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NC Procurement Conference
Future of Procurement
Rob Handfield, PhD
Bank of America Distinguished University Professor
Executive Director
Supply Chain Resource Cooperative
November 30, 2017
• Our current partner companies and affiliates include major international organizations with dynamic, complex supply chain demands:
go.NCSU.edu/SupplyChain
Current SCRC Partners and Affiliates
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Course Leader
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Rob Handfield is Executive Director of the Supply Chain Resource
Cooperative (SCRC), and the Bank of America University
Distinguished Professor of Supply Chain Management at North
Carolina State University. He has published in more than 100 peer
reviewed journal articles, and a few popular procurement books.
Dr. Handfield has worked with many Fortune 500 companies, and
is a thought leader in the field of supply chain management and
procurement. He has spoken on those subjects across the globe.
Handfield’s blog “Supply Chain View from the Field” receives
over 50,000 visits annually (http://scm.ncsu.edu/blog)
Portfolio
Analysis
Supplier
Segmentation
Risk Analysis
Define
negotiation
objectives &
acceptable
ranges
Develop
negotiation
strategy
Plan &
conduct
negotiations
Spend
Analysis
Develop
hypotheses
Should-cost
models
Develop total
cost models
Price indices
Supplier site
visits and
research
Evaluate
scorecards
Single/dual
source strategy
Performance
metrics & tracking
Quarterly reviews
and continuous
improvement
Establish
pathways for
collaborative
innovation
Internal Profile:
Stakeholder
Mapping
Develop high
level value stream
map
External Profile:
Industry Analysis
Porter’s 5 Forces
Model
ProcurementAnalytics
Internal & External Market Research
Develop Sourcing Strategy
StrategicCost Modeling
Conduct Supplier Selection
Negotiate Agreements
SupplierRelationshipManagement
NEGOTIATION PREPARATION IMPROVEMENT
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Typical Cycle for Negotiating
a Procurement Deal
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NEGOTIATION EXECUTION
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Faces of Procurement in 2025
1. What will procurement look like in 2025?
2. How will this evolution occur?
3. What are the success factors for achieving this vision?
We Asked…Survey Participants
What everyone wants from
Procurement
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FUTUREBUY as a Financial Expert
P&L and
balance sheet
impact
Budget impact
Volatility
management
Data
governance
FUTUREBUY as an Internal Consultant
Aligned more
closely with
business
Listen and distill
requirements
Develop solutions
and drive value
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Key Differences: Centers on a longer time horizon and broader scope and scale of activities, all
aligned with the life cycle of the category processes
Understands the organization’s key value objectives based on continuous
communication and dialogue with business stakeholders
Drives business process innovation with key suppliers, which in turn drives
business value, using a Total Cost of Ownership approach
Strategic Sourcing Category Management
Goal Reduce purchase costs (project or
LOB based)
Maximize realized category value
(enterprise based)
Frequency Periodic and project-based Ongoing, day-to-day process
Approach Conducted via n-step sourcing
process methodology
Develops a category strategy and
applies appropriate value levers
Results Reduced contract pricing Category value is targeted
Source: The Hackett Group
Strategic Sourcing vs.
Category Management
FUTUREBUY as a Relationship Broker
Supplier
relationship
manager
Ongoing
performance
management
Customer of
choice
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Is Supply Management Missing Out on
Sources of Value to Internal Stakeholders?
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Category value objectives link to stakeholder objectives
Reduced purchased costs Improve cost of quality Improve marketing effectivenessImprove
flexibility/responsiveness/delivery
Reduce cost of risk Reduce working capitalAccelerate new product
developmentVariabilize asset structure
Reduce internal process costs Improve Delivery Performance Enter new markets Support sustainability goals
Reduce fixed costs Reshape consumption Enable new business capabilities Strengthen the brand
Support other goalsIncrease revenueReduce TCO
Case Study: The Thailand Flood of 2011-2012
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~ $46B in Economic Damages….
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FUTUREBUY as a Supplier Coach
From adversarial
to coaching
Early supplier
involvement
Tap into
innovation
Time to market
and top line
Suppliers as a Source of
Supply Chain Innovation
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None “Gray Box”
No supplierinvolvement.
Supplier“makes to print.”
“White Box”
Informal supplierintegration.
Buyer “consults”with supplier
on buyer’s design.
Formalized supplierintegration. Joint
development activity between
buyer andsupplier.
“Black Box”
Design is primarily
supplier driven,based on buyer’s
performancespecifications.
Increasing Supplier Responsibility
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FUTUREBUY as a Risk Mitigator
Source of supply
Regulatory
environment
Financials
Labor
Volatility
Brand
Apparel Manufacturing in Bangladesh
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FUTUREBUY as an Intelligence Agent
Market
intelligence
Internal
intelligence
Predictive
analytics
Traditional Focus of
Business Intelligence
CustomersSuppliers
Suppliers’ Environment Customers’ Environment
Stakeholders
Company’s Environment
Customer and
Market Intelligence
Supplier and
Market Intelligence
Business Intelligence
Supply Chain Intelligence is the convergence of four activities (information
gathering, analysis, dissemination and response) both upstream and
downstream in the supply chain.
A GUESSING GAME
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Transforming Data into Knowledge,
Knowledge into Action
STRATEGIC DECISION-MAKINGSupply Chain Risk Mitigation, Cost Management,Category Strategies, Stakeholder Value, Innovation
Gather, Analyze, & Synthesize Data & Information
Business Intelligence
Spend
Demand
Performance
Finance
Quality
Market IntelligenceMarketsIndustriesGoods & CommoditiesFinanceSuppliersCompetitorsTechnologies
DATA
INFORMATION
KNOWLEDGE
FUTUREBUY as a Steward
of the Environment
Regulatory
requirements vs.
client
expectations
Global code of
conduct
Managing,
coaching and
auditing
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Nike Sustainable Material Index
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FUTUREBUY as a Legal Expert
Contract
management
Weigh business
value vs. risk
Contract
compliance
Types of Contracts
Type of ContractBuyer
Risk
Supplier
Risk
Firm-fixed price Low High
Fixed-price with escalation
Fixed-price with redetermination
Fixed-price with incentives
Cost plus incentive fee
Cost-sharing
Time and materials
Cost plus fixed-fee High Low
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The terms that are
negotiated with greatest
frequency
Terms which would be more
productive in supporting successful
relationships1
Limitation of Liability Change Management2
Indemnification Scope and Goals3
Price / Charge / Price Changes Responsibilities of the Parties4
Intellectual Property Communications and Reporting5
Payment
Performance / Guarantees /
Undertakings6
Liquidated Damages Limitation of Liability7 Performance / Guarantees /
Undertakings Delivery / Acceptance8
Delivery / Acceptance Dispute Resolution9
Applicable law / Jurisdiction Service Levels and Warranties10 Confidential Information / Non
disclosure Price / Charge / Price ChangesSource: IACCM.com, 2012.
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Importance of Roles Will Vary by Organization
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Financial Impact and Data Governance
InternalConsultant
RelationshipBroker
IntelligenceAgent
LegalExpert
RiskAdvisor
SupplierCoach
Supply Chain Innovator
Trusted Advisor
Cost Savings Enabler
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FUTUREBUY – Bringing it all together…
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P2P Infrastructure