[Commodity Name] Commodity Strategy

1
Commodity Name Commodity Strategy

• Name
• Date

2
Commodity Strategy Summary
3
Highlights Commodity

• Scope
• Key Stakeholders
• Key Commodity Team Members
• Total Spend
• Target Savings
• Current Status

4
Commodity Strategy Summary Commodity
Scope !!!! Current Spend !!!m Estimated
Savings !! !!
Topic Current Position Short / Medium Term Long-Term
Supply Base Management
Internal Demand Management and Processes
Total Cost Management
5
Commodity Strategy Summary Commodity
Implementation Approach Timing






Issues to Overcome Owner



Role Approver / Signatory Signature
Commodity Sponsor
Strategic Sourcing Director
NPO Director
Category Manager
6
Strategy Recommendations for Commodity
Recommendations
Potential Benefit

• xxx

• xxx

7
Stakeholder Map
8
Stakeholder map for Commodity

• List names and contact details of all
  stakeholders relevant to this commodity

Name Job Title Division Contact Tel E-mail











9
Commodity Team Charter
Objective
Deliverables
Who to involve NB Initial list. More may emerge
Scope
Critical Success Factors

• What will the commodity be responsible in
  delivering

• Commodity Team Members plus others that may need
  to be involved when appropriate

• What are the Commodity Team objectives

• xxxx

Out of Scope
Interdependencies
10
Contract Status
11
Current Contract Status
Contract Contract Value Contract Start/End Dates Comments


12
Business Requirements
13
Characteristics of Commodity

• Scope the commodity to be covered i.e. what is
  included in this commodity group?, commodity
  characteristics, breakdown into sub-commodities,
  which products under which sub-commodity

14
Business Need and Functional Requirements
What are our Requirements?
Where we are
Where we want to be

• What does the product do?, Standard vs
  customised, Level of customisation, Quality
  requirements, Real vs perceived function, Service
  requirements, User perception, Value to end
  customer, Specific specifications

• xxx

XXXXXX
15
Expenditure Analysis
16
Spend Distribution

• In scope Spend Distribution broken down by
  Dept/Service Area/Health Board, Supplier, by Sub
  Commodities

17
Future Expenditure Trends

• Demand Profile

18
Graphs Double Click on the Graphs to bring up
an Excel imbedded table and modify accordingly
Title for Column Graph (Units)
Title for Bar Graph (Units)
Title for Line Graph (Units)
Title for Combination Graph (Units)
Column Chart Axis
Line Chart Axis
Line 1
Line 2
Line 3
Note Reduce size of numerals on charts after
sizing art to fit page.
19
Graphs 2 Double Click on the Graphs to bring up
an Excel imbedded table and modify accordingly
Title for Pie Charta (Units)
Title for Floating Graph (Units)
Other
Slice 1
Slice 3
Slice 2
Title for Bubble Graph (Units)
Bubble 4
Useful information for plotting bubble charts
Label
X Axis
Y Axis
Bubble 3
Bubble 2
Size of Ball
Bubble 1
Label
a. Pie charts start at 12.00 and build clockwise
from largest to smallest (dark to light) other
is always last no matter how big.
20
Graphs 3
Title for Column GraphSix Colours (Units)
21
Graphs 4
Title for Stacked GraphSix Coloursa (Units)
27.0
25.5
Label 6
0.9
Label 5
0.6
1.3
1.1
Label 4
21.6
0.5
1.0
Label 3
Label 2
Label 1
a. Progress shades from dark at bottom up to
light at top.
22
Supply Market Analysis
23
Use these sources of Information (Delete Slide
Information Only)
Selected Sources of Market Data
Source and Link Description
www.onesource.com The OneSource Business Browser SM family of business information subscriptions provides robust, integrated information on public and private companies, industries execs worldwide 
www.carol.co.uk Company Annual Reports Online. Annual reports for British, US and Asian companies are available.
www.factset.com FactSet Research Systems Inc. is a provider of financial and economic information community.
www.ft.com
www.hoovers.com Hoover's, Inc. delivers company, industry, and market intelligence
www.dnb.com Dunn Bradstreet can be used for Risk Mgmt Solutions to manage credit exposure, DB Sales Marketing Solutions to find profitable customers and DB Supply Management Solutions to manage suppliers efficiently.
www.gs.com Goldman Sachs
www.multex.com Reuters, through its Multex services, provides global broker and independent research, business information worldwide. Plus events calendar, SEC filings, market data and other third-party information.
www.factiva.com Knowledge and content mgmt and access to data Dow Jones Reuters company
www.equifax.co.uk Business info services and latest news, to obtaining a copy of your credit file or accessing other services
www.companieshouse.com Company information
More Sources of Information
24
Supply Market Overview

• Market Trends - What is happening in the market
  for the commodity?, Current and future
  technologies, Changing customer demands New
  players, mergers and acquisition
• Supply Market Share - Key players within the
  industry, Identify size in terms of turnover,
  sales, number of customers and capacity

25
SWOT analysis of the Commodity market
Strengths
Weaknesses

• xxx
• xxx

• xxx
• xxx

Opportunities
Threats

• Xxx
• xxx

• xxx
• xxx

26
Current Suppliers of Commodity
Current suppliers of Commodity Name
Supplier
Your organisation Spend
Total Revenue
Background on the Supplier
xxx

• xxx

• xxx

• xxx

xxx

• xxx

• xxx

• xxx

xxx

• xxx

• xxx

• xxx

xxx

• xxx

• xxx

• xxx

xxx

• xxx

• xxx

• xxx

27
Porters 5 Forces Analysis Commodity
Threat of New Entrants
Using the comments as a guideline and using
market intelligence sources, develop a 5 forces
view of the commodity market

• How profitable is the product manufactured by the
  suppliers market segment?
• How complex is the product specification?
• What is the product time to market?
• Are there patents / design ownership?
• Other?

Intensity of rivalry among competitors
Bargaining Power of Suppliers
Bargaining Power of Buyers

• Where does the supplier stand in the industry?
• What are the suppliers competitors doing in
  terms of delivery?
• How are competitors performing in terms of
  innovation?

• How stable is the Tier 2 supplier of the key
  products?
• What is the supply base ()?
• What of total spend do they control?

• What proportion of the suppliers total purchases
  goes into the product/service?
• How critical is the bought out commodity to the
  customers level of satisfaction?
• Is customer pressure requiring the way business
  is conducted to change?

Pressure from Substitutes

• Are there other products available to serve the
  same purpose?
• How variable is the demand?
• How specialised is the demand?
• How complicated is the specification?
• How specialised is the product function?

28
Competitive positioning for Commodity
  ltBuyer Strong Supplier Stronggt ltBuyer Strong Supplier Stronggt ltBuyer Strong Supplier Stronggt ltBuyer Strong Supplier Stronggt
Number of acceptable suppliers (From tender list) x
Capacity available from acceptable suppliers (Product range) x
Our current level of business with potential suppliers (Spend) x
Likelihood of demand growing (DMS growth) x
Substitution alternatives x
Knowledge of suppliers cost breakdown cost drivers x
Knowledge of suppliers pricing policies variations x
Supply logistics (geographical/transportation considerations) (Compliance to delivery schedules) x
Attractiveness of us to supplier (Supplier Preference) x
Barriers to changing supplier (e.g. technical, standards, cost) (Cost is an internal barrier to change) x
29
The current and future state relationship between
your organisation the supplier for
Commodity
Current State
Possible Future State

Your organisation PERSPECTIVE
LEVERAGE STRATEGIC
LEVERAGE STRATEGIC

• Use competitive advantage to reduce total costs
• Use enterprise-wide sourcing volumes as a
  negotiation tool

• Ensure long term availability of supply
• Focus on relationship building and process
  integration with supplier

• Use competitive advantage to reduce total costs
• Use enterprise-wide sourcing volumes as a
  negotiation tool

• Ensure long term availability of supply
• Focus on relationship building and process
  integration with supplier

Business Impact High
Business Impact High
ROUTINE BOTTLENECK
ROUTINE BOTTLENECK

• Simplify and streamline acquisition process to
  achieve efficiencies / cost reduction
• Reduce number of suppliers and simplify sourcing
  process

• Simplify and streamline acquisition process to
  achieve efficiencies / cost reduction
• Reduce number of suppliers and simplify sourcing
  process

• Reduce/eliminate companys risk and exposure to
  price increases/supply disruption
• Secure existing sources of supply and search for
  possible substitutes

• Reduce/eliminate companys risk and exposure to
  price increases/supply disruption
• Secure existing sources of supply and search for
  possible substitutes

Market Challenge
High
Market Challenge
High
SUPPLIER PERSPECTIVE
DEVELOPMENT CORE
DEVELOPMENT CORE

• Defend vigorously expand if possible
• Potential long term relationship

• Defend vigorously expand if possible
• Potential long term relationship

• Nurture Expand Business
• Seek opportunities
• Develop Business together

• Nurture Expand Business
• Seek opportunities
• Develop Business together

Account attractiveness High
NUISANCE EXPLOITABLE
NUISANCE EXPLOITABLE
Account attractiveness High

• Exploit commercially
• Risk losing
• High Risk

• Give low attention
• Lose without pain
• Change supplier
• Raise attractiveness

• Give low attention
• Lose without pain
• Change supplier
• Raise attractiveness

• Exploit commercially
• Risk losing
• High Risk

Relative Value of Business
Relative Value of Business
30
Our Organisations Perspective on Supplier
Relationship Objectives for Commodity
Opportunities moving towards xxxx
xxxx Characteristics

• xxxx

• xxxx

These opportunities will lead to result in xxxx
31
Supplier Perspective on Relationship Objectives
for Commodity (What does it mean for the
supplier
Core Characteristics
Opportunities moving towards Development

• xxx

• xxx

32
Total Cost Model
33
Total Cost Model Commodity

• List the activities carried out under each step
  of the product life cycle, Determine the impact
  of each step on the total cost of ownership in
  terms of High, Medium or Low, Brainstorm the cost
  drivers associated with the activities under each
  step, Determine the opportunities in each area.
  Which costs can be reduced (savings)/avoided
  (cost avoidance)?, Identify Low, Medium and High
  Savings Opportunities, Identify the barriers and
  enablers related to realising the opportunities

Raise Need Acquire / Order Use Dispose
Activities
Impact (on TCO )
Cost Drivers
Savings Opportunity
Barriers
Enablers
34
Commodity typical cost breakdown
Recommendations
Profit 10
Complete the breakdown for the commodity

• What are the recommendations

xxxx
35
Strategic Positioning
36
Strategic Positioning of Sub-Commodities
Using blue circles, place the sub-commodities
within the matrix using the comments as a
guideline
37
Sourcing Opportunities for Commodity

• Develop strong relationships with preferred
  suppliers
• Introduce supplier development programmes
• Review / establish service level agreements
• Establish incentivised contracts
• PPI/PPP contracts

• Detailed specifications
• Lower cost specification
• Optimal service level
• Quantify spend volumes

• Common specification
• Leverage across departments
• Collaboration with other public sector bodies
  (eg.other local government, health care)
• Implement framework agreements

• Price / performance benchmarking
• Value for Money cost vs benefits
• Reverse Auction
• Cost breakdown analysis
• BAFO tendering

• Find alternative ways of meeting needs
• Business case to include estimated savings
• Eliminate need
• Policy changes
• Reduce maverick spend

• Competitive tendering using S-CAT, G-CAT and
  L-CAT
• OGC contracts

• Tender requirements for all spend
• Open book contracts
• Supplier consolidation framework contracts

• Rationalise requirements and suppliers
• Low value ordering systems (e.g. GPC)
• e-Procurement
• Consolidate invoices

• Re-engineer processes
• Outsourcing
• Reduce inspection
• Reduce stock holding

• Design / development
• Integrate logistics
• Frameworks to remove need for OJEU process

38
Risk Analysis
39
Risk Analysis for Commodity
Risk Analysis
Description of Risk
Probability of Risk
Implications to our Organisation
Measures to Minimise / Eradicate Risk

• xxxx

• xxx

• High / Medium / Low

• xxxx

• xxxx

• xxxx

• xxx

• xxxx

• xxx

• High

• xxxx

• xxxx

40
Post Tender Clarification Plan

• Date

41
Post Tender Clarification Plan CommoditySuppli
er Date
The Objective (We need to clarify with Supplier
to achieve the following)

1. xx
2. xx
3. xx
4. xx

Specific Goals

• Target decision-maker
• Confirm who will be attending from the supplier
  side and determine who will be the decision maker

• Relationship background
• Collate internal intelligence on previous your
  organisation dealings with this person and
  assess the type of relationship he/she holds with
  your organisation

• High expectations (Most Desirable Outcome MDO)
• Refer to the components of your objective
  statement and determine your highest expectation
  from the supplier i.e. what do you expect them to
  offer against each objective

• Supplier High Expectation (MDO)
• Collate internal intelligence on previous your
  organisation dealings with this person and
  assess the type of relationship he/she holds with
  your organisation

42
Post Tender Clarification CommoditySupplier
Date
Interests

• your organisation
• What are your ultimate interests?, Determine
  which areas you need to ensure and are not
  prepared to compromise and vice versa e.g. No
  compromise on delivery or quality to secure
  pricing.

• Supplier
• What are the suppliers interests? Refer to the
  external and internal data collated above and
  determine what the suppliers interests might be
  e.g. To maintain price but offer other non-price
  incentives or to amend payment terms

43
Post Tender Clarification Commodity (Supplier
Date

• Leverage Favours
• Me
• Them
• About Even
• (Who has the most to lose from a no deal)

Strategies / Leverage

• Least Acceptable Agreement (LAA)
• The Least Acceptable Agreement (LAA) is the
  buyers bottom line. Barring the emergence of a
  better option, settling for anything less than
  this is not a viable business proposition. This
  is the minimum the buyer can agree to without
  sacrificing our impairing interests. The buyer
  should never agree to any solution less than the
  LAA without very careful consideration of the
  BATNA

• Supplier LAA
• xxx
• xxx

• Best Alternative to a Negotiated Agreement
  (BATNA)
• The Best Alternative to a Negotiated Agreement
  (BATNA) is the buyers contingency plan if the
  supplier is not willing to agree, at a minimum,
  to the LAA. What are the alternatives in the
  event of a deadlock or unsuccessful agreement

• Supplier BATNA
• xxx
• xxx

• Can I improve this?
• Steps to improve alternatives

Can I effect their alternatives of make their
status quo worse?
44
Post Tender Clarification CommoditySupplier
Date
Possible Proposals (Tradable Variables)

• Develop a list of give and takes or tradable
  variables, build on shared interests, bridge
  conflicting interests.
• xx
• xx
• xx

Authoritative Standards and Norms
Mine
Theirs
Counter Argument

• Xx
• Xx
• xx

• Xx
• Xx
• xx

• Xx
• Xx
• xx

Third Party Moves

• Can I use a third party As Leverage, As an
  Excuse, As an Audience, As a Coalition partner
• xx
• xx

45
Post Tender Clarification CommoditySupplier
Date
Situation and Strategy Analysis
As you see it
As they see it

• Transaction
• Relationship
• Balanced Concerns
• Tacit Coordination

• Transaction
• Relationship
• Balanced Concerns
• Tacit Coordination

Style Adjustments
Their Expected Strategy

• My basic style is ________________, so I need to
  be more ___________ in this situation

• Competitive
• Problem Solving
• Compromise
• Avoiding
• Accommodating

Overall Positioning Theme

• Develop an overall positioning statement for the
  negotiation e.g. This is an opportunity for
  Supplier A to win the business. The requested
  pricing has been offered by other suppliers, so
  we believe it to be possible.

46
Implementation Plan

• Date

47
Implementation Plan

• Include
• Savings Profile by Dept/Service Area/Health Board
• Trialling process if applicable
• SAP Communication Pack
• Buyers Guide
• Commodity Action Report (CAR)
• ePS Bulletin