Presentation Transcript

1. Trade Management Sourcing & OptimisingStrategies Module 8
2. Trade Management Highlights Buyer / Chief Purchasing Officer – Challenge Supplier Base Optimization Strategic Sourcing Process Supplier – Financial Analysis Risk Management Supplier Evaluation (Performance Audits)
3. Trade Management Purchasing Issues: Re-focus on processcapabilities Organisations are / need changing Supply Market and Sourcing Strategies are changing Warehousing & Transportation are getting sophisticated Increased use of technology and suppliers’ capabilities - to obtain visibility of the supply chain
4. Trade Management Purchase Manager’s Issues Who are your key suppliers? What is your organisation total spend each year? What is the spend by category / supplier? (Eg. raw materials, IT) What is the total acquisition cost (TAC) & the life cycle cost of capital purchases? What is the value your suppliers provide towards your organisation’s success and reputation? How to manage vendor performance? What are the purchasing risks and how to manage it? What are you Out / In-sourcing? Whether your purchasing strategies are aligned with business strategies? What percentage of your external spend is managed by purchasing? Do you assess the outcome of your negotiations? How do you develop your key suppliers? What financial metrics to focus on?
5. Trade Management Purchasing Optimisation: 80/20 Rule Analysis to identify, 20% of suppliers receiving the majority of purchase dollars Identify the minority of suppliers causing the majority of problems 80/20 rule assumes the best suppliers receive the majority of purchase dollars
6. Trade Management Purchasing Optimisation(cont) With too large a supply base, the challenges Supplier integration Collaborative agreements Supplier development Joint total quality/cost reduction efforts To determine the right mix of capable suppliers Optimisation does not only mean adding or reducing suppliers. It can mean switching suppliers, also !! Optimisation does not mean supply base reduction As companies continue to rely on fewer total suppliers, the selection process takes on even greater importance
7. Trade Management Purchasing OptimisationBenefits: Reduced supply base risk Lower transactions costs Leverage leading to lower purchase costs Ability to pursue value-added activities Opportunity to work with world-class suppliers, which leads to improved value chain performance
8. Trade Management Purchasing OptimisationCritical Success Factors: Time Cross-functional teams Supplier measurement system Strategy development process that considers optimisationgoals Overall supply base vision with Senior Management support
9. Evolution of Sourcing Strategic Sourcing Traditional Purchasing Global Supply Management Transaction Enablement Project Paradigm Focus Supplier rationalisation, Spend consolidation, Cycle-time reduction, Standardisation Balancing Total System Cost; Maximising shareholder value; Enabling product innovation Price, Transaction management, Compliance Reach Local; Many suppliers Multi-regional, Some collaboration with related functions Global; Highly collaborative across the enterprise and visible at executive levels Spreadsheets Technology Auctions, eSourcing, Basic optimisation Technology enablement across all strategic sourcing processes People Decentralised Buyers Commodity Teams, Center-led or centralised Cross-functional teams Global
10. Supplier Management Supplier Development Supplier Evaluation and Selection Analyse Spend Identify Requirements Analyse Market Develop Strategy Manage Negotiations Award & Contract Implement Strategy Strategic Sourcing Traditional Procurement Strategic Sourcing Process
11. Analyse Spend Buyer Buying analysis across all divisions Total number of suppliers used Compare pricing across divisions Consolidate spend, reduce suppliers and obtain better pricing Tools Spend Analysis
12. Identify Requirements Buyer Users - product and service requirements Quality requirements Product specifications Service performance expectations Identify different requirements across divisions Consolidate opportunities Tools Specifications Surveys Interviews
13. Analyse Market Buyer Specific market conditions Rising input costs, capacity constraints, barriers to entry Supply base constituents Many players, dominant players Analyse new products, services or diverse suppliers Tools Internet research Benchmarking
14. Develop Strategy Buyer Based on the internal requirements, industry dynamics Negotiate with current supplier(s) Bring in new suppliers Bid Reverse Auction Traditional RFI, RFP, RFQ Tools eSourcing tools Cross functional teams Project Management
15. Manage Negotiation Buyer Develop criteria for evaluating proposals based on internal requirements Initiate negotiations under chosen strategy Compare and rank results based on key criteria Tools Online RFX Weights / Scoring Models Standard templates Reverse Auction
16. Award Contract Buyer Based on results, determine best overall supplier(s) Cross-functional team decision Finalise contract terms and conditions with suppliers Involve finance and legal Tools Automated weights / scoring Online contract management Cross functional teams
17. Implementation Strategy Buyer Determine how contract will be rolled out Change management strategy Identify and track performance metrics Communicate value to stakeholders Tools Supplier Performance Supplier Portals Spend / Diversity Reporting
18. Financial Analysis - When & Why.. When do it? For critical items For new suppliers When pursuing longer-term agreements For purchase requirements involving significant dollars Why do it? To manage business risk To eliminate marginal suppliers early in the evaluation process
19. Ratio Analysis Profitability How profitable is the supplier? What rate of return is the supplier earning? Gross and net profit margin Return on equity Return on investment Liquidity How capable is the supplier of meeting short-term cash needs? Current ratio Quick ratio
20. Ratio Analysis (Contd.) Leverage Is the supplier over-leveraged and capable of paying long-term obligations? Debt to assets Time interest earned Fixed charge coverage Activity How effectively is the supplier managing assets? Inventory turnover Average collection period Return on net assets
21. Contract Management Termination (Escape) clauses Service Level Agreement (SLA’s) Clear communicated specifications Key Performance Indicators (KPI’s) Feedback and review on a regular basis Liquidated damages for poor performance
22. Risk Minimisation
23. Supplier Performance
24. Improvement Action Plan
25. Supplier Audit Check Sheet