7 Step Sourcing Process Nov 20 2007

7 Step Strategic Sourcing Process Last UpdatedNovember 2007Global ProcurementAgendaIntroductionReview of the 7Step Strategic Sourcing ProcessOpportunity Identification this strategy was called global sourcing or strategic sourcing. n A 3-pronged approach began in the 90s; consultants started coming into the picture and addressing key areas of concern:Executive involvementDepartment Manager involvementPurchasing credibility and value-add5Where did the 7 Step Strategic Sourcing Process Come From ?The “proven” process consultants offered was “The 7 Step Strategic Sourcing Process “The first key lever behind it was the use of multi-disciplined team, the second one was a corporate program of “waves” of sourcing categories sponsored by executives. The 7 Step Strategic Sourcing Process has worked in a diverse array of industries although some key factors with individual reasons have been identified as failure root cause:n Philosophical Tension n Organizational Misalignmentn Tools and Technology 6IBMs Sourcing Process Definition & BenefitsStrategic Sourcing organized, systematic, collaborative way to identify competitive suppliers for long term agreements to supply demand for indirect/direct purposes. In essence, it is an organized way of corporate buying.Sourcing Process - A rigorous process, with tools and templates, which helps us make the optimal sourcing decisions. Consistent processes and tools across all commodities Leverage buying power Achieve cost savings Benefits of IBMs 7 Step Strategic Sourcing Process Timely acquisitions Foster strategic relationships Streamline internal business processes Improve overall efficiencies7Strategic Sourcing Process Delivery Model Identify Opportunities Develop The Team Charter Prepare & Complete a Project Plan Identify Stakeholders & Extended Team Members Conduct Kick-off Meetings & Mobilize Project Validate Roles & Responsibilities Confirm Business Objectives Develop & Communicate Goals Begin To Identify & Document Project Risks Complete Internal Profile Complete External Profile Confirm Baseline Collect & Analyze Data Conduct Market Research Develop Market & Supplier Profiles Analyze Supply Market Data Conduct Risk Assessment Summarize Findings & Refine Opportunity Assessment Develop, Document and share TCO model & Sourcing Strategy Identify Selection Criteria Select Supplier Long List Conduct RFI Document Supplier Short List SWOT Analysis Types of RFx Document RFP Scope & Timing Write & Execute RFP Evaluate RFP Document Suppliers for Negotiation Best allocation of business Document Negotiation Strategy Plan & Execute Negotiations Document Benefits Stakeholder agreement Document Internal Impact Develop Implementation Plan Implement Agreement Metrics targets Communication Plan Manage Performance Transition issues and risksIBM utilizes its robust and proven Strategic Sourcing process to identify and source the maximum value for our customersOpportunity Identification & Analysis Strategic Sourcing ProcessImplementationStrategy DevelopmentAssess Opportunities& Launch Project Develop Category Sourcing StrategyQualify Suppliers Conduct RFxNegotiate AgreementImplement &Manage PerformanceComplete CategoryProfile Step 3 Step 4 Step 5 Step 6 Step 7Step 2Step 18Step 1 Assess Opportunities & Launch ProjectUpon Completion of Step One You Will Be Able To Provide a structured approach for the collection & analysis of baseline spend & identification of improvement opportunities Identify stakeholders and extended team members Understand potential sources of data and the obstacles and challenges of spend analysis Conduct kick-off meeting Develop team charter Validate roles & responsibilities Prepare project plan Develop & communicate goals Create project shared folder structure Begin to identify & document project risks1 2 3 4 5 6 7Major Tasks Identify opportunities Conduct kick-off meeting & mobilize the project Develop team charter Validate roles & responsibilities Prepare & complete a project plan Confirm business objectives Identify stakeholders and extended team members Develop & communicate goals Begin to identify & document project risks9Step 1 Assess Opportunities & Launch Project Who should be on the team? Who are the stakeholders? Who is going to be responsible for what? What was purchased by whom, from whom and how? What is the forecasted future demand and/or identified opportunities? What are the commodity requirements and issues? What is the scope? Is there a best practice or benchmarking? What types of spend data is needed and what are the sources? How do we manage the data and organize it to define the spend profile? What is the baseline spend for the entire organization and what percent is negotiable?1 2 3 4 5 6 7At the conclusion of Step 1, a number of Key Questions should be answered7 Steps10Step 1 Assess Opportunities & Launch Project Deliverables Templates Team Charter Project Charter Communication Plan Communication Plan Stakeholder Analysis Stakeholder Analysis Project Plan Project Plan MS Project Kick-off Meeting Project Kick-off Role & Responsibility Assignments Project Plan MS Project Risk Assessment Risk Assessment1 2 3 4 5 6 711Template SamplesStep 1 - Form Team & Assess Opportunity1 2 3 4 5 6 7In Slide Show mode, click the icon to open the sample document.12Team CharterWhat Is It And What Does It Do?n A guideline for team members to build a common statement and buy-inn A clear, written, agreed upon document of the teams mission and objectivesn Describes how the objectives relate to the business directionsn Identifies the authority level, team resources and key requirements necessary to accomplish the missionn Removes the sources of potential conflict before they can take rootn Simple Working Agreement: Team purpose/mission, roles, rules for meeting etiquette and decision making, milestonesn Serves as an agreement among team members, and between team members and team sponsorCharter:“.A declaration or document setting forth the aims and principles of a group”What Are The Benefits? Provides clarity from the onset Roles and objectives Establishes time frames for the project Improves communication vertically and horizontally Prevents multiple interpretations of the objectives & potential conflicts Fosters commitment and mutual trust Allows for flexibility when/if conditions change Ensures everyone is on, and stays on the same page Encourages management support13Project PlanWhat Is It And What Does It Do?n Establishes the objective and initial scope of the project before initial communication with the stakeholdersn Identifies a cross-functional team and defines roles & responsibilities for all team members early in the projectn Sets clear milestones and time frames for completionn Identifies which of the 7 steps of the strategic sourcing process are most critical for your projectWhat Are The Benefits? Establishes a base line for success Clear goals, objectives and time frames Provides a clear picture of time constraints that must be met Provides for a single point of contact for the project Reminder to set agendas and send out meeting minutes Provides a foundation for consistent communication and messages14Helpful HintsStep 1 Assess Opportunities & Launch Project Manage expectations if it is a rising market, establish that up front Engage expert services early and often. Expert services can provide access to other organizations within the Center Of Excellence (ex. Market Intelligence) as well as guide commodity managers to all available tools and templates Use the templates that are available to you - they will make the job easier Engage expert services for assistance with the templates Always send meeting minutes and agendas for team call Communicate with your team members so that everyone can provide the same answer to questions that stakeholders outside of your immediate team may have This process was designed to be carried out by a sourcing team comprised of people with a broad range of backgrounds and responsibilities Typically includes a decision maker, facilitators, technical experts (e.g., supply market experts, engineers) and other cross-functional members as representatives of the user community. Define roles and responsibilities Have a single point of contact for business unit team members to contact about the project15Step 2 Complete Category ProfileUpon Completion of Step Two You Will Be Able To Understand the scope and components of both the internal and external profile and its purpose in developing a category strategy Know where to look for and capture data Know how to use the information gathered1 2 3 4 5 6 7Major Tasks Complete Internal Profile List of customers, their needs & buy-in, requirements, key buying decision characteristic, opportunities for improvement Complete External Profile Business direction & industry trends impacting buying decisions, market capability vs. business requirements, relationships and agreements with suppliers, effectiveness for maximizing value Confirm Baseline Collect and Analyze Data: Define data elements, collect data, normalize data, validate data, analyze data, identify opportunities16Step 2 Complete Category Profile1 2 3 4 5 6 7 What do we buy? Who are the suppliers? What are our existing commitments? What do we pay? Who are the customers for each spend category? What are the business need for the spend categories? How critical is the product/service to the business? What are the key decision buying criteria and who makes the decision? How do buying behaviors impact total cost? Can we leverage and still meet requirements? What are the needs vs. wants Are there any potential opportunities?At the conclusion of Step 2, a number of Key Questions should be answered17Step 2 Complete Category ProfileDefine Data Elements Collect data from systems Collect hardcopy data (e.g., invoices, POs) Talk to stakeholders Talk to suppliers Compile data into database tool Clean data Categorize purchased items Identify gaps, inconsistencies and redundancies Produce high level spend baseline and priority listing Check results with relevant stakeholders Adjust data as necessary Fill in gaps Agree on priorities for further investigation Analyze data across each dimension (product, supplier, location, negotiable vs. non-negotiable spend etc.) Based on spend analysis, validate findings against initial hypotheses Refine opportunity assessment Determine what data needs to be collected Identify data sourcesData Collection and AnalysisCollect DataNormalize DataValidate With BUAnalyze DataIdentify OpportunitiesActivities Tasks Work Products Prioritized list of potential opportunities by category Spend profile of commodity/service by division/operating unit and buying location Spend profile by division, supplier, etc. Number of suppliers by commodity/service Negotiable vs. non-negotiable spend Spend split by direct vs. indirect and capital expenditure vs. expense Spend split by materials vs. services18Deliverables & Approachn Negotiable vs. non-negotiable spendn Spend split by direct vs. indirect and capital expenditure vs. expensen Spend split by materials vs. servicesn Spend profile by invoice typen Spend profile of commodity/service by suppliern Spend profile of commodity/service by division/operating unit and buying locationn Number of suppliers by commodity/servicen Prioritized list of potential opportunities by categoryReconcile Data Interpret FindingsClean & Analyze DataGather Data19Sources of Market & Supplier InformationOther IBM Procurement communities.Industry AssociationsSupplier Web SitesResearch ProvidersTrade Journals & PeriodicalsCompany AnnualReports & 10-KsInternet Other IBM Procurement consultantsStep 2 Complete Category ProfileInternal Sources may include: Finance systems, purchasing systems, materials management systems, purchase card reports, maintenance systems, manual systems (spreadsheets), invoices, purchase orders, contracts, suppliers20Template SamplesStep 2 Complete Category Profile2 3 4 5 6 71In Slide Show mode, click the icon to open the sample document.21Data and information required to establish a spend baseline are pulled from multiple data sourcesIllustrativeCommon Sources of Data Financial (e.g., A/P, Supplier master files) Purchasing (e.g., eProcurement, Contract Management) Materials Management (e.g., MRP systems) Invoices Independent stakeholder reports Supplier reports P-card reports Travel and expense summaries Interviews with organizational personnel and suppliers “Manual Systems” (e.g., spreadsheets)Spend Data Information Buying region and/or country Buying business unit Category name and code Supplier name and number Spend Amount Quantity Number of purchase orders, deliveries, and invoices Delivery mode Purchase and invoice transaction types22Starting Point:Typical OutputOffice Equipment Copiers $293,300 Canon $122,000 Xerox $98,000 Sharp $60,100 Mita $7,200 Kodak $6,000Desired Level of Understanding: Usable Information for Strategic SourcingOffice Equipment High Volume Kodak 2085 $6,000 Mita 8590 $7,200 Sharp SF4085 $5,100 Color Xerox DC230 $20,000 Xerox DC265 $15,000 Canon CLC7005 $2,000 Low Volume Canon 6050 $120,000 Sharp SF2030 $55,000 Xerox 5350 $63,000Baseline Data Analysis Illustrative23Spend analysis provides a historical spend profile at the category levelSpend by BU Spend by SupplierSpend by SegmentSegment XSegment YSegment ZTOTAL% of Total111212$ 25m251878$ 33m331039$ 22m224106$ 20m20$ 43m$ 22m$ 35m$ 100m100432235100BUSeg. BU A BU B BU C BU D Total % ofTotalBU A25%BU B33%BU C22%BU D20%TOTAL CATEGORY SPEND $XX MSupplier 1$28 mSupplier 2$13 mSupplier 3$5 mSupplier 4$ mSupplier 5$ mSupplier 6$ mSupplier 7$ mSupplier 8$ mSupplier 9$ mSupplier 10$ mCommodity data Current and future spend End user and buying locations Total number of suppliers Items sourced / purchased Product decomposition (BOM) Current inventory investmentIllustrativeCONCLUSIONS: Its important to add these to charts when appropriate to ensure those reading them dont draw their own which may be different than yours. Also, you want them to listen to you rather than be distracted and trying to determine what the chart means. 24What-If Scenariosn Accurate demand projections depend on obtaining meaningful forecast data and understanding the key underlying assumptionsUnit of Measure and Volume AnalysisActualForecastCommittedCategory SpendIllustrative Data Sources Five year business plan Historical data Production and distribution systems Financial budgets Senior executives Divisional and functional directors Market and economic factors Key Assumptions Product availability Demand Price Availability of substitutes Economic conditions25Step 2: Complete Category ProfileTypical Findings Revealed by Spend Analysis When Defined Sourcing Process Is Not In Placen Companies have little understanding of what is being bought across the entire companyn Buying power is not fully exploitedn A small proportion of negotiable spend is under agreementn Spend data is not readily available and/or accurate to support supplier managementn There are multiple specifications for the commodities with the same functionsn Prices vary among the same itemsOutcome Of A Poor Analysis Buyer power is not full leveraged Creates a weaker bargaining position Does not use the optimum supply base May remain with existing suppliers Does not take advantage of new advances Category strategy may not reflect supply market dynamicsResults: Missed Opportunity for Negotiation Sub-optimized strategyLessons Learned26Helpful HintsStep 2 Complete Category Profile2 3 4 5 6 71 Have fixed goals before starting your research to ensure targeted focus Know what data you need to collect before you start to ask for data from the business units/locations Decide what format the output should be in Engage expert services to get access to data collection templates in order to ensure that the correct data is collected for the project Suppliers and consultants are excellent sources of information dont be afraid to ask Research past sourcing projects for the commodity and reuse documents as appropriate. However, be aware that past sourcing projects may not have followed the standardized process and may need to be modified to meet gate requirements Numbers are powerful argument winners: Use benchmarks in your initial business case whenever possible Focus on the facts, and separate them from opinions Get updates regularly27Step 3 Develop Category Sourcing Strategy1 2 3 4 5 6 7 How big is the market? Who are the major players? Where is the industry power? What are the key industry indices and trends? How do we maximize value in this market? Is there a global, regional, sub regional, or local market? What are the cost drivers? What are the cost elements for the category? What are the costs of the cost elements What are the activities that make up the majority of the Total Cost of Ownership (TCO)? What are supplier margins? Where are the potential opportunities to reduce cost? What is the category strategy