Getting to World Class

Procurement

“Best Practices Sharing”

PasiaWorld 2016 Philippine Conference
10 November 2016
Senior Vice President – Supply Chain
LBC
 Agenda
Background
Our evolving role

Current state assessment

Best practices
Follow a program

Next Steps
Show the results
 Procurement : Background
After working with numerous companies, we have seen an evident pattern within the procurement
organization than can still be improved:

Governance People Process Enablers

• Weak and traditional • Low investment on skills • Best practices are not • Idle and disaggregated
policies in place development made available or totally data left unutilized for
• Treating procurement as • Stuck on “buyer only” unused factual decision making
“catch basin” for supply mentality • Dealing with too many • Underutilized
chain issues • Lack of proper training in third party intermediaries eCommerce in expanding
• Discounting procurement best practices to elevate • Lack of collaboration the market place
in strategic planning procurement with other key business • None-implementation of
• Few procurement organization units eProcurement in
centered initiatives to • Maintaining a “silo” • No coordination of spend organization with large
improve bottom line mentality with other across geographic & processing requirements
savings business units business boundaries
 Business Imperative
Procurement is a vital part of an organization that enables conversion of resources to profit. Similar to other
profit generating business units, Procurement can create value and improve the bottom line of the company.
Three Options to improve bottom line: Profit;
60%
• Increase Revenue Increase $8.0
• Cut cost – i.e.; Lay Off
Profit;
• Manage Spend
$5.0 Overhead; $5.0
Materials;
$27.0
Labor; $10.0
Materials; Overhead; $5.0
$30.0
Labor; $10.0

Balancing Cost and Risk 10% Savings

to Create Value!
Current State of Procurement : Tactical vs
Strategic
Implement
Identify Develop Source &
Contract
Invoice Monitor & Sample
Opportunity Strategy Negotiate & Pay Manage
& Execute

Create / Track
Historic Strategic Process Receive
Manage KRA
Spend Sourcing Requisition Invoices
Contract
Analysis

Demand Cross- Best practice Reconcile Manage

Analysis E-Sourcing functional Adoption Invoices Compliance &
Teams Issues

Supply Market Establish KRA Category Manage Manage

Analysis Evaluation Management Order Exceptions
Criteria

Negotiation RFQ,
Pay
Strategy RFP, RFI

Procurement Level of Expertise Negotiation /

Seamless with Finance/AP Selection
Procurement : From Transactional
From Highly Transactionalto
to Strategic
Strategic

Sample

Notes:
• Current activities are highly clerical and
transactional. Limited involvement on
strategic functions
• It is important to increase value in the
following areas:
• Supply Market Intelligence
• Supplier Prequalification
• Strategic Sourcing
• Contract Management
• Supplier Performance and
Scorecarding
Sample Ideal
Company
Procurement : High volume of buying transactions - SAMPLE

PO
Range % Amount %
Count
85% 13%
<200K XXX 71% XXX,XXX.XX 5%
>200k but <=500K XXX 14% XXX,XXX.XX 8%
>500k but <=2M XX 9% 15%
XXX,XXX.XX 10% 87%
>2M but <=5M XX 3% XXX,XXX.XX 11%
>5M but <=10M XX 2% XXX,XXX.XX 61%
Grand Total XXXX 100% XXX,XXX.XX 100%

• Most of procurement activity is on low value transactions.

• This low-value transactions account to approx 85% of all transactions but contributes only
13% of the total sourceable spend.
Some Best Practices
 Best Practices

S&OP

Strategic Sourcing Tactical Operational

Spend Analysis eProcurement

Materials coding/standardization Group Buying
Category Management Procurement Out-tasking
Supplier Discover & Accreditation Procurement Augmentation
Global Sourcing
 Sales & Operation Planning
A systematic management decision-making, reporting and communication tool ensuring
synchronization of overall strategic goals to the downstream supply chain implementation
plan. Balancing overall resource capacity to meet total customer market demand.

Integrate Financial
Bridge customer value to Provide long range
& Operating Plans
supply chain efficiency vision to short term
processes

Factual decision making Links strategic plan to

for key business activities Regulate master
schedules & Sales plan details schedules
 Strategic Sourcing
Strategically Select Apply a
Define The
Segment Tailored rigorous
Scope
Purchases Approaches process
 Strategic
Step Sourcing
1 – Profile Category : Profile Category
Each component of the analysis will contribute to creating a comprehensive commodity profile and opportunity identification.

B. Spend Analysis
E. Relationship Analysis Historical and forecast spend by:
Current customer status & volume • Market
Current supplier status & volume • Business unit
Past performance levels & satisfaction levels • Supplier
Stakeholders who need to be involved • Product/service
• Month

Opportunities
COMMODITY C. Needs Assessment
D. Total Cost Analysis PROFILE
Total cost elements Customer requirements
Supplier cost breakdown Specifications
Internal cost drivers Functionality
Cost model Sub-commodity groupings
Processing costs Future trends
Business impact
Technology
Strategic Sourcing Matrix
CRITICAL
 Complex specifications requiring
complex process
 Few alternate products available
 Few qualified sources of supply
 New technology/processes involved in
Risk & Opportunity
provision of the product or service
Negotiated Close Relationship
ROUTINE
 Many existing alternate products and
services
 Low value
 Small individual transactions
 Unspecified items for everyday use
eCatalogs/Procurement Card
Spend Value
Exact placement of the sourcing group is
less important than its relative placement
STRATEGIC
 Strategic to profitability and operations
 Few qualified supply sources
 Large expenditures
 Design to quality critical
 Complex specifications
Alliance/Long Term Relationships
LEVERAGE
 High-expenditure area
 Many existing alternate products and
services
 Many qualified supply sources
 Goods and services are readily available
eBidding/Blanket Purchase Orders
Strategic Sourcing : Approach

Negotiation & Continuous

Profile Category &
Selection of Benchmarking
Supply Market
Suppliers Supply Market

Sourcing Strategy Operational

for Sourcing Integration with
Category Suppliers

Selection of plan
Supplier Portfolio
for
Generation
implementation

15
Strategic Sourcing : Approach
Combine volume from different commodity categories Conduct product value analysis & engineering’s
Consolidate number of suppliers substitute materials
Pool volume across units Pursue system buying alternatives
Redistribute volume among suppliers Optimize life cycle costs
Product
Volume Specification
Concentration Improvement

Reengineer joint processes

Compare “total” costs Share productivity gain
Model “should-costs”
Best Price
Strategic Joint Integrate logistics
Renegotiate prices
Sourcing Process Support supplier
Evaluation
Unbundle pricing Improvement operations improvement

Global Relationship
Sourcing Restructuring
Expand supply base Establish/develop key suppliers
Develop new suppliers Employ strategic alliances/partnering
Profit from global supply/demand imbalances Implement Supplier Management Program Develop
integrated supply chain

16
Total Cost of Ownership (TCO)
TCO encompasses all direct and indirect costs that are incurred over the life of the material or
service Valve Example
The life-cycle stages are:
• Requirements Definition Procurement
7% (Price)
• Source Identification
12% Maintenance
• Acquisition 37%
• Storage Inventory Holding
16%
• Installation Overhead
• Operation/Maintenance
Freight
• Retirement 28%
eProcurement drivers
eProcurement on the Rise

CURRENT STATE ENABLER EFFECT

Tedious Process Ease of Use Swifter Buy-in period
Manual Sourcing E-Commerce Accelerated turnaround
Disaggregated Data eCatalogs Empowered end-users
Process Workarounds Process Guidance Infrequent incompliance
19
Weak supplier relations Supplier Integration Improved response and services
Group Buying
Managing indirect spend can be tedious and consume resources.
Consolidation of these items can reduce resource consumption and achieve a
strategic advantage with supplier.
Independent Host
aggregates small buying
into big volume
HOW?
Independent user deploys eSourcing,
Similar business Leverage Contracts and Strategic
requirements from difference Alliances to provide best prices
organizations pooled
Group Buying
Advantages of this approach are both enjoyed by the buyer and supplier.
What is in it for Buyers?
 Cost reduction due to aggregation –
effective sourcing
 Leverage common procurement
infrastructure
 Use of independent 3rd party PSP host
 Share, build, and apply procurement best
practices
What is in it for Suppliers?
 Focus on availability, quality, and service
 Lower operating cost of sales and client
collaboration
 Higher volumes
 Proactive members in improving cost and
increasing innovation
Procurement Augmentation
Out-task non-core transactional activities to focus on strategic initiatives
Procurement Out-Tasking
A fast and effective cost-saving initiative in which easily defined and measurable activities or
processes are contracted out whilst the main function is kept in-house. It helps cut costs
without loss of control or high set-up costs.

Benefits

Office Supplies Corporate Giveaways Scale of

Purchasing

Access to
Computer Hardware Office Equipment
Suppliers
Direct
Access to more
(core)
Economical
Facilities Software Labor Sources

Economic Drivers: Make Money vs. Save Money

Procurement Out-tasking and Augmentation

Augmentation

Complete transfer of activities

Out-Tasking
Transfer of certain tasks within a
particular business process while
maintaining control over the strategy and
implementation. It helps cut costs without
loss of control or high set-up costs.
Sourcing of point solutions which may be
manual and relatively low-skilled processes
or use specialized resource.
Small manageable projects
 Potential large savings
 More tactical and transitional
relating to sourcing and supplier
management to a third party service
provider
The handover including risk transfer of
a non-core (or even core) set of business
processes or a complete business
function to a third party service provider.
 Large scale undertaking – program
level
 More modest, but easily defined and
measurable savings
Strategic and Semi--permanent

Companies tries Out-tasking before going to full Augmentation..

Procurement Augmentation
Outsourced procurement allows enterprises to focus on their core competence
as procurement service providers achieve overall improvement in key
performance indices and leverage technology more effectively.

 Receive requisitions from business units
 Prepare Purchase Orders to suppliers
 Execute and Issue Purchase Orders
 Expedite and Follow up with suppliers
 Coordinate and Manage documentation
flow
 File and Archive physical documents

PO Processing Expediting Procure-to-Pay Logistics

Performance Level and Transaction Processing Metric

 Solution Screening & Self Service
Discovery
Enablement Accreditation Platform
 Dare to Lead!
• People is key
• Demonstrate competence
• Have a plan
• Deploy the plan
• Evolve
THANK YOU!