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Key Elements for Successful Strategic Sourcing. Breakout Session 1808 Anne R. Morton Principal Acquisition Solutions, Inc. April 12, 2006 10:45 AM. Topics Covered. Strategic Sourcing Overview Focus Topics Governance Spend Analysis Supplier Relationship Management Communications

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Key Elements for Successful Strategic Sourcing

Breakout Session 1808

Anne R. Morton

Principal

Acquisition Solutions, Inc.

April 12, 2006

10:45 AM

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


Topics covered
Topics Covered

  • Strategic Sourcing Overview

  • Focus Topics

    • Governance

    • Spend Analysis

    • Supplier Relationship Management

    • Communications

  • Summary

  • Discussion

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


What is strategic sourcing
What Is Strategic Sourcing?

. . . A comprehensive approach to analyzing the entire procurement function’s people, processes and tools that will enable the development of acquisition strategies that will drive performance improvements, cost savings, achieve overall results and meet the strategic goals of the organization . . .

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


Strategic sourcing is transformational
Strategic Sourcing Is Transformational

It shifts the organizational focus . . .

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


Strategic sourcing is multi dimensional
Strategic Sourcing is Multi-dimensional

  • Implementing Strategic sourcing is not a linear progression but rather a comprehensive re-engineering of a business process

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


Strategic sourcing is a collaborative structured process
Strategic Sourcing is a Collaborative, Structured Process

  • Capture validate agency-wide spend & suppliers

  • Segment data

  • Understand data (who, what, when, where, how, why)

  • Analyze market

  • Identify opportunities

  • Create governance framework

  • Align with mission and objectives

  • Assess risk

  • Support customer needs

  • Leverage opportunities

  • Identify metrics

  • Determine quality of competition

  • Implement process, policy & cultural transformation

  • Develop communication plan & training requirements

  • Measure & report performance

  • Leverage supplier relationships

  • Refine demand planning

  • Communicate results

  • Adjust & Re-initiate

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


Why strategic sourcing
Why Strategic Sourcing?

. . . Because it benefits the entire organization . . .

Chief Financial Officer

  • Reduces costs

  • Optimizes resources

Chief Information Officer

  • Drives standardization

  • Optimizes resources

Chief Acquisition Officer/Executive

  • Optimizes resources

  • Supports compliance

Contracting Manager

  • Reduces workload

  • Transforms role to business advisor

Small Business Representative

  • Improves socio-economic achievements

End User

  • Improves performance and response

  • Increases value

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


Traditional acquisition
Traditional Acquisition

Transaction-based, compliance-oriented, overhead function

8% > $25,000

94% of Dollars

92% < $25,000

6% of Dollars

Delivery

Receipt Inventory Payment

PALT

Lots of Paper

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


Strategic sourcing supports a balanced scorecard approach
Strategic Sourcing Supports A Balanced Scorecard Approach

Organizational Alignment & Leadership

  • Align acquisition with agency ….missions and needs

  • Commitment from leadership

Organizational Alignment & Leadership

  • Align acquisition with agency ….missions and needs

  • Commitment from leadership

Human Capital

  • Valuing and investing in the ….acquisition workforce

  • Planning for human capital

Human Capital

  • Valuing and investing in the ….acquisition workforce

  • Planning for human capital

Organizational Alignment & Leadership

  • Align acquisition with agency ….missions and needs

  • Commitment from leadership

Human Capital

  • Valuing and investing in the ….acquisition workforce

  • Planning for human capital

Policies & Processes

  • Planning strategically

  • Effectively managing the ….acquisition process

Policies & Processes

  • Planning strategically

  • Effectively managing the ….acquisition process

Knowledge & Information Management

  • Identifying data and technology

  • Safe guarding operations and ….data integrity

Knowledge & Information Management

  • Identifying data and technology

  • Safe guarding operations and ….data integrity

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


Strategic Sourcing Delivers Results

Produces real savings, compliance, and continuous improvement

Source: Hackett Survey 2000

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


Strategic sourcing key elements

Governance

Strategic Sourcing – Key Elements

Governance Structure

Spend Analysis

Linkage to Strategic Plans

Communications Strategy

Supplier Relationship Management

Collaboration

Performance Management/Monitoring

Training

Cultural Transformation

Spend Analysis

TODAY’S FOCUS

Supplier Relationships

Communications

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


Governance the challenges
Governance – The Challenges

Improve process capabilities with cost effective initiatives generating direct results

  • Develop a customer-centric strategy to drive efficiency and effectiveness

  • Streamline sourcing processes that strategically link to agency’s mission and goals

  • Improve forecast and response accuracy to reduce risk

  • Align demand and supply to improve cost effectiveness

  • Compress cycle-times to improve delivery response

  • Predict supply chain disturbances and react with greater speed

  • Leverage human capital

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


Governance a model
Governance – A Model

A governance structure provides strategic direction, verifies resources, and validates risks are managed

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


Strategic goals and objectives
Strategic Goals and Objectives

Leadership frames the business strategy formulation

  • Aligned with mission

  • Illustrative characteristics – goal setting

    • % Spend under Control

    • Spend segmentation

    • Socio-economic achievements

    • Enhanced supplier responsiveness

    • Improved performance

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


Spend analysis what is it
Spend Analysis – What Is It?

How much, how and what is being bought, who is buying from whom

“. . . the collaborative and structured process of critically analyzing an organization’s spending and using this information to make business decisions about acquiring commodities and services more effectively and efficiently. . .optimize performance, minimize price, increase achievement of socio-economic acquisition goals . . .

Analyze

Data

Develop

Strategy

Execute

Strategy

Identify Strategic

Relationships

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


Spend analysis 10 best practices
Spend Analysis – 10 Best Practices

Audit existing spend capabilities

Classify spending at a detailed level

Enhance core spend data with vital business intelligence

Access all spend data sources from within and without the enterprise

Increase frequency and coverage of spending analysis

Adopt a common classification schema enterprise-wide

Establish efficient and repeatable data cleansing and classification capabilities through the use of software or services

Utilize advanced reporting and decision support tools

Continuously expand uses and scope of a spend data management program

Augment category expertise to ensure data and classification accuracy and validation

Best Practices in Spending Analysis, Aberdeen Group, 2004.

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


Spend segmentation
Spend Segmentation

Segmentation of spend by:

  • Segment

  • Family

    Socio-economic segmentation

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


Spend Opportunities

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


Spend prioritization
Spend Prioritization

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


Market segmentation
Market Segmentation

Leverage

Strategic

  • The elements of the spend are analyzed

  • Ranked by strategic importance and

  • By the complexity of the purchasing process that is often a surrogate for risk

Leverage

Strategic

Integrated

Telecom

Computer

Hardware

Integrated

Telecom

Software

Computer

Hardware

Computer

Hardware

Commodity

Bottleneck

Telecom

Equipment

Strategy

Office

Equipment

Ground

Transportation

Telecom

Equipment

Office

Equipment

Ground

Transportation

Complexity

Source: ATKearney

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


Supplier relationship management srm what s it all about
Supplier Relationship Management (SRM) – What’s It All About?

. . . SRM is a collaborative and comprehensive approach to understanding the supply market and managing performance and contract compliance . . .

  • Creates a common framework for effective communications

  • Fosters partnering to improve service and costs

  • Integrates supplier intelligence into the process

    • Market research and analysis

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


Srm value and benefits
SRM Value and Benefits About?

  • Streamlines and effectively manages the processes between an organization and its suppliers

Contract

Supplier

Agency

Contract

Supplier

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


Srm a model for partnership
SRM – A Model For Partnership About?

Decision

Create or adjust relationship

Facilitators

Supportive environmental factors that enhance partnership growth

Drivers

Compelling reasons to partner

Components

Joint activities and processes that build and sustain the partnership

Drivers

Set expectations

of outcomes

  • Feedback

  • Components

  • Drivers

  • Facilitators

Outcomes

The extent to which performance meets expectations

© The Global Supply Chain Forum, 2000

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


Srm fulfillment
SRM Fulfillment About?

Collaboration

Field

Services

Design

Services

Design

Partners

Prod LC

Services

Consumers

Supp

Svc

Cust

Svc

Niche

Services

Business

Customers

Suppliers

Acquisition

Professional

Customers

Part & Ass’y

Suppliers

Retailers

Fullmnt

Services

Contract Manufacturers

Distributors& Resellers

Logistics

Providers

E-Service

Providers

Performance Improvement

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


Communications why bother
Communications – Why Bother? About?

Communications promote understanding and strengthen relationships

  • Fosters Partnerships and Teamwork

  • Obtains stakeholder commitment and ownership

  • Provides tailored messages and materials

  • Solicits and incorporates feedback for continuous improvement

  • Supports forward momentum

Report &

Update

Plan

Strategy

Craft &

Execute

Obtain &

Analyze

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


Summary success factors
Summary – Success Factors About?

  • Leadership

  • Discipline, Collaboration

  • Willingness to look at things differently – design business strategies

  • Behavior shifting, change management

  • Capture knowledge/share knowledge

  • Baseline then measure performance achievements

  • Train everyone

  • Communicate, communicate, communicate

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


Summary benefits
Summary - Benefits About?

  • Improves performance

  • Produces efficiency

  • Reduces costs

  • Instills teamwork

  • Increases knowledge and understanding

  • Shares knowledge

  • Mitigates risks

  • Optimizes the value of tax dollar spending

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


Thank you
Thank You About?

NCMA World Congress 2006

:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management


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