did you know! that now is the time to take the lead – only a handful of pioneers have started...

Did You Know! That now is the time to take the lead only a handful of pioneers have started investing in 4 areas of procurement excellence! Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved.

Procurement and Supply Chain Strategy Procurement Models for the Future Raj Dhawan Consultant, SCM Accenture David Walters Professor, SCM University of Sydney Jyoti Bhattacharjya & Yujie Cai University of Sydney

What to Expect Today Learn about future trends in procurement Learn what high performers in procurement do Self-assess the maturity level of your procurement organisation Discuss and reflect what needs to be done to transform your procurement organisation Learn about immediate next steps Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved.

Agenda Dhawan, Walters, Bhattacharjya Procurement Models for the Future Context setting Self AssessmentFuture TrendsDiscussion & Analysis Technology Process Organisation Current state Target state Group discussion Live analysis Results and debrief Copyright 2011 Accenture All Rights Reserved. What lies ahead Technology Process Organisation

Discussion Framework Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. Process Technology Organisation Advanced Analytics Risk Management Closed-loop Spend Management Capability Gaps 1 1 2 2 3 3 4 4

Basic Average Above Average Advanced Next Level of Excellence Procurement Maturity Continuum Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. Current Maturity Levels Future leaders laggards Procurement Process Technology Organisation

Technology: Introduction Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. Use of technology in procurement What really matters How to get where you need to be Includes Use of technology Requisition to Pay

Technology: Maturity Continuum Dhawan, Walters, Bhattacharjya Procurement Models for the Future BasicAverageAbove AverageAdvanced Upstream technolo gies No e-tools available Manual communication with vendors Simple RFxs emailed, some piloting of reverse auctions for a few categories No procurement decision- support capability Limited awareness of eCommerce benefits RFx, reverse auction, spend management and reporting are used for all categories as appropriate Procurement actively involved in driving technology enablement (e.g. eSourcing) Moderate use of Internet based RFQ/RFP solutions Extensive use of technology enablers, including e-Procurement, eSourcing, and e-Auctions Self service / corporate procurement portal eSourcing is integrated with Contract Management and the R2P process Spend Visibility No Management Information reports available Reporting is available but there is limited granularity and coverage across total corporate spend Manual management Information reports No consistent reporting framework MIS reporting functionality linked to procurement strategy and targets Data and Management Information drives procurement and sourcing Strategic decisions enabled by real time management information reporting Management reporting fully aligned to business strategy Market Intelligen ce No market data/ external information outside the public domain is collected and used Subscriptions are taken out with providers of indexes and market data on an ad hoc basis There are subscriptions to all required information sources to support effective sourcing Dedicated resources are available to pull together market information Automated systems deliver rich external information to buyers through a customised portal A pool of dedicated sourcing analysts provide customised information to buyers on an as needs basis Copyright 2011 Accenture All Rights Reserved. Technology Use

Technology: Maturity Continuum Dhawan, Walters, Bhattacharjya Procurement Models for the Future BasicAverageAbove AverageAdvanced Ordering Isolated transaction processing systems with multiple manual hand-offs No single integrated system or R2P process exists Transaction systems exist but are dispersed and disaggregated No single R2P process or system exists across the business E-Catalogue only available for easier categories Systems and processes are integrated to accelerate transaction processing Buyer portal is available and utilised E-catalogues available for key categories ERP leveraged on organisation-wide basis allowing full data capture, common measurements, and decision support capability End to End integration channels optimised by category & user environment Receipt to Payment Accounts Payable processes are managed by local teams The majority of processes are manual and paper based Limited usage of 3 way match Accounts Payable activities are managed by a centralised team A single instance of a dedicated system is used for processing transactions 3 way matches are commonly used Some payment and mismatch issues occur Accounts Payable is managed by a centralised team 3 way matches are used for the majority of spend Processes are generally automated Payment and mismatch issues are limited Accounts Payable activity is consolidated in a shared services center 3 way match process exists for all transactions except defined and documented exceptions There is a high degree of process automation and leading practice technologies are adopted e.g. OCR High levels of on-time payment and few mismatches Master Data Mgmnt No common master data or standards Master data processes are not defined and documented Some master data harmonisation has taken place but discrepancies still exist A relatively high proportion of items have been coded Dedicated master data resources may exist but processes are informal Common vendor master Common item master Most products have been coded Master data processes with approvals and controls exist but some are manual Dedicated coding team Common vendor master Common item master Virtually all appropriate items have been coded Automated master data processes with approvals and controls Dedicated coding team Copyright 2011 Accenture All Rights Reserved. Requisition to Pay

BasicAverageAbove AverageAdvanced Ordering Isolated transaction processing systems with multiple manual hand-offs No single integrated system or R2P process exists Transaction systems exist but are dispersed and disaggregated No single R2P process or system exists across the business E-Catalogue only available for easier categories Systems and processes are integrated to accelerate transaction processing Buyer portal is available and utilised E-catalogues available for key categories ERP leveraged on organisation-wide basis allowing full data capture, common measurements, and decision support capability End to End integration channels optimised by category & user environment Receipt to Payment Accounts Payable processes are managed by local teams The majority of processes are manual and paper based Limited usage of 3 way match Accounts Payable activities are managed by a centralised team A single instance of a dedicated system is used for processing transactions 3 way matches are commonly used Some payment and mismatch issues occur Accounts Payable is managed by a centralised team 3 way matches are used for the majority of spend Processes are generally automated Payment and mismatch issues are limited Accounts Payable activity is consolidated in a shared services center 3 way match process exists for all transactions except defined and documented exceptions There is a high degree of process automation and leading practice technologies are adopted e.g. OCR High levels of on-time payment and few mismatches Dhawan, Walters, Bhattacharjya Procurement Models for the Future Technology: Self Assessment Copyright 2011 Accenture All Rights Reserved. Self Assessment is anonymous ILLUSTRATIVE 1.Identify current state using 2.Identify target state (2-yr horizon) using

Future: Advanced Analytics Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. The process of using quantitative methods to derive actionable insights and outcomes from data. Involves the capture and use of data to support fact- based decision making and gaining competitive advantage Typically reporting on what has happened in the past Using predictive analytics based on historical data to ascertain what will happen in the future Overview

Future: Advanced Analytics Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. Source: Competing on Analytics: The New Science of Winning (Davenport / Harris) What? Competitive Advantage Sophistication of Intelligence Optimization Predictive Modeling Forecasting/extrapolation Statistical analysis Alerts Query/drill down Ad hoc reports Standard Reports Whats the best that can happen? What will happen next? What if these trends continue? Why is this happening? What actions are needed? What exactly is the problem? How many, how often, where? What happened? Predictive Analytics Descriptive Analytics Source: Competing on Analytics: The New Science of Winning, Davenport / Harris Sophistication Levels

Future: Advanced Analytics Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. When to order and how many Accurate information on volume leading to better negotiating power Lesser chances of going out of stock or having excess Improved communication with business units and vendors Improved understanding of stocks and flows Source: When to Map and When to Model, PhD thesis, Univ of Sydney, Rajat Dhawan Evidence

Native ability to comprehend complex procurement issues is limited too many variables to process Fact-based decision making leads to better results accurate, measurable, resulting in lower costs and greater savings. Future: Advanced Analytics Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. Analytical tools improve our ability to capture right information, process it and help in informed decision making. Conclusion

Future: Advanced Analytics Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. Organisation Top leadership awareness and support Partnership with business units Skill-set not available Processes One-off versus operationalised Systems Right technology not available; antiquated Technology not usable Data Data in multiple systems Data not captured; existing data not analysed Source: Analytics Coming of Age, Procurement Professional (CIPSA), Apr 2011, Rajat Dhawan & Olaf Schatteman Implementation Challenges

Process: Introduction Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. Key processes in procurement What really matters How to get where you need to be Includes Sourcing and Category Management Contract Management Supplier Relationship Management

Process: Maturity Continuum Dhawan, Walters, Bhattacharjya Procurement Models for the Future BasicAverageAbove AverageAdvanced Methodol ogy & Process No documented strategic sourcing methodology exists Significant expenditure is managed outside procurement Procurement use "Three quotes" approach, mainly with incumbents A documented sourcing methodology exists and is used to support most sourcing activities Procurement managers/ budget holders provide sign-off for sourcing decisions The sourcing process incorporates customer requirements analysis and some market analysis Basic category planning takes place, mainly locally or on the Business Unit level Limited expenditure is managed outside procurement and the standard process A documented sourcing methodology exists, procurement staff have been trained in it, and it is robustly applied to all appropriate spend The sourcing process incorporates defined approval stage gate meetings attended by cross- functional teams All stages of the sourcing process are template driven Detailed and robust customer requirements and market analysis is undertaken Detailed annual category planning takes place, aggregating demand across sites, business units and CAPEX/ OPEX Standard supplier selection criteria are available at the company level and incorporate TCO measures All spend is managed and controlled by procurement Cross-functional teams use a standardised and documented sourcing methodology in which all members have been trained Sourcing governance is monitored by cross-functional executive teams Standard sourcing methodology templates that have been customised at the category level are available. Cross-functional teams challenge specifications and requirements using fact-based market and demand information provided by dedicated analyst teams Category planning incorporates global and low cost sourcing analysis and has a long term focus Standard supplier selection criteria are available at the category level and incorporate TCO measures Copyright 2011 Accenture All Rights Reserved. Sourcing and Category Management

Process: Maturity Continuum Dhawan, Walters, Bhattacharjya Procurement Models for the Future BasicAverageAbove AverageAdvanced Contract Manage ment Contracts are often managed outside the function by non-commercial staff No or limited contract management processes and no contract database Simple boilerplate contracts usually for spot purchases Procurement is involved in the management of contracts for the majority of spend areas Multiple basic informal contract databases Ad hoc contract compliance management Contract horizon based on immediate requirements Procurement owns commercial relationships Contracts based on supplier alliance agreements Tools to centrally manage contracts and contract compliance are in place Procurement owns commercial relationships and is supported by appropriate technical resources There is a defined contract implementation methodology Contracts manage risk, and focus on continuous improvement & value add Centrally logged contracts and proactive management of contract compliance Product & Supplier Portfolio Manage ment There is a long tail of suppliers with a low amount of spend and a high number of one-time vendors There are no or few documented product standards There have been no or few attempts to rationalise the number of different products used Product standards have been implemented in some areas of spend A number of product rationalisation products have been run There are common agreed technical standards for the majority of products A process is in place between technical and procurement teams to agree product standards and specifications There has been a high degree of product and service rationalisation Common agreed technical standards exist for all commonly used products Procurement and technical staff work collaboratively as part of cross- functional teams to select products that meet technical requirements and standards, as well commercial priorities Copyright 2011 Accenture All Rights Reserved. Contract Management

Process: Maturity Continuum Dhawan, Walters, Bhattacharjya Procurement Models for the Future BasicAverageAbove AverageAdvanced Supplier Performance Management No formal supplier performance metrics Procurement organisation and suppliers have no clear understanding of key success factors Key success factors known but not directly tied to performance measures. Possible to track supplier delivery/ quality performance with manual effort. Quality, delivery, lead-time measures available and used in negotiations with suppliers and linked to total cost model analysis. Periodic reviews of performance with suppliers. Key supplier metrics collected passively and available to decision makers on demand. Measures linked to total cost model. Suppliers track their own status, take corrective action as necessary. Supplier Relationship Management No supply base segmentation Relationships are managed at a relatively junior level in the buying organisation for most suppliers SRM is reactive with interactions - primarily when problems occur The supply base is segmented but implementation of strategies is sporadic Little proactive feedback to suppliers Vendors providing limited value added services Supplier interactions limited to technical support rather than value add Some long term planning has taken place with a few key suppliers Some proactive feedback to suppliers Collaborative arrangements with some key suppliers Suppliers provide basic value add activities Suppliers are empowered to innovate in delivering services; innovative deal structures are put in place with key suppliers to share risk and reward Strategic planning conducted with suppliers using TCO analysis Multiple levels of interaction with suppliers Joint Process/Product improvements, including e-Supply Chain integration. Copyright 2011 Accenture All Rights Reserved. Supplier Relationship Management

Process: Maturity Continuum Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. Business Performance and Productivity Drivers: Supplier Responses Performance Management: Revenue Growth and Market Response Maximise the performance of key management ratios (ROI, working capital productivity, marketing, etc) by creating value adding processes that reduce risk. Fixed Capital Effectiveness Use service to improve the return on investment or to the lower investment in facilities Risk Reduction Collaborative activities such as R&D and industry procurement activities not only reduces costs but increases quality and reliability through component standardisation and therefore customer confidence Cost Management Reduce value-in-use (acquisition) -costs; installation, operating costs, staff training, and maintenance costs etc. Working Capital Efficiency Use service (frequency, reliability and accuracy) to accelerate transfer payments and lower inventory holding costs and cash flow generation. Optimising the Use of Time The effective (strategic) use of time is reflected in time-to- market and competitive advantage gained. The efficient (operational) use of time is the time response to customer requests (quotations, orders, deliveries, returns, etc) and its competitive impact Customer Satisfaction Create order winning product-service criteria based on customer facing processes (value drivers) rather than order qualifying criteria Supplier Added Value Activities that Increase Customer Productivity Performance Source: Walters (2011)

Process: Maturity Continuum Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. Operational Efficiency: SRM Financial Operating Response Management Inventory productivity Receivables Payables Cash2Cash Cycle Operating cash Working capital cycle efficiency Synchronised Operating and Cash Cycles Procurement and Manufacturing Operations Response Management Per cent throughput Relative manufacturing cycle time Relative manufacturing costs/revenues Per cent on time delivery Lead time flexibility response Order flexibility response Order cycle time (P/A) Resources utilisation (P/A) Wastage Resources productivity (P/A) Inter-organisational Operations Network Facilities Source: Walters (2011) Supplier Relationship Management

Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. Demand Chain Profile Target Customer/Market Customer Value Drivers Value Proposition Value Delivery Considerations & Implications Demand Chain Analysis Managing Value Chain Network Planning & Performance Product-service specification and design Procurement, Manufacturing and Inventory Management and Production, Marketing and Sales Operations Value Delivery: Distribution Customer Services Management Response Management: Integrating and Coordinating Resources Supplier Relationship ManagementCustomer Relationship Management Competitor Relationship Management Process: Maturity Continuum Source: Walters (2011) Identifying and Targeting the Customer(s) - Managing the Response

BasicAverageAbove AverageAdvanced Contract Manage ment Contracts are often managed outside the function by non-commercial staff Procurement is involved in the management of contracts for the majority of spend areas Multiple basic informal Procurement owns commercial relationships Contracts based on supplier alliance agreements Tools to centrally manage contracts and contract compliance are in place Procurement owns commercial relationships and is supported by appropriate technical resources There is a defined contract implementation methodology Product & Supplier Portfolio Manage ment There is a long tail of suppliers with a low amount of spend and a high number of one-time vendors There are no or few documented Product standards have been implemented in some areas of spend A number of product rationalisation products have been run There are common agreed technical standards for the majority of products A process is in place between technical and procurement teams to agree product standards and specifications Common agreed technical standards exist for all commonly used products Procurement and technical staff work collaboratively as part of cross- functional teams to select products that meet technical requirements and standards, as well commercial priorities Dhawan, Walters, Bhattacharjya Procurement Models for the Future Process: Self Assessment Copyright 2011 Accenture All Rights Reserved. 1.Identify current state using 2.Identify target state (2-yr horizon) using Self Assessment is anonymous ILLUSTRATIVE

Future: Risk Management Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. More needs to be done to manage risk the political, environmental, and economic instability of late will stay, and leaders recognise that risk must be proactively managed. Future leaders will need to: Realise risk issues have a greater cost impact, and take up far more time, than most buyers efforts to capture savings through negotiation. Address supplier and price volatility risks when developing procurement strategies. Apply a comprehensive, end-to-end approach to anticipating, monitoring and mitigating risk. Use of a risk management frameworka comprehensive, end-to-end approach to anticipating, monitoring and mitigating risk. Risk Source: Procurement Mastery Research, Accenture, 2011

Future: Risk Management Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. Organisation & Governance Design a well-defined organisation structure with explicit roles and responsibilities and accountabilities to decisions and identify risk ownership. Risk Management Processes That identify critical supply categories and vendors. The processes should capture risks and include monitoring activities to identify potential problems. They must be consistent throughout the organisation. Risk Analytics To identify, measure and monitor operational risks. They should comprise metrics that allow a company to see when and where an operational risk exists and focus it with related management initiatives. Analytical tools should also quantify the impacts of risk items. Risk Reporting That delivers focused, relevant and timely information that enables management to make informed decisions Ideally analytics should help management predict an event or risk. Information Management and Data Governance Should help maximise performance by integrating and coordinating processes across organisational boundaries, and regions. It requires managing and making internal and external information transparent to management to achieve an enterprise-wide perspective of risk that contributes to better decision making. Five Essentials of Risk Management

Future: Closed Loop Spend Management Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. Appoint Senior Category Owners, aligned with Procurement Category Mgt Define consumption policies, optimized specifications and optimal sourcing strategies Category Ownership 2 Zero-based Budget Create bottom-up budget starting from a zero base, adhering to strict policies Control & Monitoring Track actual variances against the budget and document during monthly meetings to ensure budget achievement by year end 5 Visibility Provide full transparency on who-spends-how-much-on- what 1 Procurement Translate into Buying Channels and I need portal and transfer to Procurement Middle Office - BSC Closed Loop 3 4 Model

Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. The visibility is created by mapping the key financial transactional data into a matrix made of Cost Categories and Business Functions GL A c c o u n t s Cost Centers Cost Category structure Travel Marketing Transport Fees Services FinanceHRIT/IS Detailed Transactional Data Functions defined by Organisational structure Future: Closed Loop Spend Management Visibility ILLUSTRATIVE

Low Hanging Fruit Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. Define maximum CRM spend by segment Enforce max. phone allowance Do not allow business class for flights < 6h Define POS maximum spend by segment / Only purchase in POS Catalogue Challenge Consultant spend not supported by strategic plan Each Cost Category owner is responsible for identifying and prioritising significant opportunities in their area which are easy to implement HighLow High Size of opportunity Ease of implementation Low Medium Challenge Market Research expenses Centralize all office supplies procurement Optimize office space in sales centers Define mandatory agency fees list Reduce # travels to same destination Challenge sponsorship costs vs. brand equity building Enhance Employee Referral Program and E-recruitment Priority for Implementation Implement new car policy and review entitlement Future: Closed Loop Spend Management Category Ownership & Policies ILLUSTRATIVE

Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. At the end of the process, the Category Owner will present its conclusion to the Budget Holder and they negotiate on the Final budget. The scope will drive the effort Negotiation Rounds Category owner Budget holder Send New Proposal Final agreement on the Budget Quantified Opportunities To Optimize Budget Budget Send New Proposal Future: Closed Loop Spend Management Zero-based Budget ILLUSTRATIVE

Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. Actual consumption is triggered by the I need portal in which policies and how to order/work with procurement is guided in the so-called buying channels I need Portal Procurement Middle Office Policies and how to order/work with procurement is guided in the so-called buying channels Preferred suppliers are presented Prerequisites and other useful information can be consulted Invoices are booked by the back-office in the right cost category Often requiring chart of account changes/ training of AP people to properly book invoices The back-office also acts as supplier helpdesk Future: Closed Loop Spend Management Procurement

Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. Each month a cascade of meetings takes place where analyses and actions are filtered up through to the Cost Category Owners for review and action * Depending on the month closing cycle the monthly routine will start as of week 2 or week 3 12345 Regional Meeting Category Meeting Executive Team Meeting Region Global 1-2h 1h 0,5-1h Workday of Week 3 * Analysis of variances at regional level per Category Analysis of variances at Sub-Category level e.g. EMEA Meeting e.g. Services Meeting Site Meeting Country 1-2h Analysis of variances at site level per Category e.g. Country Meeting Future: Closed Loop Spend Management Control & Monitoring ILLUSTRATIVE

Organisation: Introduction Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. What is the role of procurement organisation in managing spend Centralised versus decentralised structures How to get where you need to be Includes Procurement Strategy People & Workforce

Organisation: Maturity Continuum Dhawan, Walters, Bhattacharjya Procurement Models for the Future BasicAverageAbove AverageAdvanced Vision & Strategy A basic procurement function exits but has no documented strategy Procurement has a basic set of priorities and objectives have been created There is a defined procurement strategy which has been derived based on organisational priorities and as a result of external benchmarking; strategy is executed through a series of coordinated projects Procurement strategy is vertically integrated to corporate strategy The strategy is cascaded through a departmental objective setting process and embedded in personal performance objectives Organisati onal Alignment Procurement viewed as an back office function Executive sponsorship is limited Procurement is perceived as having a tactical role No Procurement representation in executive leadership team Procurement viewed as important to enable corporate savings CPO leads centrally with strong leadership and dedicated resources in place Procurement viewed as a strategic function critical to the future of the business CPO sits at Board Level /reports to CEO Metrics and Measures No clear performance metrics Key measures focus on cost/price competitiveness The scorecard incorporates other procurement focused metrics A balanced scorecard for purchasing is used but is manually derived There is a feedback loop into operations for performance data Metrics are communicated to stakeholders on a periodic basis Purchasing targets set at board level Metrics are tied to company strategic objectives and aligned to drivers of shareholder return The balanced scorecard is IT enabled Copyright 2011 Accenture All Rights Reserved. Procurement Strategy

Organisation: Maturity Continuum Dhawan, Walters, Bhattacharjya Procurement Models for the Future BasicAverageAbove AverageAdvanced Organisa tion Structure Decentralised sourcing No cross-division interaction Some policies in place to guide centralised sourcing activities Procurement excluded from strategic planning Procurement treated as a central corporate function with strong leadership and dedicated resources Centrally led procurement organisation optimised to manage organisation-wide spend portfolio Training & Develop ment No formal requirements on competency building and no clear career path; no formal training program exist Minimal focus on career development and minimal investment in training In most cases individual competency linked to career progression and rewards Training matrix outlines skills necessary by position and reviewed at individual level Individual competency linked to career progression and rewards Training linked to strategic priorities, includes Procurement and Business skills Staff & Performa nce People deployed to meet Procurement administration activities Traditional transactional skill sets Procurement attracts and develops personnel in management and category focused sourcing areas Some strategic thinking skills in addition to transactional skills Network of global people/skills including partners, suppliers and outsourced services People developed, dynamically matched, and cross trained throughout the corporation Copyright 2011 Accenture All Rights Reserved. People and Workforce

BasicAverageAbove AverageAdvanced Vision & Strategy A basic procurement function exits but has no documented strategy Procurement has a basic set of priorities and objectives have been created There is a defined procurement strategy which has been derived based on organisational priorities and as a result of external benchmarking; strategy is executed through a series of coordinated projects Procurement strategy is vertically integrated to corporate strategy The strategy is cascaded through a departmental objective setting process and embedded in personal performance objectives Organisa tional Alignme nt Procurement viewed as an back office function Executive sponsorship is limited Procurement is perceived as having a tactical role No Procurement representation in executive leadership team Procurement viewed as important to enable corporate savings CPO leads centrally with strong leadership and dedicated resources in place Procurement viewed as a strategic function critical to the future of the business CPO sits at Board Level /reports to CEO Dhawan, Walters, Bhattacharjya Procurement Models for the Future Organisation: Self Assessment Copyright 2011 Accenture All Rights Reserved. Self Assessment is anonymous ILLUSTRATIVE 1.Identify current state using 2.Identify target state (2-yr horizon) using

Future: Workforce Capabilities Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. Running powerful training programs that not only improve the skills of its employees but helps make the function with procurement at its core an attractive area to work and a breeding ground for talent for the company as a whole Capability development initiatives continual improvement of on-the-job skills at every level Programs that focus on learning how to learn, as well as how to work competently with cross- functional counterparts in the safety, legal, finance, projects, engineering, and operational functions; Action learning programs activities in which real business problems are solved in small groups Individuals targeted as high performers within procurement, finance, HR, operations, etc., are eligible for additional training, special projects, and networking opportunities Research shows that not even the leaders are doing well with workforce and organisation. Here's what some companies are doing to move out in front... Source: Procurement Mastery Research, Accenture, 2011

Agenda Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. State of the Art Roadmap to Target State Future Trends TECHNOLOGY PROCESS ORGANISATION Debrief & Next Steps

Recap: Future Focus Areas Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. Advanced Analytics Closed-Loop Spend Management Risk Management Workforce Capabilities 1 1 2 2 3 3 4 4

Immediate Next Steps Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. Advanced Analytics Closed-Loop Spend Management Risk Management Workforce Capabilities Analyse what could you do with information; then work backwards to ensure youve got the right data and tools to extract, process and present intelligence Invest in systems; ensure they are integrated Create awareness; change culture from gut-feel to fact-based decision making Consider processes that can be supported by data Create visibility on the cost structure; review GL accounts and standardize across the company; key to enable consistent benchmarking and analysis Reviewing policy compliance is the first step in finding savings Increase number of "hands-free" transactions, improves contract / channel compliance and optimises the operational effort Effective strategies are those that identify areas of risk and work to minimise its effects - build risk analysis into strategic analysis and decision making. In the current environment market and financial risk are no longer constants or given they change rapidly - that's why the GFC caught many organisations unawares. Learn from experience Competition no longer matter of being Company vs Company it is value chain vs value chain Organisational boundaries overlap those of partners encouraging trust and a free exchange of information/knowledge. By adopting a collaborative approach with suppliers costly levels of inventory holding are lower and cycle times (operating and cash2cash) reduced. 1 1 2 2 3 3 4 4

Debrief Dhawan, Walters, Bhattacharjya Procurement Models for the Future Start focusing on the 4 future focus areas this where the future lies! Get top-management supportProcurement/Finance/Board. Collaborate with business units ensure they understand the change; share skills and information where possible. Revisit processes; enforce them. Revisit procurement technology landscape; learn to walk before you run. Gauge where you currently are and where would you like to be have a plan for change. Get external support to kick-start changes/introduce rigour. Copyright 2011 Accenture All Rights Reserved.

Debrief: Technology Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. Note: Results presented are aggregated by Technology maturity, and not by individual components within Technology. Detailed analysis available on request.

Debrief: Process Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. Note: Results presented are aggregated by Process maturity, and not by individual components within Technology. Detailed analysis available on request.

Thank You Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. www.rajatdhawan.com Further InterestSummary of Results and Presentation [email protected] [email protected] www.rajatdhawan.com Context Maturity Self Assessment Future Trends Debrief & Next Steps

Self Assessments Are anonymous Fill it to the best of abilities Demographic info is optional Detailed analysis Presentation summary Future work Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved.

Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. Stage 5 Analytical Competitors Stage 4 Analytical Companies Stage 3 Analytical Aspirations Stage 2 Localised Analytics Stage 1 Analytical Novice Routinely uses analytics as a distinctive capability, takes an enterprise-wide approach, has committed and involved leadership, and has achieved large- scale results. Has established analytical capabilities, and has a few significant initiatives under way but progress is slow and missing critical elements. Organisation lacks one or several of the prerequisites for serious analytical work. Applies analytics regularly, and realizes benefits across the organisation. Pockets of analytical activity, but they are uncoordinated and not focused on strategic targets. WHICH STAGE OF PROCUREMENT ANALYTICS IS YOUR ORGANISATION IN? Future: Advanced Analytics Continuum

Future: Risk Management Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. Risk AnticipationRisk MonitoringRisk Mitigation Develop strategies to avoid/minimise exposure to risk Track potential risk set indicators Take quick and appropriate actions to minimise effects Procurement Strategy Sourcing and Category Management Supplier Relationship Management Requisition to Pay Process and Technology Workforce and Organisation Procurement Performance Risk Management Framework

Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. Key Performance Indicators (KPIs) are defined to measure price and consumption, then benchmarked both internally and externally Cost CategoryKPIBenchmark Travel# Trips to the same destination2 trips / employee / month Price per night per destinationBrussels = 100 , London = 120 Agency FeesAgency Fees vs Deployment Cost10-20% TransportCost / km0,7 / km ServicesOffice supplies / employee250 / employee / year TelecomMobile expense / employee40 / employee / month Maintenance% labor cost for unplanned maintenance10 % Billing rate / 3rd party supplier / hour21 / hour Corporate AffairsPrice of gifts / employee50 / gift Free products / employee40 / employee / year Labor & BenefitsTraining budget / employee400 / employee / year UtilitiesCost / employee15 / employee / month ILLUSTRATIVE Future: Closed Loop Spend Management Visibility

Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. Budget holders build their budget zero-base with great amount of detail, adhering to top down targets and strict global policies Budget Templates Are built for all (Sub-)Categories Contain enough details to allow full understanding on the budget construction Might have a different level of detail, depending on the Category Contain enough attributes to enable powerful analysis and benchmarking Travel Budget Template Future: Closed Loop Spend Management Zero-based Budget ILLUSTRATIVE

Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. Challenging cost is no longer a Finance-only activity; Category ownership creates a shared responsibility driving sustainable savings opportunities Cost Category Executive Owner Labor & Benefits Sales & Marketing Transport Maintenance Rent Taxes Services Fees Travel Telecom Have deep understanding of cost drivers Challenge budgets, across all departments Enforce disciplined execution Drive fact-based cost savings Monitor costs Lead by example Sustain savings who has a set of responsibilities but is also empowered to make tough decisions For each category, an owner is appointed at the top level Future: Closed Loop Spend Management Category Ownership & Policies ILLUSTRATIVE

Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. TO-BE Situation: An innovative operating model is at the heart of maximum procurement value at a low operating cost Procurement ( Operational ) ProcessesSourcing & Category Management Internal Business users Suppliers Local User interface: Local Purchasing Representation Perform Requisitions & Fulfillment Perform Customer Services (Helpdesk) Provide Sourcing Support Execute local Contract Implementation Execute Spot Buys (2,5K) Sourcing Support LPR Helpdesk (future- > User) Item- Master Data Mgmt Procurement Center (Middle Office) Future: Closed Loop Spend Management Purchasing

Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. The variances against the budget are tracked and documented during monthly meetings to ensure budget achievement and actions trigger continuous improvement Input from FinanceOutput from Category Team Updated and consolidated Variance Report Agreement on Action Plan, Responsible and Due date Variance Reports for the Category by Region INPUT REPORTDURING THE MEETING OUTPUT REPORT Future: Closed Loop Spend Management Control & Monitoring ILLUSTRATIVE

Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. What is the Customers Expectation of Value? What is the customer value to be delivered-: customer/market value driver characteristics? Market/segment volume? Who are the end- users? Is the product-service a candidate for imitation and commoditization? What are the preferred product- service format alternatives? What are the product-service production format alternatives? How active are competitors? Who are they? Do they have a presence in all of the market or specific segments? What are the market constraints (if any)? One Design and Development What is the required R&D expertise? What resources (assets, processes, capabilities and capacities are required for success? What are the investment implications (capital, capacity, forecast utilisation?) Are they already available? Who owns them? Where are they? Which of them are core to the customer/market opportunity? What are the competitive issues? Are there enablers that can create a CA What is the likely number of tasks the product will be expected to undertake? Two Procurement and Manufacturing Product complexity The role of differentiation Market/production volumes Range & variety Production process options; Project? Job? Flow Line? Continuous Process? Procurement profile; Standard components (product, industry) Modular build? Exclusive/specific components? Industry purchasing group? Three Future: Workforce Capabilities

Future: Risk Management Dhawan, Walters, Bhattacharjya Procurement Models for the Future Copyright 2011 Accenture All Rights Reserved. High Medium Low Chemicals Food (Impact of wheat & milk prices) Mining & Metals Manufacturing Pharmaceutical and Medical Products Low Construction Industrial Equipment Consumer Goods Retail Media and Entertainment Communication Medium Transportation (Impact of Oil Prices) Oil, Gas and other Natural Resources Automotive 30% of component suppliers in bankruptcy situation Aerospace and Defence (Single source supply) Electronics and High Technology High Perceived Exposure to Supplier Risks Perceived Exposure to Price Fluctuations Source: High Performance in Procurement Risk Management (Accenture, 2010) Risk Exposure by Industry

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