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

Proc tools 1 © The Delos Partnership 2005

Procurement MasterclassProcurement Masterclass

The processes and tools to create a negotiating advantage..


Processes and ToolsProcesses and Tools

3 Process & Tools – Awareness & Use



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


How do Sales and Marketing How do Sales and Marketing people operate ?people operate ?

THEMTHEM

USUS


Sellers use Customer Sellers use Customer Relationship Management (CRM)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


Opening and Closing SalesOpening and Closing Sales

• Sales promote products & services (brands)

• Contact is made with internal customers and influencers/approvers.

• Procurement involvement in the overall process varies...


Account ManagementAccount 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.


Getting the most from the BrandGetting the most from the Brand

Real CostReal CostAnd ValueAnd Value

To YouTo You

PerceivedBrandValue

Brand “Premium”Brand “Premium”

Brand ManagementBrand Management

Marketing Spin


Getting the most from the BrandGetting 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". "Price is a function of perceived value and emotion". The heart is 50x more electrical and 1000x more electromagneticThe heart is 50x more electrical and 1000x more electromagnetic

than the brain. than the brain. (e.g. Coca Cola, Virgin)(e.g. Coca Cola, Virgin)

"Price is a function of perceived value and emotion". "Price is a function of perceived value and emotion". The heart is 50x more electrical and 1000x more electromagneticThe heart is 50x more electrical and 1000x more electromagnetic

than the brain. than the brain. (e.g. Coca Cola, Virgin)(e.g. Coca Cola, Virgin)


How Sales Penetrate & Exploit 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


Supplier Penetration & AccessSupplier Penetration & Access

Board & CEO

R&D EngineeringSales

& MarketingBusiness

DevelopmentQuality Business Centre

I.T. Legal Finance

Direct in

to functio

nal

head or team m

embers

Top DownTop Down

Bottom UpBottom Up

How can Procure

ment maintain

How can Procure

ment maintain

leverage given w

idespread penetra

tion and access?

leverage given w

idespread penetra

tion and access?


Workshop 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?


Creating Leverage in your favour



The Collaborative Supply Chain The Collaborative Supply Chain

InnovationInnovation

VisionVision

StrategyStrategy

PrioritisationPrioritisation

DemandDemand

SupportSupport

SupplySupply


VisionVision

StrategyStrategy


DemandDemand

SupportSupport

SupplySupply InnovationInnovation

VisionVision

StrategyStrategy


DemandDemand

SupportSupport

SupplySupply

Understand and try to use the potential leverage from the collaborative supply chain

Your Suppliers Your Business Your Customers

Common Spends? – Common Suppliers?- Common Customers? Strategies, Opportunities, Threats across the complete supply chain?


The Delos ModelThe Delos ModelFor Business Integration For Business Integration


VisionVision

StrategyStrategy


DemandDemand

SupportSupport

SupplySupply

Leverage


DOGSDOGS PROBLEM CHILDRENPROBLEM CHILDREN

CASH COWS CASH COWS STARS STARS

PR

OD

UC

T V

OL

UM

E

PR

OD

UC

T V

OL

UM

E

PRODUCT PROFITPRODUCT PROFIT

Leveraging Product TypesLeveraging Product Types

KeyKeyLeverageLeverage

TypeType


TypeType


TIME (CAN BE MONTHS)TIME (CAN BE MONTHS)

0%

PR

OD

UC

T M

AR

KE

T S

HA

RE

PR

OD

UC

T M

AR

KE

T S

HA

RE

LAUNCHLAUNCH GROWTHGROWTH STAGNATIONSTAGNATION DECAYDECAY

1990’s1990’s

2000’s2000’s

50% INNOVATION INNOVATION

Leveraging Product Life Leveraging Product Life CyclesCycles


TimeTime


TimeTime


Leveraging the Supply SideLeveraging the Supply Side

Bargaining Power & LeverageBargaining Power & Leverage

Su

pp

ly S

ide

Val

ue

del

iver

y (£

)S

up

ply

Sid

e V

alu

e d

eliv

ery

(£)

• 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


Standard CostsStandard Costs

0

20

40

60

80

100

120

1st Qtr

AdminO/H

Mfg O/h

Labour

Raw Mat

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 ?


Lean CostingLean Costing

0

20

40

60

80

100

120

1st Qtr

AdminO/H

Mfg O/h

Labour

Raw Mat

•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 ?


Intellectual Property Intellectual Property ManagementManagement• 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


Intellectual Property ManagementIntellectual 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.



" I think I've got something that could really help you. We've just invented it and filed for a patent...

" I think I've got something that could really help you. We've just invented it and filed for a patent...

Patentin the name of thesupplier

Patentin the name of thesupplier

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?



They'll pay top prices but I'll give a discount which they will value. There are other development projects I want to exploit

They'll pay top prices but I'll give a discount which they will value. There are other development projects I want to exploit


Standardisation and Standardisation and RationalisationRationalisationMany companies suffer from the "cost of

complexity" – historic specifications – obsolescent specifications.

This in turn can lead to expensive set-up costs


StandardisationStandardisation

• 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


Specials vs. CommoditySpecials 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”


Vertical Functional Vertical Functional OrganisationOrganisation

MD

SalesSales MarketingMarketing TechnicalTechnical OperationsOperations FinanceFinance HRHR

R& D

R& D

MKTG

MKTG

SALES

SALES

OPS

OPS

ACCTS

ACCTS

HR

HR

Directors

Managers

Supervisors/Team Leaders

Procurement


WorkshopWorkshop

What is required to create maximum leverage within your organisation for the

• Demand Side

• Supply side

• Innovation and Support sides of the business?



Product & SupplierClassification Tool


Process for classificationProcess for classificationComplete a Product & Supplier ClassificationComplete a Product & Supplier Classification

Measure your leverage and take global benchmarksMeasure your leverage and take global benchmarks

Identify constraintsIdentify constraints

Identify strategic optionsIdentify strategic options

Select best product strategySelect best product strategy

Select best supplier strategySelect best supplier strategy

Plan Strategy ImplementationPlan Strategy Implementation

ImplementImplement

Measure results against KPI’sMeasure results against KPI’s


TO

TA

L V

AL

UE

DE

LIV

ER

Y

TO

TA

L V

AL

UE

DE

LIV

ER

Y

PROCUREMENT LOYALTYPROCUREMENT LOYALTY0%0% 100%100%

100%100%

0%0%

SUPPLIER DEVELOPMENTSUPPLIER DEVELOPMENT

(Capable of becoming strategic)(Capable of becoming strategic)

STRATEGIC SUPPLIERSSTRATEGIC SUPPLIERS

(Normally few – major competitive edge)(Normally few – major competitive edge)

APPROVED SUPPLIERS (Majority of Suppliers)APPROVED SUPPLIERS (Majority of Suppliers)

SUPPLIER ELIMINATIONSUPPLIER ELIMINATION

(Low / No value & service delivery)(Low / No value & service delivery)

Supplier ClassificationSupplier Classification


CR

ITIC

AL

ITY

TOTAL ANNUAL COST

HIGH

LOW

LOW HIGH

STRATEGICSTRATEGICCRITICAL CRITICAL

NUISANCENUISANCE LEVERAGELEVERAGE

Positioning MatrixPositioning Matrix


STRATEGICSTRATEGICCRITICALCRITICAL

NUISANCENUISANCE LEVERAGELEVERAGE

• 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 USE e e FOR ALL FOR ALL

Resulting ActionsResulting Actions


Strategic

LeverageCritical

Nuisance

Strategic

Leverage

Critical

Nuisance

Strategy GoalStrategy Goal

PERCEPTION DESIRED REALITY


CREATE STRATEGYOPTIONS

SELECT

YOUR

STRATEGY

SummarySummary

• 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.


Workshop 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?


Procurement Master ClassProcurement Master Class

Global Market Evaluation Process


Product Improvement GoalsProduct Improvement Goals

• Define the Product status in the company and global market

• Define future improvement opportunities

• Start to implement improvement priorities now


How to define the product status 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


Market Segment AnalysisMarket Segment Analysis

Segment A

Segment B

Segment C

Segment D

Segment E


Expert Summary 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...



E-Procurement


The Internet Equation The Internet Equation - a word of warning- a word of warning

OO + NT = EOO

Old Organisation + New Technology

= Expensive Old Organisation


Supplier Internet strategy Supplier Internet strategy Dell ValueChain.comDell ValueChain.com

Discussion Areas

Fast Tech

Fast TechFast Tech

Score

Cards

Forecasts


Claimed Procurement Claimed Procurement BenefitsBenefits• 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


e Procurement Summary 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.


Masterclass Exercise 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?

Documents

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