Our SRM Journey

Mike JonesHead of Supplier Management & Methods23 June 2008

LTSB Group – overviewWhere we started fromCatalysts for changeOur approach….where we are nowReflections on the journey so farFuture plansQ&A

Agenda

Group Procurement’s role is to ensure that Lloyds TSB gets the best value from itsexternal expenditure and strategic supplies

UK Retail Banking

Insurance & Investments

Wholesale & Intl’ Banking

IT and Operations

Group IT

Group Property

Procurement

LTSB Bank Scottish Widows

C&G Gen. Insurance

Corporate Bnkg

Asset Finance

e.g. e.g. e.g. e.g.

LTSB Overview – Group structure

• In 2007, LTSB spent £2.2bn with 3rd party suppliers

• That’s about half of the Group’s total cost base• Our top 50 suppliers account for half of the

money we spend with suppliers• The top 1000 cover >95% of our spend

LTSB Overview – SRM in context

Supplier Collaboration

To create new supplier value beyond contractual terms

Supplier Performance Management

To maintain and gradually improve value

Ineffective relationships/value leakage

Value

Time

Contract

Signature

Where we started from

+ve• Dedicated relationship

managers for many of the Top 50 suppliers

• Strong focus on risk & compliance agenda with outsourced/offshore suppliers

• Pockets of excellence – mostly in Group Procurement

• Best practice shared informally between some teams

-ve• Inconsistent SRM approaches

adopted across the Group• Little focus on driving added

value from supplier relationships

• Most of the Top 50 relationships were managed outside Group Procurement

• Relationship managers had received no training in the role

• No common understanding of what ‘good’ looked like

Where we started from

Catalysts for change

• Increasing regulatory focus on the management of outsourced/business critical services

• New Chief Procurement Director • Enhanced SRM positioned as part of a Group-

wide Procurement Transformation Programme• We’re delivering on our transformation promises• Increasing executive awareness/recognition that

poor SRM can have serious risk/cost implications

‘Science is organised knowledge’

Herbert Spencer

Our approach

POLICY

PEOPLE PROCESS

Our approach

Policy

• We are adopting a consistent One Best Way approach to managing our Top 50 suppliers –driven by Group Procurement

• We have a named Accountable Executive and Relationship Manager for each Top 50 relationship

• Group Procurement reviews/updates the Top 50 list annually

• As a general rule, SRM activity takes place ‘at the coal face’

Process

• SRM is an integral part of the e2e sourcing process

• Segmentation matrix has been implemented for the Top 50 suppliers

• One Best Way - standard tools & techniques deployed consistently across the Group…driven by position on the segmentation matrix

• Managing suppliers is now an integral part of our Procurement Cycle

Request Approve

Order

ReceivePay

PurchaseOrderCycle

Identify . & AnalyseBusiness

Need

AnalyseCategory

DevelopSourcingStrategy

DevelopSupplier

ListRun

E-RFxProcess

FinalNegotiation

BuildCross

Functional Team

SourcingCycle

Select Supplier / Finalise Contract

Manage &DevelopSupplier

Performance

ContractManagement

EnableSupplier

ManageSupplier Exit

9

16

SupplierManagement

8 10

12

3

4

56

7

1112

13

1415

Request Approve

Order

ReceivePay

PurchaseOrderCycle

Identify . & AnalyseBusiness

Need

AnalyseCategory

DevelopSourcingStrategy

DevelopSupplier

ListRun

E-RFxProcess

FinalNegotiation

BuildCross

Functional Team

SourcingCycle

Select Supplier / Finalise Contract

Manage &DevelopSupplier

Performance

ContractManagement

EnableSupplier

ManageSupplier Exit

9

16

SupplierManagement

8 10

12

3

4

56

7

1112

13

1415

Process – the e2e cycle

Achieve what you have agreed toactivityqualitytimeliness

Reduce riskidentify and mitigate supply / business continuity

Improve responsivenessunderstand your needsrecognise their needs

Contribution to Category StrategyInnovationContinuous improvement

Contribution to Business Strategy

High

Low

LowProcurement Potential

High

Busi

ness

Crit

ical

ity

1 2 3 4

INNOVATE

IMPROVE

DELIVER

ASSURE

Supplier Management Focus

INNOVATE

IMPROVE

DELIVER

ASSURE

IMPROVE

DELIVER

ASSURE

INNOVATE

Leverage• Commoditised good or service• Transparent market, easy to

switch• No disruption risk – could easily

do without/ source from an alternative supplier

Strategic• High spend • Significant intellectual input

from supplier• Service is tailored to our needs• Gives LTSB competitive advantage • Disruption could cause significant

impact• Shared risk & reward/mutual destiny• Critical outsource per FSA

Routine• Routine low value commoditised

purchases• Aim is to minimise cost of

transaction process

Bottleneck• Low spend may be bespoke or

generic• Disruption could cause significant

impact• High switching costs• Critical outsource per FSA

Key

Process – segmentation approach

• Raise awareness of supplier management and the business imperative for excelling at it

• Build a supplier management ‘community’…disseminating and sharing best practice

• Keep our people up to date and at the cutting edge

• Develop knowledge and skills via the Supplier Management Academy

People – our approach

People – Academy

People – Academy

• Available to all, but targeted on those who manage the relationships with our Top 50 suppliers

• Content is owned by Group Procurement but delivered via our Corporate University

• Marketing & comms are a joint University/Procurement responsibility

• Curriculum is built around the four management focus areas linked to our segmentation matrix

People – Academy

• Material is delivered via a mix of f2f courses and on-line modules

• Mix of internal/external content

• Once they have been inducted to The Academy, trainees can agree with their line manager which modules they need to complete and self-select as part of their development plan

• Induction is via a one-day workshop, led by Group Procurement

…The induction process gets everyone to a basic level of knowledge/understanding

People – Academy

Academy – induction content

• Supplier Management – policy & process (inc roles & responsibilities)

• Segmentation/management focus approach

• Skills matrix/curriculum overview

• Key tools (linked to mgt focus areas)

• Action planning

People – current status

• The Academy went live 1st March 2008

• 16 f2f and 17 on-line modules are available

• 130 people have been sheep-dipped…more are scheduled

• Monthly follow-up calls to identify issues/offer support

• Executive commitment and understanding are an absolute must-have for successful SRM

• Look upon broken relationships/failed contracts as a learning/communications opportunity

• You need a common SRM language in the organisation – the sheep dip approach has helped here

Reflections on the journey so far…

• SRM is not a bolt-on…it must be an integral part of the e2e process

• Make sure the buyers understand SRM…and put arrangements in place before deals are done

• Governance is key – document internal roles & responsibilities in facing off to the supplier

Reflections on the journey so far…

• Add further content to the Academy – launch ‘virtual brown bag sessions’

• Buddy experienced/inexperienced relationship managers

• Augment resource/capability where the added value opportunities are greatest

• Apply our SRM methodology to the management of internal supply relationships

Future plans

?

Any questions…