Securing Benefits By A i dAssessing and Transforming the Supply Chain
November 2010
Supply Chain Function
ADVISORY
1
IntroductionsKPMG LLP
• The audit, tax, and advisory firm is the U.S. member firm
of KPMG International.
• KPMG International’s member firms have 137,000
professionals in 144 countries.
• KPMG d li l b ll i t t t f
GRANT POETER
Senior Manager
National Strategic Sourcing & Procurement• KPMG delivers a globally consistent set of
multidisciplinary services based on deep industry
knowledge.
• Our industry focus helps KPMG professionals develop a
National Strategic Sourcing & Procurement Practice
Our industry focus helps KPMG professionals develop a
rich understanding of clients' businesses and the insight,
skills, and resources required to address industry-specific
issues and opportunities.
MICHAEL COLLINS
Senior Managerpp
National Strategic Sourcing & Procurement Practice
© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 39734DAL
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Agenda
• Total Value Delivered
• Performance Measurements by Attribute• Performance Measurements by Attribute
− Talent Management
− Operational Excellence
− Supplier Relationship Management
− Supply Chain Innovationp
− Right Sourcing
• Comparator Assessment Key Features
pp y
− Customer Alignment
• Case Study - Large Integrated Oil & Gas Company
• Transformation Map
© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 39734DAL
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Total Value DeliveredTotal Value Delivered is a culmination of interdependent attributes.
l
Total Value Delivered
Supply Chain InnovationSupplier Relationship
ManagementRight Sourcing
Customer Alignment
Operational Excellence
Management
Talent Management
© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 39734DAL
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Talent Management Interactive Questions
Qualitative Quantitative
•Attrition/Turn-over RateMet
rics
•Depth of Team’s Skill Set
T h d d l
•Number of Certifications
•Training Hours per Employee
Exam
ple •Organization Knowledge Risk
•Succession Planning
To what degree does your organization currently use
talent based metrics?
1. None currently used1. None
Degree Talent Metrics are Used
2. Identified but not tracked
3. Tracked
4. Acted
4. Tracked and acted upon
2. Identified
© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 39734DAL
3. Tracked
5
Operational ExcellenceInteractive Questions
Qualitative Quantitative
•Delivery DelaysMet
rics
•Confidence Level to Respond to Emergency
T h d d l
•Average transaction time
•% of e-catalog enabled POs
Exam
ple Needs
•Degree Group is Proactive
To what degree does your organization currently use
operational based metrics?
1. None currently used1. None
Degree Operational Metrics are Used
2. Identified but not tracked
3. Tracked
4. Acted
4. Tracked and acted upon
2. Identified
© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 39734DAL
3. Tracked
6
Right Sourcing Interactive Questions
Qualitative Quantitative
•Spend Under ManagementMet
rics
•Supplier Risk Exposure
T h d d l
•Sustainability Index
•Realized Benefits vs Forecast
Exam
ple •Level of Market Analysis Conducted
To what degree does your organization currently use
sourcing based metrics?
1. None currently used1. None
Degree Sourcing Metrics are Used
2. Identified but not tracked
3. Tracked
4. Acted
4. Tracked and acted upon
2. Identified
© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 39734DAL
3. Tracked
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Supplier Relationship ManagementInteractive Questions
Qualitative Quantitative
•# of Suppliers with ScorecardsMet
rics
• Importance of Collaborative Improvements
T h d d l
•# of Supplier Issues Identified
•% of Suppliers by Performance
Exam
ple •Depth of Supplier Scorecards
To what degree does your organization currently use
supplier relationship based metrics?
1. None currently used1. None
Degree Relationship Metrics are Used
2. Identified but not tracked
3. Tracked
4. Acted
4. Tracked and acted upon
2. Identified
© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 39734DAL
3. Tracked
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Supply Chain InnovationInteractive Questions
Qualitative Quantitative
•# of InitiativesMet
rics
•Perceived Level of Innovation by Internal
T h d d l
•Additional Value Captured
•% of Suppliers by Performance
Exam
ple Customers
•Maturity versus Competition
To what degree does your organization currently use
supply chain innovation based metrics?
1. None currently used1. None
Degree Innovation Metrics are Used
2. Identified but not tracked
3. Tracked
4. Acted
4. Tracked and acted upon
2. Identified
© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 39734DAL
3. Tracked
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Customer AlignmentInteractive Questions
Qualitative Quantitative
•Strategic Sourcing RatingMet
rics
•Demonstration of Contracts Supporting
T h d d l
•Customer Satisfaction Survey
•Frequency of Communication
Exam
ple Company Objectives
•Level of Integration into Process
To what degree does your organization currently use
customer alignment based metrics?
1. None currently used1. None
Degree Innovation Metrics are Used
2. Identified but not tracked
3. Tracked
4. Acted
4. Tracked and acted upon
2. Identified
© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 39734DAL
3. Tracked
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Area for OpportunityInteractive Questions
Which Attribute Is Most Undervalued in Reporting?
1. Talent ManagementMost Undervalued Attribute
2. Operational Excellence
3. Right Sourcing
1
6
4. Supplier Relationship Management
5. Supply Chain Innovation
6 C t Ali t
25
6. Customer Alignment
34 3
© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 39734DAL
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Comparator Assessment Key Features
• A Comparator Assessment combines three key data points in helping provide a more
holistic assessment.
- External Benchmarks
- Peer Comparatorsp
- KPMG Maturity Assessment
• The assessment can be tailored to fit a company’s unique situation and the key
questions it wants to answer
• Assessments can be scaled to the level of detail and scope that provide a meaningful
l ianalysis
© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 39734DAL
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Case Study - Large Integrated Oil & Gas Company
Background and Objective•External purchases for indirect materials and services constitute significant operating costs to
p y
oil & gas companies.
•Many procurement organizations obtain the materials and services for operations in a very
t ti l d t ti l t hi h f f it i li d l / fittactical and transactional nature, which forfeits in unrealized value/profit.
The AssessmentThe AssessmentThe six week assessment used a combination of qualitative reviews of peer companies,
external benchmark data, internal interviews, document reviews, and the team’s collective
b k d h l h f kbackground in the oil & gas to answer their four key questions.
© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 39734DAL
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Case Study - Large Integrated Oil & Gas Company
The Four Questions•H d th t i ti ’ ff ti d t t k
p y
•How do the procurement organization s processes, effectiveness, and costs compare to key
competitors?
•How do the organization structure and practices compare with peers?
•What are the metrics that could be used to compare the procurement organization’s
efficiency and effectiveness with peers long-term?
•If th i li d l h h l / i / h t i ht b•If there is unrealized value, how much value/savings/revenue enhancement might be
captured if steps were taken to increase competitiveness?
© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 39734DAL
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Case Study - Large Integrated Oil & Gas Company
Outcomes• G i d d t di f th l h i i ti ’ t it d t
p y
• Gained an understanding of the supply chain organization s maturity as compared to
industry and peer benchmark results
• Gathered a set of actionable recommendations developed to close the company’s gaps
with their peers (Organization, Processes, Technology, Performance Management)
• Estimated of the potential value derived from implementing the recommendations
• Revised their Value/Saving Capture Methodology to be more inline with their peersg p gy p
© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 39734DAL
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Case Study - Large Integrated Oil & Gas Company
ILLUSTRATIVEBased on a comparison with identified peer companies, PROC performs on an average basis.
US1
US2
US3
IOC
1
IOC
2
IOC
3
IOC
4
IOC
5
DS1
DS2
DS3
PRO
p y
1 2 3 4 5
OrganizationSize and structure of organization, roles, skills mix
Strategy AlignedProcurement strategy is aligned with business goals
Sourcing & Category ManagementOrg in place, processOrg in place, process ingrained, drives process, robust supplier management, training programs
Performance Metrics/ Benefits CaptureFormal process in place with stretch targets (external andstretch targets (external and internal).; hard dollar savings with formal recognition process
TechnologyCommon procurementsystems for spend analysis, sourcing, P2P, and reporting
© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 39734DAL
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High level of capability Moderate level of capability Low level of capability
Case Study - Large Integrated Oil & Gas CompanyIn general, we believe procurement performs well against independent DS/US peers There are opportunities for
ILLUSTRATIVE
p y
independent DS/US peers. There are opportunities for improvement when compared to some IOC practices.
Overall Procurement Maturity
Low High
Overall Assessment by Area
PROCI
Low High
Low High
Low High
Low High
Process
Tech. & Tools
Perf. Mgmt.
Org. & People
© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 39734DAL
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Case Study - Large Integrated Oil & Gas Company
OverviewOrganization & People+ CPO role and organizational position
ILLUSTRATIVE
p y
+ CPO role and organizational position+ Skill mix and blend of procurement professionals with business/operations talent+ An active network exists with a shared services support organization– Business/operations talent within procurement has not been educated in supply chain practices
ProcessProcess+ Operational procurement tightly integrated with the business– Inconsistent definition of strategic sourcing process and non-existence of category management
approach– Undefined Procure-to-Pay processUndefined Procure-to-Pay process
Technology & Tools+ Technology investment creates opportunity to improve procurement platform+ Innovative integration of market place+ Different systems (US/DS) create data availability and visibility challenges (e g spend by category+ Different systems (US/DS) create data availability and visibility challenges (e.g., spend by category,
total suppliers, master data errors and duplications)Performance Management + Strong procurement metrics gathering process in place+ Supplier performance management is fully defined and implemented
© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 39734DAL
+ Supplier performance management is fully defined and implemented.– Several key supplier scorecards are still in development.
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Case Study - Large Integrated Oil & Gas Company
Compared to KPMG’s Overall Procurement Maturity Model, PROC Performs at the Median.
COMPONENTS MATURITY OF PROCUREMENT ORGANIZATION
ILLUSTRATIVE
p y
Entirely internally focused
Value driverMultiple agendas,
local procurement teamssupport a cost center
mentality
Procurement visionagreed and alignedwith the business
Focus on life cyclecost
Board member and keyinfluencer and driver
across functionalboundaries
Business partnerincorporated in design,
development,manufacturing
Federal structureGlobal
procurement Autonomous
functions, e.g.objective setting at
Local procurementreporting directlyinto Local Mgmt /
Strong alignment with Group
Procurement (hard
Global procurement
Central guidancelocal
COMPONENTS
Customer Alignment
Operational E ll
MATURITY OF PROCUREMENT ORGANIZATION
pfunction
objective setting at BU or local CFO
into Local Mgmt / dotted line to Group
Procurement (harddotted) communityimplementation
Buyers Business partnerBuyersLittle or no formal
procurementtraining
Qualified byexperience
Professionalpurchasers
incorporated withbusiness
Professionalpurchasers
L d f R d ti f St t iGl b l di t
Excellence
Talent Management
Locally specific Standardized and enhanced
No commonprocesses or structures
Low degree ofstandardization and
automation (divisions/geographies)
Recommendation forcommon methods,
processes andreference data
Strategiccategories and
processes for directand indirect
Global directprocurement, local
indirect procurement
Incompatible systems and
data models
Global data model/systems
No procurementsystem PO system Data extracts from
base ERP data
Full data-setanalysis and
reporting tools
Data extracts frommultiple systems
(ERP, quality)
Supplier Management
Technology / Innovations
Location-focused Value-focusedPer locationPurchasing groups
but no commondata set
Common datasets,common suppliers
Commonrequirements,
datasets, suppliers
Majority ofprocurement
processing in SSCsRight Sourcing
© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 39734DAL
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Transformation MapA Transformation Map
establishes the envisioned future Prioritized Category
Purchasing Policy and Procedures Formalized
Develop Contract
Compliance Determine
Technology
Manage & Control
Maverick
Present Short Term Long TermPurchasing Vision Future“Managing Procurement to Deliver Value for Growth”•Strategic Focus
Quick Wins Short Term Long Term
ence
state of Procurement at a
company compared to its
current state. It also lays out a
Proc
ess
Sourcing –Quick Hits
Source to Purchase Processes
P-Card Sourcing & Implementation
Processes
Upgrade Purchase to Pay Process
Implement Contract
Compliance Processes
Implement SAP Upgrades
Implement Contract
Enabled Contract Compliance Approach
Spend
Transition Organization to New
Accountabilities
•Strategic Focus•Process Optimization•Technology Enabled•Real Time Spend Visibility•Sourcing Optimization•User Partnering•Cross-functional•Contract ComplianceImplement e-Sourcing
Functionality
Implement Supplier
Determinee-procurement compatibility
Ope
ratio
nal E
xcel
le
eProcurementImplementation
y
sequenced set of initiatives to
begin achieving the future state
in a structured and sustainable chno
logy
SAP Planning & Implementation Validation
SAP Assessment
Conduct e-Sourcing
Auction Pilots
pCompliance Technology
Cascade Messages Through
Determine e-Sourcing Strategy
Confirm Roles & Responsibilities
(RACI Chart)
Educate Users on Purchasing Best
Transfer Benefits Delivery to Budget
Owner
Introduce Supply Base Optimization (SBO) Process: Phase 1,
p ppCertification Process
Leverage Spend with Preferred
Suppliers
Implement Total Cost Model for Total nn
ovat
ion
in a structured and sustainable
manner.
Tec Organization
Communicate KPI Status: Identified,
Scoreboarded, Delivered
Determine Org Design Strategy: Technology Enabled, Relationship
Management, Outsourcing, etc.
Educate Users on Current ant & New
Contracts
Purchasing Best Practices
Conduct Steering Committee Benefits
Review
Implement Benefits
Educate TPNA of Bottom Line Impact: $1 Saved =
$25 in Sales Contribution To EBIT
Develop Supplier Scorecard
Low-end Spend; Phase 2, Leverage
Cost of Ownership
men
tIn
Corp
Supp
lier
Man
agem
ent Communicate
Purchasing Processes & Success Stories
Identify Transformation
Steering Committee
Conduct Leadership Alignment
Workshops
Increase Purchasing Organization Capacity
(Hire Commodity Mgrs.)
Establish Benefits Tracking Process
Implement Communications Process: Media,
Managers’ AgendasAlign Leadership & Functional Areas
Around User Driven Approach
Purchasing As-Is Low spend visibility•“Fluid” processes, reactive•Spend not leveraged•Inadequate systems, processes, tools•Limited organizational capacity•Many are “buyers” but only “place orders”•Relevant KPI’s not used•Capabilities not optimized throughout org.•Anecdotal to analytical rigor
Delivery Approach: Reinvestment, Budget Impacts – Negotiate with Budget Holders
To EBIT
Sup
plie
r Man
agem
© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 39734DAL
People & Organization Benefits Delivery Communications & Mobilization
•Anecdotal to analytical rigor
Talent Management Right Sourcing Customer Alignment
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Benefit ErosionSelecting and focusing on one aspect of a transformation sub-optimizes results.
ion
(+)
Procurement TransformationSourcing ProgramBusiness As Usual
P t St d Al
act C
ost R
educ
t i e-Procurement Stand Alone
Time
Fina
ncial I
mpa
-)C
ost I
ncre
ase
(- Doing what you’vealways done gives youwhat you’ve always 1st Implementation
2nd Implementation
© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 39734DAL
C got
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Grant Poeter Michael CollinsGrant Poeter
Senior Manager
KPMG LLP
700 Louisiana Street
Michael Collins
Senior Manager
KPMG LLP
700 Louisiana Street
Houston, Texas 77002
Tel 713-319-3661
Fax 713-583-4294
Houston, Texas 77002
Tel 713-319-3066
Fax 713-583-9956
Cell 281-382-7518
Cell 281-382-7034
© 2010 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 39734DAL
The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
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