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Geneva, 24 November 2014

ROSMA - Procurement measured on its return

CIPS: Procurement benefits, partnering and returns

A.T. Kearney xx/00000/Unique Identifier 2

Agenda

■ Your A.T. Kearney team today

■ What is ROSMA?

■ Why is ROSMA needed?

■ Path forward: Procurement performance as brand


Your guests from A.T. Kearney today

Thank you for the invitation

Source: A.T. Kearney

DDr. Michael F. Strohmer Partner

Expert Strategic Operations & Procurement Europe

Areas of expertise

• Strategic Sourcing for global clients

• Procurement transformation & Change Management programs for large corporations

• Head of Supply Management Practice in Switzerland, Austria and Germany (DACH region)

Michael is an expert on raw material strategies, procurement transformation, post-merger management, and large scale CAPEX projects.

He has published several books (including The Purchasing Chessboard, The CPO, TrueSRM) and articles and he is a frequent speaker at international conferences.

Axel Erhard Partner

Expert Consumer Goods & Procurement Europe

Areas of expertise

• Large-scale procurement transformation

• Strategic Sourcing of indirect & direct categories

• Trainer at A.T. Kearney Sourcing Academy

Axel is an expert in large scale cost transformations, pre-merger planning / post-merger integration and supply chain optimization initiatives in the consumer goods and pharma industry.

He has extensive international experience in the US, Europe and Asia working with multinational companies on M&A transactions and transformation programs.


Agenda


■ What is ROSMA?




Let´s start with result first: What is usually keeping the CPO awake at night?

■ Do I achieve my savings as forecasted last year?

■ How can I see that I have the right resources and talents in my organization?

■ Are my category leads following our negotiated contracts and prices?

■ Is my spend fully managed by my organization?

■ How can I speak the same language as my CFO colleague?

■ How do I measure the procurement performance in the best way?”



ROSMASM links procurement performance and financial impact in value management terms

ROSMASM is a framework to support leadership performance management– efficiency metric, steering mechanism, talent enabler and … more

What is ROSMASM?

ROSMASM

Financial results delivered

Invested supply management assets

“A Classic Financial Ratio”


ROSMASM is the ROI of your procurement team delivering financial value to your organization

Return on Supply Management Assets (ROSMASM)


ROSMASM

Financial results delivered

Invested supply management assets

Spend coverage

Velocity Structural investments

Category yields

Compli- ance

Additional benefits

Period costs

x x x + +

Do we cover all spend?

Can we source more

frequently

Can we save more?

Do we capture all potential?

Can we impact the full value

agenda (e.g. innovation,

working capital)?

What running costs do we have?

Do we have the right

enablers?

7 Main Drivers

Questions that keep the CPO awake at night


ROSMASM Performance Check is the output of our commitment to help the profession establish a common language

■ Embeds value management into the language and behaviors of procurement to enable improved alignment and support/respect in C-suite

■ Helps with the credibility gap between finance and procurement through a framework/metric that resonates with the financial community

■ Can be used to annually benchmark against global market and industry peers

"The ROSMA Performance Check offers our professionals another component in their toolkit and provides a robust demonstration of their function's financial value.” -- David Noble, CIPS group CEO


ISM, CIPS and A.T. Kearney formed an alliance to increase the recognition of supply management as key driver for value

Visibility of the profession’s value worldwide was a critical first step:

Help it engage the CFO/Finance community regarding value

Establish a common productivity and financial performance standards/ metrics similar to those other functions have used to demonstrate value


Now, let´s talk about the 2014 results of ROSMASM: how are the procurement champions doing?

1. “Better in Breed” was developed from the 75% percentile value on each of the financial results drivers and only average on procurement cost as a % of total spend 2. Additional Benefits shows the additional hard benefits as a percentage of total savings for those participants that submitted additional benefits; 3. Amortized costs not collected in AEP 2014 Source: A.T. Kearney AEP 2014 and ROSMA Performance Check 2014

ROSMASM

Financial Results Delivered Invested Supply Management Assets

Structural Investment

Period Costs Spend Coverage

Velocity Category Yields

Compliance Additional Benefits

70.4% 74.2% 8.0% 93.4% 34.8% 0.4%

11.4 0.8

b ROSMASM score from 2014 surveys

Top 25% Bottom 25%

9.3% 20.7% 63.3% 18.2% 100.0% -66.4%

% Difference Between Top and Bottom Quartile Performers

Top Quartile Performer on ROSMA

of spend is influenced

of influenced spend is addressed in year

% Savings

% Compliance

as a % of Total Savings2

Procurement cost as a % of Total Spend3

A.T. Kearney xx/00000/Unique Identifier 11 1Data comes from a combined dataset of ROSMASM participants and AEP participants who provided financial data Source: A.T. Kearney

The ROSMASM participants represent a broad mix of geographies and industries

This report is distilled from more than 400 completed,

qualified, and accepted cumulative benchmarks along

with more than 170 submissions focused on 2013 results

2014 ROSMASM Participants by Region


1. Industries with 10 or more data points; Most current responses used for all companies Source: A.T. Kearney ROSMASM Benchmarks Database 2011 - 2014

Retail, Telcos and financial institutions are in the leading group - but the variations are wide and everyone can improve…

ROSMASM Average and StdDev by Industry (Selection)

0.4 4.4 8.3

0.7 5.3 9.9

1.9 6.1 10.3

2.0 8.1 14.2

1.7 8.3 15.0

0.8 4.5 8.3

-0.2 5.4 11.0

-0.5 3.7 8.0

3.1 10.1 17.0

-1 4 9 14 19

All Others

Food, Beverage, and

Nutrition

Chemical, Oil, and Gas

Financial

Institutions/Banking

Telecommunication

Services

Pharmaceuticals

Automotive

Building Materials

Retail

Where do you position your

own company?

-σ +σ

Ind

us

try

1

Avg. ROSMASM +/- 1 StdDev


Agenda


■ What is ROSMA?




Growing inequality in procurement performance since 2011

There is a great hunger to measure procurement performance

The bottom 75% didn’t improve and the

bottom quartile remains

dilutive

For most, influence has

dropped off


Companies are increasingly recognizing the need to measure Procurement performance

■ 2011 ■ 2014

Transparency and credibility form the basis for stronger alignment between Procurement and stakeholders

Procurement Metrics and KPIs Tracked and Transparent with Other Stakeholders

(% Companies selecting “Fully”)

42%

27%

Procurement Metrics and KPIs Aligned, Tracked, and Transparent Internally

(% Companies selecting “Fully”)

62%

42%


Top Performers are defining performance KPIs and ensuring that their teams are efficient and effective

All proc. managers (responsible for

spend, suppliers, etc.) have defined

targets and are measured on an

ongoing basis

Procurement staff are measure on

the performance KPIs & individual

compensation is linked to

performance

Measured performance on defined

KPIs is translated into resource

development plans

76% 64% 40%

52% 41% 11%

Procurement Organization Characteristics and Performance Management (% Companies Selecting “Fully Applies to our organization“)

. Source: 2014 AEP, A.T. Kearney

■ Top Quartile ■ Bottom Quartile


ROSMASM

Financial Results Delivered Invested Supply Management

Assets

Therefore, ROSMASM can be used to set priorities, explore gaps and steer in the right direction

Structural Investment

Period Costs

Spend Coverage

Velocity Compliance Additional Benefits

Technology

Total Spend

Visibility

Spend Governance

Infra-structure

Capa-bilities

Process Recruiting

Training

Knowledge Manage-

ment

Category Profile

Sourcing Strategies

Sourcing Initiative Yields

Benefit Stream

Forecast

Policy

Visibility

Enforcement

Benefit Stream

Realized

Negotiated Value From

Prior Periods

in Inventory

in DPO

e(PV) From SM Enabled Innovation

Working Capital

Improvement

External Support Costs

Other

People Costs

Roles

FTEs

Rates

• Advanced • Conventional

Executed Sourcing Events

Supplier Performance & Exchange

LESS Losses Due Supplier Performance

Issues

Balance of Trade & Barter

Deferred Revenue

Amortized One-time Costs

Management tool illustration

• See more • Cover more • Influence more

• Optimize frequency • Collaborate through

SRM

• Upskill • Automate • High performing teams

• Extended TCO benefits

• Value-in not only cost out

• Focus on strategic impact

• Increase resource leverage


Category Yields

• More impact • New lever

combinations


Agenda


■ What is ROSMA?




There is a difference in the brand building stories of Top and Bottom Performers

Top Performers •Strong brand •Better financial results •Better processes and practices

Bottom Performers •Weak brand •Weaker financial results •Less consistent and less productive processes and practices


Top performers have better processes and practices, and they are more consistently applied…

Partner with business to

accelerate value creation

Are far more transparent and are actively

optimizing their procurement productivity

Are specifying objectives, establishing

“hard number” financial goals, and

measuring progress

More actively manage their compliance

which helps them realize more of their

identified benefits

Work on plans that bring in

other additional benefits

Define performance KPIs and ensure that their

teams are efficient and effective


Building the brand is critical for the profession, our procurement people and career success

Without credibility, reinvestment and recognition, there is no compelling career path story for acquiring, developing, retaining and advancing great talent

Pathway to credibility, reinvestment and recognition

Embrace value

management…

processes,

practices and the

language

Engage with financial

community to enroll them

into the procurement

value management

narrative….speaking the

same language

Rack up wins,

manage for

consistency, show

steady

improvements

across the value

drivers

Coach and

celebrate a

winning/best

athlete team


Thank you for your attention!

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