14% +19%

Indicators

Leaders

Followers

Average

Leaders 7.3

Followers 4.6

+104% +144% +33%

ROSMA© Benchmark

Industries:

Is your Return on Supply Management Assets (ROSMA®) on par with Leaders‘? Here are some benchmarks

Source: A.T. Kearney

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Let’s demonstrate a new level of performance to the scorekeepers

Source: A.T. Kearney

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We have 5 games to win to eliminate constrains and move ahead of other benchmarks in the Procurement championship

■ Win #1 – Joining the Championship…. enroll in the Scorekeeper’s Game…. establish a common basis for credibility “in the conversations”

■ Win #2 – Demonstrating Improvement…. chalk up some scores with the Scorekeeper’s rules and metrics

■ Win #3 – Names in Lights…. attract, develop and showcase your trending good, better and best athletes

■ Win #4 – Championship Recognition…. enjoy the lift of the improved brand positioning of procurement…. full seat at the table for the Procurement team

■ Win #5 – Final four and Championships….. benchmarked leadership, celebrated team and players…

Source: A.T. Kearney

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Let’s win the game and put procurement athletes up in lights!

Source: A.T. Kearney