20080308 centralled localautonomy - michel philippart procurement and value • collaborative...

12/04/2008

1

LouvainSchoolof Management

UCL Université catholique de LouvainLouvain School of Management / CESCM

Louvain Schoolof Management

Key Note Presentation

Central-Led Model Versus Local Autonomy

Michel Philippart

Fellow, ceSCM, Louvain School of Management

1LouvainSchoolof Management

What is the Centre of Excellence in Supply

Chain Management?

• The Center of Excellence in Supply Chain Management (CESCM) was established on 1st September 2004 by joining active researchers from the units at the Louvain School of Management:

– Production Management and Management Science (POMS),

– Information Systems (ISYS) and

– Corporate Strategy and Managerial Economics (POGE).

• The centre performs research, development and advanced teaching in all areas of supply chain management, both modeling, optimization, systems and strategy and offers its services in these areas to industrial firms, mainly in Belgium.

2


Michel Philippart:

20 Years of passion for Procurement

Tribune

La Lettre des

Achats

Book

Collaborative

Sourcing

GSK Bio

Application

European

Pharma

Review

CPO

Magazine

94 96 98 00 02 04 06

Frito-Lay

Development

McKinsey

Structuring

90 92

Booz Allen

Discovery

Viewpoint

Strategic

Sourcing


Linking Procurement and Value

• Collaborative Sourcing:Strategic Value Creation through CollaborativeSupplier Relationship Management

• Co-authors: Michel Philippart, Christian Verstraete and Serge Wynen

• Publisher: University Press of Louvain (PUL)

• Distributor: i6doc.com


Multiple Teaching Engagements

• France– HEC Paris

– DESMA Grenoble

– IRIMA GGSM

• Belgium– UCL Louvain

– Vleerick Leuven-Gent

– ICHEC

– EPHEC

– ABCAL

• Brazil: University of Curitiba

• Corporate Support– European Union Programs in Algeria and Tunisia

– Big Fish advisor on Training on Resources and Supplier Management


OVERVIEW

6

12/04/2008

2


How to organize Supplier Management ?

• Two opposite approaches to managing the external resources

of an organization

– Centralized : more power to control costs

– De-centralized : more reactivity to satisfy customers

• A trend towards larger organizations


Objectives

• Understand the evolution of centralization

• Provide a framework to design a supplier management

structure based on your specific objectives and constrains

• Illustrate with some examples

8


Centralized Procurement Advantages

• Better resource management & control

• Standard procedures

• High specialization

• Reduced duplication

• Volume purchases

• More efficient / economical


De-centralized Procurement Advantages

• Client / project manager / cost center in control

• Caters to specific needs

• No geographic distance problem

• Most effective

10


THE EVOLUTION OF RESOURCES MANAGEMENT


The Beginning of Supplier Management

12

If me hit hard me get good price.

Grmf.

12/04/2008

3


And the first justification for centralization

13

If me hit harder me get better price. Grmf.


GE Evolution of PurchasingGE purchasing circa 1992

• "Engineers who can't add, operators who can't run their equipment, and accountants who can't foot numbers become purchasing professionals"

– Jack Welch

Welch Transformation

• 2-day quarterly meetings for all BU supply management leaders at Corporate Headquarters –personally spent one-half day reviewing performance

• Aggressive stretch targets

• Changing out old purchasing managers

• In Corporate-wide annual speech stated that " Supplier Management is critical role – the best and brightest should be in sourcing, the best and brightest should be promoted out of sourcing"

14


Co

stS

ha

reh

old

er

Va

lue

Imp

act

Tactical StrategicScope

Resource Management

• Mature cooperation

• Network leadership

• External innovation

• Exclusivity capture

• Long-term insurance

Supply Chain

Management

• Simplification

• TCO optimization

• Cost Transparency

• E—Procurement

Traditional Purchasing

• Scale leverage

• Hard negotiation

• Multiple suppliers

• …

Then we got smarter: Darwinian evolution?


Our function underwent a broad evolution

Scope

Impact

Depth

Processes

Culture

Organization

People

Governance

Strategic

Value

All Spend

Intelligence

Competitive

Advantages

Global

Vision

Master level

Experts

Sustainability

Tactical

Cost

Production

Administration

Historical

benchmarks

Problem

solving

Second tier

Conflict of

interest

16


With a realization that centralization is not

the only answer

• Think global act local: “glocal”

• Small is beautiful

• I control my cost better than the center

• I have responsibility for P&L so I need to have control over

negotiation

• The center does not understand my quality / service /

innovation problems

• Etc.


Suddenly, inflation is coming back to

challenge us

18

12/04/2008

4


Should we get back to basic?

• Hit harder on the supplier

• Move to far far away countries

• Focus on price! Price! Price! to meet the traditional annual

targets


An doomed approach

At the beginning Today

Unchallenged suppliers could easily be

replaced

20 years of aggressive cost management

have explored the obvious

The supplier pool was mainly local,

around 100 km near the home base

Suppliers are global, according to the

market economics

Inflation was driven by economic factors

in our markets

Inflation is driven by raw materials,

energy, and labor shortages

Productivity was low and could easily be

increased

Productivity growth has significantly

slowed down

20


Our only option: manage our network better

• More knowledge

• More collaboration

• Smarter people

• Leveraging scale the smart way

– Sharing information

– Optimizing networks

– Eliminating waste

• Governance, sustainability, value culture


An knowledge based approach requires more

resources than an negotiation based approach

• Comprehensive support of Procurement to their client from

specification setting to performance tracking

• Rigorous global sourcing

• Good understanding of “Total Cost of Ownership” and cost

levers

• Strategy development to consider multiple objectives,

including value and competitive advantages

• Long term strategic supplier development

22


Centralization is often the instinctive answer

• A pool of resources allows to allocate more time to each

category than what individual managers would do if they cover

a smaller / more diverse spend

but

• How to flex our organization to support our clients better?

• How to convince local, regional or BU leaders when

centralization is required ?

• How to manage every staff member that roles and

opportunities are not constrained by distance to the head

office ?


ORGANIZATIONAL CONSIDERATIONS

FOR SMART RESOURCE MANAGEMENT

24

12/04/2008

5


Parameters to consider

Task

• Sourcing / Market Intelligence

• Customer understanding

• Negotiation

• Performance management

• Processing tools

• Processing administration

Local Global


Analysis Matrix

Impa

ct o

f ite

m o

n sa

les

valu

e

Low

Hig

h

Level of Globalization and Complexity

Low High

Glocal• Global product and

expertise with global market analysis

• Local or area suppliers only, managed at region level

Global Value Provider• Global product and

expertise with global market analysis

• Global Suppliers managed globally

Shop

• Local needs and local suppliers

• Manage jointly with other sites in same geography

Leveragable Commodities

• Generic needs with global suppliers

• Local Procurement selects appropriate support to leverage corporate volume

Based on the Krailjic matrix - McKinsey

Global Leadership

Knowledge

Reactivity

26


Approach to Global Value Providers

Task



• Negotiation




Local Global


Approach to Leveraged Commodities

Task



• Negotiation




Local Global

28


Approach to “Glocal” Sources

Task



• Negotiation




Local Global


Approach to Shop

Task



• Negotiation




Local Global

30

12/04/2008

6


The evolution of Procurement on all

dimensions drives a unified approach

Scope

Impact

Depth

Processes

Culture

Organization

People

Governance

Global

Local


A virtual organization is the best way to flex

talents in an extended network

• Key capabilities and market knowledge exists everywhere in

the network

• Relocation is not always an answer

– High cost

– Personal constrains

– Over centralization of people disconnects from the front lines

• The tools to manage a virtual network are readily available

– Strong communication systems

– Common procurement management platform

32


The success depends on the team spirit

• Equal chances for all

– Transparent career path

– Common evaluation criteria

– Standard training modules

• Training in common “hard skills”

– Basic skills for practitioners: consolidation, TCO, cost analysis

– Supplier development skills for category leaders:

• Team building around “soft skills” development

– Communication

– Project leadership

– “Out-of-the-box” thinking


Typical roles and key principles

• Global Category Procurement Managers have global

responsibility for all products / suppliers either operating in a

global market or that can have a major impact on the

organization performance

• Site Procurement Managers are in charge of implementing the

global procurement strategy, insure compliance to policies, and

manage local suppliers

• GCPM and SPM work together to identify long term needs,

monitor supplier performance and insure best service to sites

34


A new bread of professionals

Area of Responsibility Disposable process equipment, including sourcing of new

technologies

Spend of £75; team of 2

Education Post grad degree in Purchasing Management

Ms. Biotechnology

Working Languages French, English, German

Others 2 years in R&D Laboratory as a scientist (HIV, HAT,..)

Objectives

• Internal credibility with technology driven clients

• External credibility with vendors used to unsophisticated

approaches35


ProcurementDir

North AmericaSourcing Group Managers Prod

Sourcing Group Managers CapEx

CPO Area

Global Functions

Sourcing Managers ResearchB

oar

d

Illustrative Organisation Global Procurement

ProcurementDir

Asia

Engineering Project Proc(Outsourced)

Sourcing Group Services

Production

Engineering

Research

Services

North American

Sites.Asia sites ,

European sites

36

12/04/2008

7


Pharma Global Procurement Organization

Chairman

Consumer Pharma Research Operations Finances

CPO

Research New Dev

IT

Commercial

IT

3d party

Systems

Production10 Bn € spend

75% outside Prod


A truly global network

38


AnalysisStrategy

Negotiation

Performance

Monitoring

SOURCINGSOURCING

SGM

Specification

Best suppliers

Best servicesOrder processing optimization

Order

ContractFinance

Request

Agreement

Reception Invoice Payement

AdministrationRequisition

process

Lean - Sigma

Organized around the « Sourcing Group Manager »


A robust common platform

40


Multi Pronged Strategy

Category Consolidation

Site

Country

Regional

Global

Business Unit

Supply Base Consolidation

Diversity Strategy

Standardisation


FredericEU Multi-Functional

Devices

Pilar

Marlies

DanieleEU Fork Lift Trucks

KieranEU Office Supplies

DougEU MRO

Objectives

• Share best practice

• Leverage selected spend areas

• Co-ordinate on EU plan of purchase

Ways of Working

• Participate / support Sourcing group teams

• Networking teleconferences

• 2 face to face meetings per year

Illustration: Facilities Procurement Network

42

12/04/2008

8


FMCG Procurement Organization Evolution

Y-0 Y-2 Y-4 Y-6 Y-8

International

Team of 2,

focus Europe +

Asia

Europe

Leadership,

focus on 2

categories

Virtual central

team with

expertise in 3

countries

New

European

office with

strategic

procurement

Integration of

other

divisions

Task Force

South

America

Strengthen US

and global

links

Coordination of all

regionsNorth America

Asia PacificLatin America

Europe

StrategiesGlobal Supplier Management Information

Sharing


Pairing organization and category

management approaches

Organization Redesign

• Central Leadership for Change

Management

• Strategic Supply Chain

Management Centers in different

European countries

• Evolved to a single procurement

team in Europe

Category Conferences

• Presentations by the five leading

suppliers of the region

• Selection of two plus one

– Lead suppliers

– Back/up or emerging

• Involvement of purchasing and

other functions

• Global representatives

44


Corporate Sustainable Advantages Mission

Logo

45

MISSION

“Our Objective is to leverage Purchasing as a significant source of Sustainable Cost Advantageand Proprietary Barrier to Entry, whilst delivering 100 % Consumer preferred specifications to every plant, every day”*

STACKED WINS

• Innovation

• Quality

• Service

• Cost


Integration leader

Indirect leader Sourced product leader Global supply chain productivity leader

Technology Conglomerate Organization :

a single team on multiple sites

Buyer 1

Buyer 2

Buyer 3

Buyer 4

Buyer 5

Buyer 6

Buyer 7

Monterrey, MX

Plainville, CT

Ft. Wayne, IN

Plainville, CT

Plainville, CT

Monterrey, MX

Monterrey, MX

Leader raw materials, metallic

Buyer 1

Buyer 2

Buyer 3

Buyer 4

Buyer 5

Monterrey, MX

Ft. Wayne, IN

Monterrey, MX

Ft. Wayne, IN

Erie, PA

Leader non-metallic

Buyer 1

Buyer 2

Buyer 3

Buyer 4

Buyer 5

Monterrey, MX

Plainville, CT

Monterrey, MX

Ft. Wayne, IN

Ft. Wayne, IN

Leader electronics

46


Public Health sector

• Public hospitals in France: 53 distinct centers

• Initiative from the government

• 1 common structure: UniAchat

• Experts in categories based in their region but serving the

network

• System being fine tuned

– What governance?

– Voluntary or compulsory?

– Financing


CONCLUSION

48

12/04/2008

9


An evolution towards “smart” resource

management

• Centralization was initially push by the desire to place more weight in the hands of negotiators

• The rigidities and deterioration of service to some internal clients gave it a bad reputation

• The evolution of modern supplier management allows today to better calibrate the distribution of responsibilities at all levels

• A unified approach allows to increase volume and increase leverage but more importantly to dedicate resources to in-depth analysis of a category and development of rigorous sourcing plans

• Improved communication have allowed to develop “virtually centralized” or “center-led” organizations


Common Drivers

• Leveraging Scale

• Operating Excellence

• Managing Suppliers for Strategic Advantages

50


Organization Priorities

4,1

4,0

3,9

3,8

3,7

3,7

0 1 2 3 4 5

Management and retention of talents

Upgrading of people capabilities and skills

Training of staff to improve core procurement skills

Introduction of best practices sourcing processes

Reengineering of purchase to pay

Transformation of procurement organization

Top strategies for procurement performance

improvement over the next three years

Source: IBM 2005 CPO Survey, IBM Institute for Business Value


52

Summary

• The choice of the "ideal" supply structure for a company is a key factor to improve competitiveness and to reduce costs

• Three main structural design options are possible– Central (corporate center driven)

– Hybrid (balanced between local and corporate centers)

– Decentral

• Each type of organization has specific features and the choice is driven by– Strategic organizational structure of the whole company

– Cost effectiveness

– Industry sector

• A comparison of structural options in multiple industry sectors however indicates that the "Hybrid" structural option seems to be the most represented


Questions? Comment?

• Today: 10 minutes

• Later

– +32 477 777 803

– [email protected]

53

20080308 centralled localautonomy - michel philippart procurement and value • collaborative...

Documents