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SHARED SERVICES & BPO IN THE PHILIPPINES
15 Nov 2011
Sustaining Competitive Advantage Through Effective BusinessTransformation of Procurement
Sebastian Chua
Regional Procurement Director Alcatel-Lucent
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Journey to Procurement Excellence
Phase 1
GS
•Procurement function de-centralized
• Significant Maverick Buying
• Tactical / ReactiveStakeholder Engagement
• Lack of spend visibility
• Central procurement function
• Spending analyzed
• Major Spending Negotiated
• Transaction automation /consolidation
• Limi ted stakeholder interactions
Phase 2G
•Sourcing decisions based on totalcost vs pricing
• Documented sourcing st rategies
• Early engagement withstakeholders
• Procurement decisions made byProcurement
Phase 3
• Procurement decisions aligned w/ corp. goals
• Suppliers see you as “ best” customer
• Stakeholders acceptance as trusted partner
• Other companies perceive you as the“ benchmark” procurement organization
Phase 4
S
At which stage is your Procurement Organization today?
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Phase 1: Getting started
ProcurementStakeholder
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Phase 1: Gett ing started
4
ProcurementStakeholder
Phase 2: Growth
ProcurementStakeholder
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Phase 1: Getting started
Procurement
Stakeholder
ProcurementStakeholder
Phase 2: Growth
ProcurementStakeholder
Phase 3: Excellent
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Phase 1: Getting started
Procurement
Stakeholder
ProcurementStakeholder
Phase 2: Growth
ProcurementStakeholder
Phase 3: Excellent
Phase 4: Sustainabil ity
Stakeholder
Procurement
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Driving the procurement transformation path to sustainability–Key Considerations
Organization & People Supplier Partnership
Process & Program
Excellence
Control & Compliance
StakeholderAlignment
Strategy
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Driving the procurement transformation path to sustainability – Key Considerations
• Brand Positioning
Annual Procurement & Supply Management Awards
Skills Assessment & gap analysis
People Development & Training (Job enhancement/Job rotation/Coaching/Mentoring/Knowledge Transfer )
Structure Management Framework (Commitment Plan on KPI/Action Plan/Work Review/Category Strategy)
Consistent Reporting (Newsletter/Procurement Score Card)
Category Sourcing Strategy Experts & Operations Support excellence
Organization & People
Clear Procurement Strategy Category teams to deliver sourcing strategies / action plan (e.g. category handbook)
Identify sourcing initiatives & commit to hard savings (i.e. any immediate Quick-wins savings)
Improve stakeholder alignment & relationship (be pro-active) – create a stakeholder assessment matrix
COB Strategy (especially for sole source or direct source)
Cost containment / Expense Control Initiative – Partnership with CFO
Supplier Business Review (key / critical suppliers)
Stakeholder relationship
& Vendor partnership
Process & Program
Excellence
Globally /Regionally Consistent Process / Program Consistent business processes (e.g. threshold for competitive bidding, contract mgmt, vendor performance mgmt)
Standardized procurement policy & vendor qualification process to ensure compliance
P-Card , e-catalog , category shopping card set-up in P2P to facilitate search of preferred vendors (strategic/tactical)
Bi-annual Procurement Summit – benchmarking of sourcing structure, strategy, process, best practices
Annual Supplier Convention
Quarterly New Employee Orientation program (NEO)
Control & Compliance
Standardized Policy/Directive Competitive Bidding threshold
Contract policy & threshold
Gift acceptance declaration
Vendor declaration in RFP submission – no conflict of interest
New vendor creation process – both employee & new vendor to declare no personal conflict of interests
ATF PO enforcement
PO exceptions policy
Improved Payment terms to standard terms
Category Buying Instructions (i.e. Premium, Preferred, Authorized)
Supply Base rationalization – priority on top 80% spend suppliers and look for oppy to consolidate by spend category Vendor Master File cleanup – quarterly clean-up of unused suppliers, 1-time suppliers
Organizational Excellence
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Organization & People – Branding Transformation
BRAND INSIGHT Delivering Value
BRANDPROPOSITION
Procurement is a global discipline delivering optimum value through innovative supplychain solutions enabling productivity and strengthening company’s competitive
advantage.
BRANDPILLARS
BRANDPERSONALITY
TAGLINE
Transparent Impactful Passionate Expert Reliable
Examples: “Real Values Real Results”
StrengtheningCompetitive Advantage
TrustedStrategicPartner
Tireless Pursuitof OperationalExcellence
ChampioningBusinessIntegrity
Problem Statement - The full value of the procurement discipline is not consistently recognized, and is therefore,
not optimally leveraged in achieving business commitments and success for its shareholders.
Expected Benefits
- Increase understanding of how procurement can help internal clients achieve commitments- Stronger and more strategic partnerships with business leaders- Harness the strength and diversity of the overall procurement discipline to best deliver value to the business- Energize procurement professionals around a mission
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Organization & People – Roles Transformation
• Execute to business requirements –
Reactive Approach
• Transaction focused• Ad-hoc relationship with
stakeholders
• Engage once the supplier selection is
complete
• Procurement Indicators – Lagging,
too procurement focused
• Strategic procurement – Pro-active
approach
• Analytical & Sourcing focused• Long-term business partnerships
• Pro-active upfront engagement in
sourcing decisions
• Sourcing strategies based on leading
indicators, market data, and
anticipated business needs
Old Roles New Roles
1) Annual Procurement & Supply Mgmt Award (classify award categories into business value, businesspartner, operational excellence, supplier diversity, sourcing innovation, supplier performance mgt, teamimpact and CPO leadership award)
2) Skills assessment on different competencies (e.g. Leadership, Functional and Company values)
3) Training & coaching (focus on hard skills like sourcing strategies, project/contract mgmt and
soft skills like negotiations, influencing, presentations)
4) Talent development & retention (job enhancement/rotation, mentoring, knowledge transfer)
What is the role of Procurement? (Changing Roles – below are some examples)The change is transitioning slowly from a transactional focus to a strategic focus where early engagement
and influencing the stakeholders will lead to better sourcing decisions.
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Organization & People Strategy
How do we deliver?1) We need to fundamentally change the way we interact with the business
2) We need to be seen to be adding value and above what is our base role?
e.g. be seen as making a difference
3) Think “SOLUTIONS”
- to issues before they happen- Anticipate by understanding the business and stakeholder requirements
4) Re-market the procurement brand internally within the business to show we arenow doing things differently (instead of doing different things)
5) Build a credible position by delivering WINS
- These may be small initially, growing as we become more engaged in the business
6) Must prove that procurement can do something rather than to slow down theprocess
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Stakeholder Relationship Strategy
– Perform Relationship Management & Assessment
Objective: To improve & expand our stakeholder reach / influence
1 = Irrelevant = Do not know our scope / function; we are
not relevant2 = Ad hoc = Contact us only on need basis3 = Consultative = We may get listened to but notincluded in the decision4 = Inclusive = Stakeholder include us in sourcingdecisions, procurement activities5 = Partner = stakeholder engages us fully, providesrequirements, empowers us to drive procurementactivities and sourcing strategies and decisions
Stakeholder Assessment Map
Irrelevant
Ad hoc
Consultative
Inclusive
Partner
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Stakeholder Relationship Strategy
Objectives of the Stakeholder Assessment Matrix
a) positioning of Procurement "branding" as real strategic partner
b) alignment of Procurement commitment with key stakeholdersc) Understanding stakeholders’ requirements- Who are the key stakeholders? What relationship does PDC have? What are their“exciters”?- Are the spending forecasts / pattern changing over the strategy horizon?- Are their expectations changing based on the market conditions?- Where are the procurement / sourcing decisions for this commodity being made?
How to get to the desired level?
- Improve Business Intelligence to stakeholders to enable better sourcing strategies &opportunity realization by categories (e.g. quarterly spend analysis mgmt report)
- Strengthen stakeholder relationships through value proposition & Initiatives
- Be Pro-active. Do not wait for stakeholders to approach you with a sourcing opportunity.- Regular engagement & check-point meetings (min. quarterly) with key stakeholders to
understand their latest procurement needs & requirements and get to know theirbusiness & priorities
- Define Top 3 Deliverables to get there that address stakeholders’priorities/challenges/interest areas
- Develop stakeholder satisfaction surveySebastian Chua
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Stakeholder Relationship Strategy
Stakeholder Awareness & Acceptance
• Are we being seen as “adding value” or as “adding overhead”?• Do stakeholders continue to engage us “late in the game”?• Do stakeholder continue to utilize our help for “administrative tasks” vs. early engagement forstrategic sourcing?• Do stakeholders understand the value of the procurement function?• Is our relationship “customer-supplier” or “equal stakeholder” ?
How do you engage stakeholders?
1) Undertake an internal stakeholder analysis – stakeholder assessment matrix Identify Key Stakeholders Assess Stakeholder Priorities / Interest Areas
• what they want• what improvements are they looking for
Assess Current / Desired Level of Relationship Set the direction, execute and assess the progress
2)Management Become part of the management team with the key Stakeholders Become part of the planning process to understand future needs Influence their decision making process
3)Interaction Instigate Vendor reviews and involve the Stakeholder Provide feedback from industry to Stakeholder QBR’s with vendors and involve the Key stakeholder
4) Partnership Be seen by the Stakeholders as being an integral part of the business
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Make sure that your strategies and action plans are aligned with stakeholderrequirements
Decide on a frequency to get feedback from the stakeholders on your execution
Get on with your stakeholder and verify the importance of your action plan activities
Check with them on your performance
Use the feedback to make any corrections to your
strategy or action plans.
Stakeholder Assessment
P e
r f o r m a n c e
Importance
DelightDisinterest
Day-Prison Disgust
Low
Low
High
High
Stakeholder Relationship Strategy - Stakeholder Feedback
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Discouraged Working Model
• “I” do the procurement• I am here to save your money• You are required to use this supplier
Encouraged Working Model
• How best can I help you with your purchasing needs?
• How can I help stretch your $ or add to your bottom line?• What if I could get you a supplier that can cut your project lead time by 30%?• What if I were to find you a supplier who provides the same level of service at a
lower cost?• Understand the business needs, priorities, interest areas, challenges, pain points
Important: There is no magic trick to winning over stakeholders – it’s going to requirepassion, persistence and building credibil ity thru small wins.
Different countries will have diverse stakeholder priorities & challengese.g. compliance focus, vendor performance issues, cost containment, savings,
payment terms, etc
Stakeholder Relationship Strategy - Winning Over the Stakeholders
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Supplier Relationship Strategy - Assess Relationship & Performance Review
Fragmented Rationalized/Consolidated Controlled
Country
Region
Global
HR/Marcom/Consulting
EXAMPLE
IT & TelecomsTravel
Premises Mgmt
What is the outlook of supplier relationship by council?Global, regional, country - try to depict using the graph below
Logistics &Transportation
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Supplier Relationship Strategy - Assess Relationship & Performance Review
How to improve on supplier relationship & performance review?
1) Supplier Engagement Review Performance (QBR’s with key/critical suppliers)
2) Supplier Interaction More results orientated, obtain feedback from suppliers of your company & procurement
3) Partnership
Growing the supplier to be more a part of the company business – greater buy in to the results
4) No. Of Vendors (Be Focus) Consolidation based on performance – leverage size/volume/performance/cost Create a supplier landscape for each spend category & classify suppliers into various sub-categories.
Within each sub-category, the vendor is further differentiated between strategic & tactical e.g. within marketing services, suppliers are classified into advertising, media buy, public relations, print, etc.
And within Advertising, suppliers are differentiated as Strategic for ATL and Tactical for BTL activities
Finally, to identify the SOWs as either Strategic or Tactical works, and negotiate a separate ratecard for Strategic & Tactical suppliers.
5) Actions by Category Sourcing Manager
a) Develop a sourcing strategy based on Category Sourcing Strategy Handbook (see back-up slides)
b) Group supply base into Commodity, Non-Commodity & Disbursements
c) Classify supply base into sub-category levels (e.g. Marketing services/Advertising)
d) Define supply base into Premier , Preferred, Authorized, One-time & Forbidden
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Supplier Relationship Strategy
Supplier Engagement Tool1) Spend analysis Look for spend consolidation opportunities across BG’s and across categories : savings and re-investment
opportunities“if you partner with Procurement we will be able to deliver more value and service for the same spend”
Present spend reviews of large categories to the stakeholder’s management to raise awareness of wherespend is going and the breakdowns across sub-categories and suppliers
Offer stakeholders opportunities to improve their ROI by identifying improvements in supplier performance
2) Who are the top spend suppliers in the region/country in each category?3) Which part of the business is spending those dollars?
Focus on “return on investment’ for the stakeholders 4) What is the % of spend touched by procurement?5) What is the % of spend governed by contract?6) What is the % of spend covered by SBR?7) Look at the existing supply base – are they scale-able to support cross-boundaries?
8) Research on suppliers – any innovations or technological advancement?9) Are these suppliers also your key customers?10) Health / history of the relationship
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Supplier Relationship Strategy
Other key questions to ask yourself?
1) Are the top spend suppliers sole / single sourced? Why?2) Are we using market leader suppliers?3) What % of their revenue come from us ?4) Is our competitors using the same sources?5) What are the current methods to manage this supply-base performance?
– Regular performance reviews? Ad-hoc escalation based management? Supplier-score cards?
– Do the current methods need to change – capture in strategy / action plan.6) What has been the performance trend for existing supply-base
– Quality / service level escalations, any score-card information?7) Are there new-comers in the horizon?8) Is there an opportunity to consolidate supply-base or leverage spending?9) What are the switching costs?10) What are the limitations for switching existing supply-base?
– Stakeholder preference, contractual obligations, government policies…
11) What negotiations methods are applicable – traditional, reverse-auctions..12) Is your supplier selection strategy aligned with stakeholder requirements?13) What is the track record of these suppliers in the market?14) How innovative is the supplier?
– are they are market leader or a fast follower - What is the cost to us if they are a market leaderi.e. R&D/Operational Risk
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Process & Program Excellence: Key Driving Principles
. Work upstream & be embedded withBusiness Partners in all categories
. Total Cost Ownership (TCO)
Early involvement in the process
• Systematic use of E-Auctions
whenever possible
• Re-negotiations whenever advisable
• Upwards alignment of payment terms /
Delivery terms
Efficient & tough negotiations
• Components (e.g. PCB, Enclosures, Mech.
parts)
• Materials
• Labour Service suppliers
Optimal use of all LCC opportunities High-skilled workforce
• Skills improvement plans including training
• Enrich Procurement population with multi-
functional experienced profiles
• Worldwide jobs description per category
High-skilled workforce
* DR = Decision Review
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Transformation Journey on Process & Program Excellence
Agility / Simplicity Quality / Risk Management
Cash
Savings (e-auctions)
CSR
Supplier Partnership
Internal customer relationship
Business Partner’s Focus
Global accountability for resultsTough but fair negotiations with suppliers
Development / training of purchasing talents
Sense of ethics, social responsibility & supplier quality
Creation / Retention of reliable, flexible, innovative and very price competitive supply base
Year 1
Year 3
Year 2
Synergy with CFO/Legal/Compliance
Procurement policy
Bidding & contract threshold
PT enforcement
PO exceptions
Core Values Foundation
Shared Service Centers
One Database / One Process
Cash
Savings
Supplier concentration
Category Playbook
(Buying Instructions)
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Strategy on Increasing / Managing Spend Visibi lity
– Introduce a Competitive Bid Threshold
Above the bid threshold to be approved byCategory Sourcing Managers
Below the threshold to be managed by
Procurement Shared Services Center
(PSSC)/Buy Center
80% to 90%
of total
PO amount
10% to 20%of total PO amount
Outside PVL, we control
thru new vendor add
Creation to be approved by
Category sourcing managers
PSSC controlled thru
Preferred / Authorize
Supplier List
& catalog pricing
Sebastian Chua
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Process & Program Excellence: Procurement & Support Functions (1/2)
– Suppl ier Quali ty & CSR Team
• Preventive and reactive actions to improve the quality performance of our suppliers
– Risk assessment, supplier audits, supplier performance ratings, and supplierquality issue management
• Develop and implement Quality Assurance System in line with TL 9000 requirements andin support of Company Quality and customer satisfaction objectives
– Formalize and maintain harmonized policies and processes, in order to supportthe business, cost savings and customer satisfaction. Ensure properimplementation across the organization
• Develop and implement a CSR in purchasing program to support Company CSRprogram and meet customers’ expectations
• Strong support to BD’s and sourcing category/commodity managers
– Procurement Processes & Systems Team
• Global business process definition and deployment• Systems Projects: project management / value management, requirements and
acceptance process / deployment planning• Business Transformation/ User support/ Training• Process descriptions, Change management, monitor process & system performance
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Process & Program Excellence: Procurement & Support Functions (2/2)
– Management Control
• Purchased volumes & savings calculation & consolidation, per category/commodity
• Procurement fixed costs / headcount follow-up & reporting, per function / country /region
• Cost reduction program coordination & consolidation
• Validation of savings and cash & cost avoidance
• Follow-up of statistical reports, measurements & KPIs, Corporate / Local
• Part of the Procurement structure while reporting to Finance – Human Resources
• In charge of development & talent retention for Procurement
• Talent development: identify talents, support career development, implementsuccession planning, executive staffing
• Organization development: support management in organization design,
organization dynamics and change
• Skills development: identify key skills, develop programs supporting functional skills
• Embedded in the procurement leadership team but reporting to HR
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Controls & Compliance Measurements
1) Audi t Findings
- Identify the gap
- Develop corrective actions- Update procurement policy & procedures
2) Controls & Compliance Measurements
a) ATF PO - Publish the shame list of ATF PO offenders.b) PO exceptions policyc) Increase contract coverage & adoption in Contract Repository tool - What is your contract guidelines?d) Non-standard payment terms migration - Publish a list of approved suppliers with exceptional payment terms
e) Vendor Master Clean-up (i.e. unused vendors, ONTM vendors, duplicating vendors’ set-up)f) Supply Base rationalization – priority on top 80% spend suppliers and look for oppy to consolidate by spend categoryg) Forbidden Suppliers - Publish a list of these “black-listed” suppliers to check against new supplier creationh) New Supplier Registration Process (Split into Part 1 & 2 forms)
- Requestor’s declaration of non-conflicting personal interests- Business justifications- Include definition of preferred, authorize, ONTM vendors- Include classifications of supplier (commodity, non-commodity, disbursement) and definition of spend category- Vendor privacy assurance (e.g. should Procurement be made known of vendor bank account details)
i) Competitive Bid Threshold- What is your country bidding threshold?- Standardize the competitive bid form to include reason of selection, sole/single source, savings calculations, conflict of
interest declaration, approval/sign-off by Procurement Management. j) Gift Acceptance Policy
- Develop a gift acceptance form for declaration by buyers
k) Category Buying Instructions (i.e. Premium, Preferred, Authorized and Rate Card)
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Stakeholders = customersLike our external customers, we should not be taking the stakeholder’s support and relationshipfor granted.In our day-to-day operations, I would expect that our internal business partners to have highexpectations of us.Our commitment to service excellence must therefore be planted in our pledge.
The principle of service excellence in our serving in this new era: -
1) It is our responsibility to uphold the spirit of service to our stakeholders and work hard on theirbehalf2) It is our duty to maintain the high standards of honesty and integrity3) It is our call to significantly improve our outreach to stakeholders and align our approach withthem in formulating strategies & policies.4) We must never break faith with our stakeholders, but always carry out our duties to themresponsibly, address their worries & challenges and advance their interests.
In Procurement, we play key roles in all these areas.We have to listen hard to our stakeholders’ concerns, help them to tackle their pressing needs,reflect their worries and aspirations and finally persuade them to support policies which are intheir long-term benefits.
Listen to what Mahatma Gandhi got to say on CUSTOMER.
Principles of Service Excellence
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The way ahead, I have no doubt, will continuebe built on co-operation with our stakeholders
and not on confrontation and for that to happen,every one of us here today must play our part
“ WINNERS DON’T DO DIFFERENT THINGS.THEY DO THINGS DIFFERENTLY.”
Closing Remarks
Sebastian Chua
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Sebastian Chua
Regional Procurement Director
Alcatel-Lucent
Tel: (65) 6240-8393
Cell: (65) 9696-2903
Email: [email protected]