Dhanis Puspa Maharani, S.T., MSc

March 2016

Cost Easy Booking

No Cash Option

GPS Tracking

Immediate Response

Morale

Safety

Delivery

Quality

Cost

A study of financial, procurement and procure-to-pay professionals working in large businesses, by e-invoicing provider Tradeshift, found that 92% of respondents believe supplier collaboration is essential to driving value in the business (CIPS, 2015)

Source: https://www.youtube.com/watch?v=wAzqbz7jM_o

The Role of Purchasing

The Evolution of Purchasing

Role Process Department Function

Sources Partners Vendors Suppliers

Focus Value Price Cost

Interacts with other units & contributes

to competitive advantage

Managed cross-functional core

process jointly w/ stakeholders

Clerical

Provide cost saving & improvement

ideas

Streamline supplier bases for increased

productivity => mutual relationship

Suggesting essentially reactive

inputs

Driving down cost Add value for competitive advantage

Squeeze vendor for better price

The Role of Purchasing in Value Chains

Organization

Supplier Purchasing Internal

Customer External

Customer

Upstream Downstream

Purchasing’s linkages in value chain

• Understand & serve their needs

• Advise • Participate in

cross-functional teams

• Inquire about their requirement

• Offer suggestion • Provide link of

supplier base

• Manage selection & monitor

• Lead continuous improvement of supplier quality, cost & cycle time

• Obtain suggestion & involvement

7 Steps of Sourcing Strategy

Cost Service

Time / Security of Supply

Business Needs

Quality Innovation

Flexibility

High quality measurement, robust and reliable solutions

Rely on local geographical presence to be able to receive timely technical service

Obtain innovative solutions for unique product handling needs, packaging designs, and line layouts

Business Needs Across Strategic Axes

Uniqueness

Commonality

Variety of products and packaging requirements, line speeds, requires innovative suppliers to challenges specs. Standard solutions can be used in many cases

Need for Uniqueness Vs. Commonality

1 – Understand business needs

Leverage Category

Strategic Category

Non-Critical Category

Bottleneck Category

High

High

Low

Low

Bu

sin

ess

Im

pa

ct

Supply Market Complexity

Category Positioning Matrix

Strategic Differentiator Leverage volume, alliance or preferred relationship

Non-Critical Reduce time and effort

but get best price

Leverage Use competition to get

best value

Risky Bottleneck Reduce risk, simplify, grow volume or exit

Get partnership to standardize a high quality set of products and assure last innovation by building a transparent preferred price list and R&D collaboration

2 – Category Positioning

Cross-Functional Participation

3 – Identify Potential Suppliers

Play leading roles in cross-functional teams :

• Sourcing teams – manage & select suppliers

• Operations teams – execute sourcing strategy & monitor performance

• New product teams – develop new products

Today’s Purchasers

Supplier Selection Sources of Supplier Information

Published Internal Personal

Internet, catalogue, yellow pages, etc

Supplier file, technical personnel, etc

Professional colleague, supplier sales personnel, trade fair, etc

Selection Criteria

Preliminary Screening

Supplier Visits

Financial Information

Exploratory Information

Questionnaires

Rejected Candidates

Candidate List

Detailed Study

Approved Supplier List

Which force is dominant in the market? Which is weakest? H (“green”), M (“yellow”) or L (“red”) rating

What is customer’s bargaining power and its ability to drive benefit from opportunities?

H, M, L rating

Threat of New Entrants

Power of Customers

Threat of Substitution

Rivalry of Existing Companies

Power of Feedstock Suppliers

Focus on key suppliers to develop standard solutions that help us to leverage the competition and improve TCO

Assess Supply Markets - Porter Five Forces

New Product Development

Marketing Research

Product Design

Production Planning

Materials Acquisition

Product Manufacturing

Product Information

STEPS

Marketing

Product Engineer

Product Engineer

Purchasing

Production

Marketing

Conventional

Production

Marketing

New Process Advanced Process

Cross-functional

Team

Extended Enterprise

Team • Purchasing • Internal

Customer • Supplier • Supplier’s

supplier

Static, Reactive, Tactical

Dynamic, Proactive, Strategic

roles of purchasing & supplier have changed…

Business Needs and Priorities OEE and Sigma operating performance improvements, greater speed to innovation, cost effective capital investment, greater flexibility.

Executive Summary Statement Nowadays every single plant selects their inspection and detection partners considering min. quality limits. More demanding safety and quality regulations and the trend to harmonize specs make critical to search for higher solutions. The Sourcing Strategy is to leverage EU/global scale selecting three preferred suppliers to hold innovation with cost effective agreements that permit us to be the best in class vs. competitors and client of choice for suppliers.

Sourcing Objectives

Sourcing Strategies Tactics

Review and Alignment: Procurement R&D Quality Engineering

Select the 3 right preferred suppliers to bring innovation, reduce cost through harmonization and global agreements and improve service

# 1 Concentrate business activity with 3 core inspection and detection suppliers and minimize dilution of spend and garner greater ongoing support from these suppliers - become the “customer of choice” for these suppliers

1. Maintain alignment with global engineering and R&D on the core group of suppliers with which to share business plans and solicit bids .

2. Facilitate further spend concentration by using same core set of suppliers 3. Negotiate Value Packages with the core group of suppliers to reduce TCO.

(Get further discounts: from 5% to 15% in Eq. & 10% in services )

# 2 Maintain a strong competitive bidding environment for capital project for with 3 preferred suppliers to swift and challenge regional and technology innovation position

1. Facilitate bid evaluation process and selection of best bid by establishing a common electronic bidding template for use across all BUs and regions

2. Bundle bid events, where feasible, across regions and across businesses 3. Supplier challenges and pilot trials to select the best supplier in each field

# 3 Follow up challenging suppliers for certain applications: low cost, high innovative ideas

1. Develop robust and consistent supplier evaluation criteria and KPIs to optimize and regularly monitor the selection of core and challenging suppliers

4 - Execute Sourcing Strategy

Managing Value Chain Costs

Cost Analysis

Definition Objectives

Systematic examination of cost

components

• Determine the factors affecting cost

• Assess the potential of cost reduction

Ten Commandments of Cost Containment

1 When in doubt, check it out

Asking cost breakdown to get insight of supplier’s operation

2 Use life cycle cost analysis

Examine the treacherous cost of owning & using the product

3 Use value analysis to eliminate the unnecessary cost

By improved efficiency or improved effectiveness

4 Urge suppliers to reduce cost continually

Encourage supplier for cost reduction & share the savings with customers

5 Challenge all requests for price increases

Ask supplier to justify & substantiate any price increase

Value Analysis

Project Identification

Information Gathering

Follow Up

Implementation

Decision Making

Analysis

Speculation

The Value Analysis Process

Project Identification

Asking questions

Impact measurement

Of selected change

Selection of a particular action

Examine cost & performance impact

Creative approaches for better performance

Can we reduce cost or improve

performance?

Change material? Change

material?

Eliminate?

Substitute?

Modify?

Combine?

Asking questions

Change tolerance

?

Change design?

Change speci-

fication?

Change process?

Ten Commandments of Cost Containment

6 Ask suppliers what you can do to contain cost

Suggest supplier ways in which customer can help reduce cost

7 Drive purchasing cost savings to the bottom line

Actively participate in budgeting, commit to specific saving level & deliver it

8 Don’t make hasty outsourcing decisions

Look before you leap

9 Focus your efforts on the “critical few” purchases

Find opportunities for significant saving

10 Play hard, but fair Treat suppliers as you would like to be treated

Other Cost-Commandments Tools

IDENTIFICATION OF COST DRIVER

Determine things that influence cost of goods & services from external suppliers, including :

• Specifications & material • Product or service design • Policies & procedures • Worker skill & training

• Employee attitude & turnover • Tools & equipment • Shipping & handling method • Buying & shipping volumes

PROCESS MAPPING

Reveal hidden costs of unnecessary step & rework

Process Engineering

Goal : Less consumption . More customer friendly . Less costly

REVERSE ENGINEERING

Takes apart the competitive product to determine its operation & costs (particularly if supplier unwilling to

provide cost information)

BENCHMARKING Comparison of an organization’s costs to those of other

organizations as a factual basis for managing them

COST MANAGEMENT

Aims to bring cost in line with the customer’s value perceptions to strengthen competitiveness

by boosting efficiency or productivity, reducing cycle time, and redesigning processes or products

Major contributor to organizational performance

SOURCING

To enhance organization

competitiveness

Led by broadly skilled professional

Using latest business tools

CONCLUSION: PROCUREMENT

Historical Purchaser

• Bureaucratic paper pusher

• Reactive, tactical, clerical

Professional Purchaser

• Manage interactive processes

• Reduce cycle time & cost

• Improving quality

Evolving Role of Purchasing

evolving

Internal & external partnering

World Class Performance

Purchasing Professional

Possess Top 10 Skills

• Total cost analysis

• Negotiation strategies

• Supplier partnering

• Ethical conduct

• Supplier evaluation

• Quality techniques

• Purchasing strategy

• Price/cost analysis

• Electronic data interchange

• Interpersonal communication

PROFESSIONAL PROFESSIONAL PURCHASER

High-performance Team

Groups of broadly skilled employees who jointly own & manage a process

The New Purchasing Professional

Think & act strategically to strengthen the

competitiveness

Purchase from sources to bring the best value

Implement a comprehensive

purchasing management

information system to leverage organization

total spending

Discover leading supplier by purchase

amount

Discover who buys what from whom & how

across different units of organization for ability to aggregate purchase

Relationship orientation

(partnering w/ selected suppliers for

long term)