Procurement Service Provider Procurement Service Provider and Supply Chain Management and Supply Chain Management Training: Training: -Lesson 3: Innovation and Opportunity-Lesson 3: Innovation and Opportunity-Lesson 4: The Three-to-Five Year Outlook -Lesson 4: The Three-to-Five Year Outlook

Source One Management Services, LLCSource One Management Services, LLC724 Fitzwatertown Road724 Fitzwatertown RoadWillow Grove, PA 19090Willow Grove, PA 19090

(215)-902-0200(215)-902-0200www.sourceoneinc.comwww.sourceoneinc.com

Lesson 3 IntroductionLesson 3 Introduction

A 1 percent reduction in the cost of purchased A 1 percent reduction in the cost of purchased materials is equivalent to a 12 to 18 percent rise materials is equivalent to a 12 to 18 percent rise in sales growthin sales growth

Several reasons why that reduction is possibleSeveral reasons why that reduction is possible New and better technologyNew and better technology More companies and countries from which to source More companies and countries from which to source

(globalization)(globalization) Increasingly sophisticated approaches to managing the Increasingly sophisticated approaches to managing the

supply management function (Procurement Service supply management function (Procurement Service Providers such as Source One Management Services, LLC Providers such as Source One Management Services, LLC for example)for example)

Maturing and Scaling of Maturing and Scaling of Procurement TechnologyProcurement Technology

Procurement Procurement Technologies can:Technologies can: Help curtail rogue spendingHelp curtail rogue spending Work efficiently with wider Work efficiently with wider

range of suppliersrange of suppliers Simplify the sourcing Simplify the sourcing

processprocess Help actively manage total Help actively manage total

costscostsFree E-Commerce tools such as

www.WhyAbe.com provide Reverse Auctions, RFx, and Supplier

Management

E-Sourcing CapabilitiesE-Sourcing Capabilities

Becoming more sophisticated and popularBecoming more sophisticated and popularHave become more integral to e-Have become more integral to e-

procurement initiativesprocurement initiativesSpecialized capabilities are evolving:Specialized capabilities are evolving:

Facilitating easier interaction concerning Facilitating easier interaction concerning contract languagecontract language

Evaluating numerous variables on a large Evaluating numerous variables on a large scalescale

PLM and RFID SystemsPLM and RFID Systems

RFID (Radio Frequency Identification RFID (Radio Frequency Identification Systems)Systems)Provides real-time defective product data, Provides real-time defective product data,

improves item tracking, aids supplier-improves item tracking, aids supplier-managed inventory processesmanaged inventory processes

PLM (Product Life Cycle Management PLM (Product Life Cycle Management Systems)Systems)Manipulates the relationship between the Manipulates the relationship between the

product life cycle and cost reduction product life cycle and cost reduction opportunityopportunity

Global Sourcing and Supply ManagementGlobal Sourcing and Supply Management

Three major recent developments Three major recent developments in the evolution of global in the evolution of global sourcing:sourcing:

More companies pursuing More companies pursuing global supply baseglobal supply base

Increase in number of Increase in number of countries viewed as sourcing countries viewed as sourcing candidatescandidates

Increase in quantity and Increase in quantity and variety of available productsvariety of available products

Why Alternate Supply Sources?Why Alternate Supply Sources?

Worker EducationWorker EducationSize of Domestic and Export MarketSize of Domestic and Export MarketMarket LiberalizationMarket Liberalization

China’s admission into the WTO has assured China’s admission into the WTO has assured commitments to reduce high tariffscommitments to reduce high tariffs

Abundance of low-wage labor availableAbundance of low-wage labor availableChina’s average hourly manufacturing wage is China’s average hourly manufacturing wage is

60 cents an hour with a able workforce of 941 60 cents an hour with a able workforce of 941 millionmillion

Global Sourcing ChallengesGlobal Sourcing Challenges

Identifying and establishing new supplier Identifying and establishing new supplier relationshipsrelationships

Less advanced IT systems and Less advanced IT systems and information sharinginformation sharing

More research and due diligence must be More research and due diligence must be done on overseas suppliersdone on overseas suppliers

Incorporating local business culture into Incorporating local business culture into negotiation strategynegotiation strategy

Approaches to Global SourcingApproaches to Global Sourcing

International Supply International Supply Management OfficeManagement Office

Local Joint VenturesLocal Joint Ventures Work with in-country Work with in-country

enterprise to establish enterprise to establish presencepresence

Trading AgentTrading Agent ““sourcing brokers”sourcing brokers”

Procurement OutsourcingProcurement Outsourcing Cost reductions of 5 to 18 Cost reductions of 5 to 18

percent can result from an percent can result from an organization’s ability to:organization’s ability to:

1.1. Drive contract complianceDrive contract compliance

2.2. Source effectivelySource effectively

3.3. Connect with a larger Connect with a larger supplier basesupplier base

4.4. Operate more efficientlyOperate more efficiently

5.5. Address complex services Address complex services spendspend

6.6. Leverage technology more Leverage technology more effectivelyeffectively

Procurement Service Providers, such as

www.SourceOneInc.com can supplement internal

procurement departments without risk.

Government Sourcing PracticesGovernment Sourcing Practices Practice Cost AvoidancePractice Cost Avoidance

Identify rogue spending and eliminate unnecessary cost addersIdentify rogue spending and eliminate unnecessary cost adders Know the MarketKnow the Market

Be knowledgeable about what you’re sourcingBe knowledgeable about what you’re sourcing Overcome Legislative BurdensOvercome Legislative Burdens

Cut through the Red TapeCut through the Red Tape Build Confidence in Strategic Supply ManagementBuild Confidence in Strategic Supply Management

Manifest trust of the end users in the systemManifest trust of the end users in the system Improve Supplier ManagementImprove Supplier Management

Monitor supplier performance and adherence to contract termsMonitor supplier performance and adherence to contract terms Leverage Purchasing PowerLeverage Purchasing Power

NYCDOE as example of consolidating smaller spends to leverage NYCDOE as example of consolidating smaller spends to leverage pricing with supplierspricing with suppliers

Financial Services PracticesFinancial Services Practices Optimize SourcingOptimize Sourcing

Make intelligent and informed sourcing decisionsMake intelligent and informed sourcing decisions Rebuild the Procure-to-Pay ModelRebuild the Procure-to-Pay Model

Streamline processesStreamline processes Increase Use of Electronic ToolsIncrease Use of Electronic Tools Apply Best Practices to Overlooked Spend CategoriesApply Best Practices to Overlooked Spend Categories

i.e. Legal fees, advertising, market researchi.e. Legal fees, advertising, market research Maximize ComplianceMaximize Compliance

To realize optimum cost reduction and efficiencyTo realize optimum cost reduction and efficiency Develop Shared Services ProgramsDevelop Shared Services Programs Outsource Supply Management FunctionsOutsource Supply Management Functions

Complex strategies make outsourcing an attractive optionComplex strategies make outsourcing an attractive option

Chapter 4 IntroductionChapter 4 Introduction

The Three-to-Five Year OutlookThe Three-to-Five Year OutlookCEO expectations for supply managementCEO expectations for supply managementCPO expectations for supply managementCPO expectations for supply managementHow do we reach these goals?How do we reach these goals?

CEO ExpectationsCEO Expectations Cost and Price FocusCost and Price Focus

Take advantage of opportunities and strive for 100% compliance Take advantage of opportunities and strive for 100% compliance with initiativeswith initiatives

Brand FocusBrand Focus More than just the bottom lineMore than just the bottom line How do we get our name out?How do we get our name out?

Technology StagnationTechnology Stagnation Systems and software can only go so farSystems and software can only go so far

Global Commerce Dominates CompetitionGlobal Commerce Dominates Competition Forward-thinking companies will have an edgeForward-thinking companies will have an edge

Mass Industry ConsolidationMass Industry Consolidation More takeovers and buyoutsMore takeovers and buyouts

Critical Supply Management Critical Supply Management QuestionsQuestions

What business are we in?What business are we in? What are the ways to go What are the ways to go

to market?to market? What are the business What are the business

models we could use?models we could use? What supply chains make What supply chains make

sense in the given sense in the given business modelbusiness model

How can I synthesize How can I synthesize existing supply chains?existing supply chains?

What next best practices What next best practices should we create for should we create for competitive advantage?competitive advantage?

Risk Management in Supply Risk Management in Supply

Risk assessment and Risk assessment and management is management is becoming becoming increasingly importantincreasingly important

Shift in focus from Shift in focus from mitigation to mitigation to optimizationoptimization How can we use risk How can we use risk

analysis to our analysis to our advantage?advantage?

How Do We Prioritize Supply How Do We Prioritize Supply Management?Management?

ReachReach Build a better business case for supply managementBuild a better business case for supply management

MeasurementMeasurement How well do you perform against your competitors?How well do you perform against your competitors?

InnovationInnovation Think outside the boxThink outside the box

Extracting ValueExtracting Value Make sure you’re getting the most out of suppliers while Make sure you’re getting the most out of suppliers while

remaining attuned to the marketremaining attuned to the market Global BusinessGlobal Business

Think worldwide to optimize sourcing practicesThink worldwide to optimize sourcing practices DiversityDiversity

Expand the horizons of your supply baseExpand the horizons of your supply base

Types of Supply Chain ExecutivesTypes of Supply Chain Executives

EntrepreneursEntrepreneursStrategic ThinkersStrategic ThinkersResults-DriversResults-DriversRecruitersRecruiters

EntrepreneursEntrepreneurs

Broad thinkersBroad thinkersLong-term focus on profitability and cost Long-term focus on profitability and cost

managementmanagementBusiness acumen and financial knowledgeBusiness acumen and financial knowledge

Strategic ThinkersStrategic Thinkers

Strong communication skillsStrong communication skillsKnows when to develop new relationships Knows when to develop new relationships

and rekindle old onesand rekindle old ones

Results-DriversResults-Drivers

Defines, predicts, Defines, predicts, measures, and tracks measures, and tracks benefits of supply benefits of supply managementmanagement

Markets and sells supply Markets and sells supply managementmanagement

Focuses on continuous Focuses on continuous improvementimprovement

Possesses market Possesses market intelligence skillsintelligence skills

RecruitersRecruiters

Measures performance to recognize key Measures performance to recognize key peoplepeople

Can identify right skills for any given Can identify right skills for any given positionposition

Rotates team members to gather cross-Rotates team members to gather cross-functional experiencefunctional experience

Brings out the best in othersBrings out the best in others

In Closing…In Closing…

Supply Management in the next 3-5 years Supply Management in the next 3-5 years will focus on:will focus on:Creating value for customersCreating value for customersEliminating waste in processesEliminating waste in processesBetter defining connections between Better defining connections between

processes, customers, and suppliersprocesses, customers, and suppliersWorking more collaboratively with suppliersWorking more collaboratively with suppliers

Resources for These Lessons:Resources for These Lessons:Lesson 3: Innovation and OpportunityLesson 4: The Three-to-Five Year Outlook

The Supply Management Handbook:The Supply Management Handbook:Seventh Edition: McGraw-HillSeventh Edition: McGraw-Hill

Source One Management Services, LLCSource One Management Services, LLC

www.sourceoneinc.com