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Strategic Sourcing: An Overview

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Strategic Sourcing: An Overview Presentation to the AZ Chapter of the Society for Information Management David Wilson January 21, 2009 Topics Strategic sourcing ... – PowerPoint PPT presentation

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Title: Strategic Sourcing: An Overview


1
Strategic Sourcing An Overview
  • Presentation to the AZ Chapter of the Society for
    Information Management
  • David Wilson
  • January 21, 2009

2
One Perspective on Procurement
3
Topics
  • Strategic sourcing overview
  • Some benefits watch outs
  • Dominant supplier strategies

4
Sourcing business case
1 Revenue gt1 of Cost
5
Procurement Trends
  • Strategic Sourcing (organizations) in
    Best-in-Class companies will continue to
    influence competitive position and financial
    performance through involvement in the following
    key areas
  • Optimizing the value from Relationships with
    Suppliers
  • Do it yourself or Buy decisions
  • Compliance with Regulatory, Environmental or
    Internal Policies
  • Assessing and managing Supply Risks e.g. from
    Globalization, Geo-Political instabilities
    Changing Supply Market dynamics

Source Aberdeen research
6
Sourcings role grows
Making Up for Lost Revenue We are doing
nothing other than smart Procurement, great
opportunities for savings, great opportunities
for productivity enhancements and for Improving
EBIT in a situation which is revenue static
R.R.Donnelly Q1 2004 Earnings call
Source Aberdeen research
7
Strategic Sourcing Definition
  • Strategic Sourcing - an on-going process of
    reducing overall cost and managing supply risk,
    while improving internal and external processes

8
Procurement processes
Contract Management
Value Generation
Value Capture
9
Sourcing Purchasing
Purchasing Teams
Strategic Sourcing Teams
focus on tactical issues
focus on longer term issues
What do we buy? What do we pay? What is the
total cost? Who do we buy from? How do we
decide? What are the market trends? What are the
business needs? What are the category risks? How
do we do business with various suppliers?
How many do we need and when? What are the
specifications? How do we order? When do we pay?
10
Sourcing Principles
  • Rigorous
  • Cross-functional
  • Value driven
  • Focuses on total cost (not just price), quality
    and service
  • Risk-assessed
  • Fact-based

11
A Typical Sourcing Project
4. Supplier Negotiations
Initiate Project
Create team
Evaluate RFx
5. Award Business
Detail Project Scope
Select Supplier(s)
Select Vendors
Develop Negotiation Strategy
Conduct Negotiations
u
Run Scenarios / Optimize Reward
6. Implement Strategy
1. Spend Analysis
Develop Internal Baseline Spend
Calculate Cost Savings
3. Strategy Development
Transition
Develop Procurement Strategy
2. Market Analysis
7. Monitor and Measure
Develop Requirements
Prepare Market Analysis Summary
Monitor Performance
Create RFx
12
Benefits of a structured process
  • Objective
  • Repeatable
  • Clear and communicated process
  • Message clarity
  • Fair, ethical
  • Assessment of risk its management
  • Respect from the vendor community enhanced
    reputation
  • A better deal!

13
Watch Outs
  • Are you really prepared to change vendors?
  • Are internal stakeholders aligned?
  • Suppliers access
  • Switching costs
  • Timing
  • The only game in town
  • Key decisions upfront e.g. scope, selection
    criteria, walk-away positions

14
Dominant suppliers present particular challenges


High
Objective
Business Impact
  • Unbalanced
  • High switching costs
  • Lack of leverage
  • Balanced
  • Long term questions

Low
Value to supplier
High
15
A reverse pitch may help
  • Define, value and sell the asset that is your
    account
  • Uncover and value sources of value that you bring
    beyond revenue and volume (e.g. marquee name,
    reference site, beta test site)
  • Understand current and potential footprint
  • Understand suppliers perspective motivation
  • Establish clear process, roles responsibilities
    for managing the relationship with supplier
  • Day-to-day
  • Strategic

16
Lets summarize
  • Strategic Sourcing is not Purchasing
  • Strategic Sourcing should focus on longer term,
    supplier and category risks issues
  • Sourcing process provides benefits
  • IT sourcing presents some specific challenges
  • Construct a reverse pitch for dominant
    suppliers
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