oriflame purchasing management workshop module 6 – sourcing strategy marketing & sourcing...

Oriflame Purchasing Management WorkshopModule 6 – Sourcing Strategy

• Marketing & Sourcing Strategy• Leverage Opportunities• IP Management• Standardisation• e Commerce / e Auction

2005-10-11 Oriflame Purchasing Management Workshop2

Purchasing Workshop Module 6

© The Delos Partnership 2005

• Put together negotiation plans & channels.

• Ensure that the channel plans have been thoroughly prepared.

• Ensure a CDA is in place so that there is no market leakage of information.

• Analyse & evaluate completed RFQ’s

• Use/modify evaluation criteria

• Get key stakeholder input

• Discuss and develop Oriflame needs and wants.

• Discuss and agree the different Oriflame Negotiation roles & styles.

• Create the Oriflame

negotiation team (never alone!! and typically 3-4 people)

• Decide on negotiation team roles.

• Supplier Selection

• Legal Supply and Service level agreement and Total value plan,

• Performance Measures

• Supplier and Oriflame relationship management

• Communicate of results on a need to know basis.

Plan the Channels

& new Oriflame

Agreement

Plan the Channels

& new Oriflame

Agreement

DevelopNegotiation

Strategy

DevelopNegotiation

Strategy

Post Negotiation

Actions

Post Negotiation

Actions

DevelopNegotiation

Goals

DevelopNegotiation

Goals

Negotiate / Select the Suppliers

2005-10-11 Oriflame Purchasing Management Workshop



Oriflame Customer

Needs

Oriflame Supply Side Value

Oriflame Sourcing

Oriflame Transactions

OrderPlacing

OrderNegotiation

Oriflame Sourcing

Supplier RelationshipManagement




The Bow-Tie Relationship

Oriflame Supplier Sales Person

Oriflame Buyer

Supplier

• Management• Sales• Marketing• Operations• R&D • Supply Chain • Procurement

Oriflame





The Diamond Relationship



Oriflame Key Account Management




Strategic Focus

Oriflame Relationship Management

Joint Development

Senior

Relationships

Joint Ventures

Supply Chain

Integration

Global AccountManagement

Customer

Service Joint Mark

eting




Leveragepower of Oriflame suppliers

OriflameMarketLeverage

Threat ofNew

Oriflame Suppliers

Substituteproducts

or services

Oriflame Business

& Competitive Environment

Porter’s Five Competitive Forces




Brand Management

Marketing champion the brand, and determine product and price strategy.

• Innovation pricing• Market skimming pricing strategy• Price elasticity [revenue versus volume]

Differentiated brands are premium priced – some relates to innovation cost.

• Marketing preserve “brand equity”• Create Market segments – same product: different price

"Price is a function of perceived value and emotion". "Price is a function of perceived value and emotion". The heart is 50x more electrical and 1000x more The heart is 50x more electrical and 1000x more

electromagnetic than the brain. electromagnetic than the brain. (e.g. Coca Cola, Virgin)(e.g. Coca Cola, Virgin)

"Price is a function of perceived value and emotion". "Price is a function of perceived value and emotion". The heart is 50x more electrical and 1000x more The heart is 50x more electrical and 1000x more

electromagnetic than the brain. electromagnetic than the brain. (e.g. Coca Cola, Virgin)(e.g. Coca Cola, Virgin)




Sales Penetration & Exploitation

• Look to exploit the lack of internal communication and integrated supplier strategies

• Gain knowledge through telesales and engaging the over-communicators.

• Penetrate poor security and easy site access

• Use switchboard, networks, direct calls to locate key influencers & decision makers

• Try to avoid Procurement involvement until as late as possible




Oriflame Penetration & Access

Board & CEO

R&D EngineeringSales

& MarketingBusiness

DevelopmentQuality Business Centre

I.T. Legal Finance

Direct

into

funct

ional

Direct

into

funct

ional

head or team m

embers

head or team m

embers

Top DownTop Down

Bottom UpBottom Up

How can P

urchasin

g main

tain

How can P

urchasin

g main

tain

levera

ge giv

en wid

espre

ad

levera

ge giv

en wid

espre

ad

penetratio

n and a

ccess

?

penetratio

n and a

ccess

?




StrategicCritical

(Risk & Value)

Commoditisation & Leverage

ConflictSupplier tries toextract premium

pricing and controlsOriflame

ConflictOriflame exploits

relationshipand tries to

commoditise a specialty

Leverage or Alignment?

PerfectAlignment




DOGS PROBLEM CHILDREN

CASH COWS STARS

PR

OD

UC

T V

OLU

ME

PR

OD

UC

T V

OLU

ME

PRODUCT PROFITPRODUCT PROFIT

Leveraging Product Types

KeyKeyLeverageLeverage

TypeType


TypeType




TIME (CAN BE MONTHS)TIME (CAN BE MONTHS)

0%

PR

OD

UC

T M

AR

KET S

HA

RE

PR

OD

UC

T M

AR

KET S

HA

RE

LAUNCHLAUNCH GROWTHGROWTH STAGNATIONSTAGNATION DECAYDECAY

1990’s1990’s

2000’s2000’s

50% INNOVATION INNOVATION

Leveraging Product Life Cycles


TimeTime


TimeTime




Leveraging the Supply Side

Bargaining Power & LeverageBargaining Power & Leverage

Su

pp

ly S

ide V

alu

e d

elivery

(£)

Su

pp

ly S

ide V

alu

e d

elivery

(£)

• Standard Costing

• Pricing, Market Structures & Agreements

• Managing Supplier Procurement Costs

• Collaborative vs. Confrontational Leverage

• Supplier Development – Value Stream & Lean

• Managing Supplier Development Plans

• Supplier Performance Assessment

Oriflame Purchasing Management Workshop15



The Competitive Box

Known / Unknown suppliers operating in traditional

value add ways with the cosmetics

customer base and competing for market share

Oriflame & Oriflame Customers

Conventional valuepropositions

New Supplier New Business Model

Superior

value

Superior

value

Three Choices for Oriflame




Intellectual Property Management

• Adequate protection for Customer and Internal I.P.

• Controlled supplier access to sensitive projects, parts of the plant etc

• CDA from the beginning

• Joint Development Agreement with specifically named project members

• Joint Exploitation Agreement

• Potential licence fees and royalty income from all joint supplier inventions




This is the second customer who has talked to me about this great new product opportunity and shared their expert knowledge.I'll even try to get a photo of the product from them..,

This is the second customer who has talked to me about this great new product opportunity and shared their expert knowledge.I'll even try to get a photo of the product from them..,

I have a problem here in Oriflame. Let me talk to you all about it, and what I am doing with other suppliers.





" I think I've got something that could really help Oriflame. We've just invented it and filed for a patent...

" I think I've got something that could really help Oriflame. We've just invented it and filed for a patent...

Patentin the name of thesupplier

Patentin the name of thesupplier

That’s really good; it is just

like we wanted. I did not realise

that you had got a patent on it

though ! Could I have a sample

and price?





Oriflame will pay top dollar for my product but I'll give a discount which they will value. There are other development projects I want to exploit

Oriflame will pay top dollar for my product but I'll give a discount which they will value. There are other development projects I want to exploit





Standardisation and Rationalisation

• Many companies suffer from the "cost of complexity"

– historic specifications – obsolescent specifications.

• This in turn can lead to expensive set-up costs




Standardisation

• 80 % of the cost is built into the product at the design stage

• If designers do not build in commonality and standard products/components then costs increase




Specials vs. Commodity

1. What you think is special may not be special

2. Suppliers will try and create “special” to extract value

3. Suppliers will try and sell to your people and force you to specify “special”

4. You try and create “commodities” but they will want “specials”




Current Supplier Strategy

Value Cost Avoidance

(Purchase Cost) (Std Cost Vs.Target)

WARP & WEFT (Euro) 1 1.65 165,000 -680

TAFENNY 13 0.994 342,745 -6,975

BCM (BCMKE) 3 0.79 237,000 14,580

WECKERLE SWISS 12 0.76 1,429,986 -5,767

FARBERON LIMITED 1 0.722 36,080 10,805

Prodene Klint 1 0.56 161,988 810

SUREFIL 4 0.54 270,000 16,650

SILVER OAK 14 0.495 3,527,180 190,047

Interspray 2 0.479 507,179 79,199

COLEP POSLKA SP ZOO 1 0.415 996,000 155,520

PROFICOS 11 0.407 586,494 107,538

OPP_ 7 0.374 1,596,260 322,250

Nordium Oriflame 3 0.343 901,395 82,648

GAMMA 1 0.31 93,000 1,770

RT Sourcing (RCHM1) 2 0.271 234,361 -4,257

Grand Total 76 0.616 11,084,667 964,137

Business Awarded to Fillers - Sort by Average Cost

SUPPLIER # Products Average Cost




“Negotiation” Choices

• Over the phone

• Email

• Buy “On Line” – Sellers Catalogue

• Buy “On Line” – Buyers Catalogue

• E Commerce – Auctions, e Tenders, Portals

Indirect Channel

Direct Channel

OR

• Face to Face – Negotiation




Negotiation – e Commerce

e Commerce Definition

e – Tools

Tool Comparison table

Reverse Auction - Positives and Negatives

Logistics and Freight example




e–Commerce Definitions

• Use of the Internet, ERP or online tools in order to source products and services across global markets. market

• A Sourcing tactic, technique and tool and not a strategy

• Covers applications such as reverse auctions, electronic tenders and purchasing portals




Reverse Auctions

• Live and interactive bidding online that makes use of ceiling prices & bid increments so that business finally goes to the lowest bidder

Electronic Sourcing & Tenders

• Uses the traditional tender process against an RFQ but makes use of the Internet to manage projects and obtain quotations. Far more effective than traditional paper methods.

Portals

• Internet / Intranet / Extranet site (portal) where user needs are positioned and supplier bids & information is electronically managed as part of the Business Sourcing process.

e-Tools




Market Factor Reverse Auction Tender Negotiation

Supplier Relationship Leverage Strategic/Critical Critical

Supply Demand Balance Long Balanced Short

Type Commodity Speciality Special

Approvals Many Few One or Two

Globality Global Site to Global Regional

Large Business Turnover Widely Used Common Increasingly rare

Product Approval Easy Difficult Hard

Pricing Control Buyers Favour Neutral Sellers

e Tool Applications




• Efficient (no lunch & lingo)

• Global Reach

• Aggressive bidding

• Transparent

• Transactionally efficient

e Auction – Positives




– Requires Preparation

– Can be Costly (ROI)

– Need to integrate / involve IT and ERP

– Education and training (Buyers and Suppliers)

– Set Up time (people, ceiling prices & communication timings, bid size decreases, lot sizes, auction duration & overtime periods, single or nested, visibility & transparency)

– Final Allocation of business (Goes to the lowest price bidder you may not like)

e Auction Negatives




• Procuri

• Big 5 Consultants – eg PwC

• SAP / Oracle

• E Bay

• Achilles

• Surestock

• etc etc...

e Auction Providers




Logistics and Freight (Sea, Road, Couriers) is a good category for reverse auctions.

• Overcapacity leading to constant downward price pressure

• Significant options to destinations

• Many well qualified suppliers

• Non Strategic Supplier relationships

• Easy to assemble specifications and benchmarks

Logistics Example




Questions ?

oriflame purchasing management workshop module 6 – sourcing strategy marketing & sourcing...

Documents

delos partnership

virgin oriflame

oriflame negotiation

management workshopmodule

supplier selectionlegal

procurement involveme

price strategy

sales penetration exploitation