Leading Successful

Transformations with

Strategic Procurement

May, 2017

CONTENTSI. Transform or Be Transformed

II. Fuel Your Transformation with Procurement

III. Why Big Bet Procurement Initiatives Fail

IV. What Needs to Change About Your Procurement Strategy

TRANSFORM OR BE TRANSFORMED

Today’s business headlines are flooded with news of companies being forced to transform to stay

relevant in the market place

Cisco Systems to lay off

1,100 employees as part of

restructuring plan

The above companies, with a combined market cap of $450B, represent a small sample of

companies undergoing transformation efforts in 2017

2

For companies that fail to rapidly and effectively transform with their changing industry, the

question is not if they will be disrupted, but when

YOUR INDUSTRY HAS EITHER RECENTLY BEEN DISRUPTED OR WILL BE

SOON

3

For companies that fail to rapidly and effectively transform with their changing industry, the question

is not if they will be disrupted, but when

Disruptors…

✓ Reevaluate use of assets

in the businessmodel

✓ Rethink the use of

products as a service

✓ Finds two sided market

where possible

✓ Have small/ agile teams

✓ Executes with speed

Bloomenergy is disrupting the energy industry- to

"lead the industry away from a centralized 'hub and

spoke' energy network to a clean, distributed, andmore

reliable energy future.”

Oscar is disrupting the healthcare industry- setting

itself apart from other health insurers byemphasizing

technology, data and easy-to-understand explanations

of its services.

Zipcar is disrupting the rental car industry (Hertz,

Enterprise,etc.) by offering an hourly rental model and

more convenience via self-service, cars throughout the

city).

Uber and Lyft are disrupting the taxi industry by

offering on-demand convenience, streamlined

payment, variable pricing, and a revolutionary labor

model all enabled by leading-edge technology.

LendingClub is disrupting the loan space- apeer-to-

peer credit company provides personal loans with lower

rates without the hassle of dealing with a bank.

Amazon continues to disrupt the retail

industry by offering unprecedented convenience

and lower price points, enabled by superior

technology, scalability, and distribution. B2B is

next.

Airbnb is disrupting the hospitality industry by

bringing hospitality into the “sharing economy” and

leveraging technology to offer first-rate convenience

for its users

Did you know?One study shows that the

average lifespan of a

company listed in the S&P

500 index of leading US

companies has decreased

by more than 50 years in the

last century from 67 years in

the 1920s to just 15 years

today

QUESTION

“When your CEO Comes to you with the Vision for

Transformation, 2-3% NPS1 will no longer be enough.

How will you get 6-8%?”

1. NPS – Net Procurement Savings

56%

100%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2015 Total 2016 2017 2018 2018 Total

% T

ota

l Val

ue

Gen

erat

ed

Procurement Ops Improvement Restructuring Growth Initiatives Market Growth

FOCUS ON COST AND LEVERAGE PROCUREMENT FOR EARLY WINS

Focusing on procurement cost savings initiatives drives the biggest impact to the bottom line early in

the transformation, creating early wins and fueling additional transformation initiatives

Source: A&M Research

• Realized value from procurement is often front loaded, allowing this value to start fueling the rest of the transformation

early on

• Cost take out through procurement relies on fewer uncontrollable variables, compared with top line growth initiatives

(e.g. G&A), leading to a high value yield on effort (i.e. Value is created regardless of demand growth)

Focus on Cost

~37% of year 1

transformation value

generated by

procurement initiatives

Average COGS to Revenue (%) Incremental Value Creation in Company-Wide Transformation

Realize Value Early with Procurement

47%

56%

57%

63%

64%

66%

66%

73%

75%

Consumer Discretionary

Consumer Staples

Energy

Healthcare

Industrials

Information Tech.

Materials

Telecom

Utilities

5

LESSONS LEARNED – ENTERPRISE TRANSFORMATION

Recent transformations we have supported yield a number of lessons learned that we believe have

broad applicability for Corporations embarking on complex, significant transformation efforts

The Transformation must be anchored in clearly articulated

strategic priorities and the Enterprise’s customer value

proposition.

You cannot cherry pick the easy stuff and ignore the hard stuff –

Achieving transformational change requires significant change

that will be uncomfortable and a willingness to take on “sacred cows”

and assess current execution and results through new lenses. If it’s too

comfortable, it is likely “incremental” vs. “transformational” change.

Done right, Enterprise Transformation goes far beyond a short term

improvement in financial results – It builds organizational

capabilities, increases Enterprise-wide speed and agility, injects laser

focus on strategy and execution required to compete and win over time,

and as a result builds a platform for long term value creation.

Change management and engagement is essential from the onset

given the reality that the ability to achieve and sustain results hinges on

cementing full ownership and accountability for the implemented

recommendations amongst leaders and instilling enterprise-wide

mindsets and behaviors to make change stick.

Transparency is vital – Storytelling and communications must create a

case for change that is clear, candid, and compelling – and can be

understood and embraced by the entire Enterprise.

Sustained transformation requires significant investment in

capability building – Too often companies underinvest in capability

building prior to, during, and post roll-out, and as a result, experience a

short term uptick in performance but no real sustained impact.

Accountability for results needs to be hardwired into every aspect of

normal governance, operating, and reporting routines – the

Transformation cannot be viewed as a “one off” initiative. Vital to

measure results, report progress transparently, build financial impacts

into budgets and align results with compensation / incentives for key

stakeholders.

Barriers to change will be everywhere – Inevitably there will be barriers

to achieving transformational change; those who succeed have courage

to surface these barriers with a newfound candor and are relentless in

busting through them with swift and decisive action.

Speed is an asset that should not be ignored – Enterprises that

approach the transformation with urgency and aggressive timelines

build real momentum and exponentially increase the chance for leap-

step improvement, while minimizing the transformational pain period.

6True Transformation must be led from the very top

of the Enterprise.

105

4

3

2

1

7

8

9

6

WHY DO BIG BET PROCUREMENT INITIATIVES FAIL?

7

Leadership, organizational, and budgetary barriers have the potential to choke out potential value

from your procurement initiative

How do you prevent the threats to a successful procurement

initiative from destroying the opportunity?

Threats to Success Opportunities if Successful

Bolster the credibility of the broader

transformation by proving early tangible results

Enable early successes that lead to leadership

championing the transformation effort

Build momentum through early successes that

orient the organization toward action and results

Create cross-functional teams that break down

organizational barriers and liberate information

flow

Lack of a Credible Vision

Lack of Leadership Buy-In

Stalled Momentum

Functional Silos in Organization

Initiatives Constrained by Budget and Point of

View

Unlock value that can fuel other transformation

initiatives

?

YOU MIGHT HAVE THE RIGHT STRATEGY, BUT ARE YOU STILL LEAVING

VALUE ON THE TABLE?

8

Procurement organizations often have the right strategy in place, or at least components, but still fail

to realize the full potential of their initiatives

The question you should be asking is not whether you know what you should be doing, or

whether you are generating some value, but whether you are realizing the full potential value

of your procurement initiatives?

Regional and global account management to provide support and accountability for quality of material and service and supply chain reliability

Demonstrate best-in-class practices and be an industry leader as it relates to quality, delivery, cost, and technology

Identify partners to create sustainable long term value for both parties at the regional and global level (e.g. inventory agreements, payment terms etc.)

First access to supplier innovations and new developments, value added services, and focus on continuous improvement opportunities that generate value for both parties

Engagement with suppliers aligned with our long-term strategy while continually providing competitive prices and delivery guarantees

Focus on Big Picture

Strategy

Total Cost of Ownership

Account Management of Supply Chain Performance

Commitment to

Partnership

Innovation

Components of an

Effective Procurement

Strategy

WITHOUT REDEFINING WHAT SPELLS SUCCESS, YOU WILL SETTLE FOR

2-3% NPS1 VS. EXECUTING 6-8% NPS

Are you using Best In Class Practices in your Procurement Organization?

▪ Focus on Big Picture Strategy

▪ Total Cost of Ownership

▪ Account Management of Supply Chain

Performance

▪ Commitment to Partnership

▪ Innovation

Fact Based Objectives

▪ Savings Levers That Indicate Value –

Common Questions to Ask Yourself

▪ RFP Materials (excel workbooks, process

documents, FAQs, etc.)

▪ Commodity Tracking Tools

▪ Reporting

▪ Productivity Tracking

Rigorous Spend Analytics

▪ Effectively Bringing Category Spend

Under Management

▪ Training on standardized processes

▪ When to deploy the right negotiation

process (Local, War Room, Strategic

Supplier Summit, etc.)

▪ Service level requirement understanding

and communication

Best In Class Procurement Processes

▪ Supplier Engagement for an RFP

Process

▪ Supplier Relationship Management

▪ Strategic Supplier Resets

▪ Competitive Supplier Landscape

▪ Embedded and impacted supplier

relationships

Reset the Expectations of Supply Base

The bold faced and underlined examples are covered in greater detail in the next slides, however,

the same actionable themes should be used to evaluate each sub group identified above

91. NPS – Net Procurement Savings

MOST CATEGORIES ARE NOT TRULY BEING MANAGED

Consistently buying based on demand does not constitute spend under management.

Bringing category spend under management is a multi-step process, that when completed correctly,

will drive insights, enable fact-based decision making, and support category strategy development

Step 1

Develop Spend Profile

Step 2

Understand Spend Profile

Step 3

Develop POV on Value Opportunity

Step 4

Go-To-Market for Select Categories

Step 5

Repeat Steps 2 – 4 with Next Wave

of Categories

a) Collect spend data to account for all invoiced and non-invoiced spend,

consolidate into a single format

b) Conduct data synthesis to categorize spend

a) Conduct macro spend evaluation to baseline spend currently under

management & opportunities by increasing coverage

b) Select categories to be included in first wave of micro spend evaluations

For each category identified:

a) Identify and assess category needs (e.g. savings, contract management,

etc.)

b) Conduct an evaluation on the market and spend history

c) Develop Cost Models and market based pricing changes

Generate a go-to-market strategy for each category, developed around the

savings levers and opportunities identified (incumbent negotiations, full scale,

VA/VE focus)

Repeat steps 2 – 4 with Next Wave of Categories while the go-to-market

events started for the first wave of categories are in process

DescriptionProcess Steps

Truly Getting Spend Under Management Will Enable The Development of a Hypothesis

Based POV on Total Opportunity

10

COMMON QUESTIONS TO ASK TO DEVELOP A TRANSFORMATIONAL

POINT OF VIEW ON VALUE CREATION

Total Spend

Current Contracts

Competition

Category

Management

Last Time Sourced

Market Trends

▪ Can we consolidate spend from other facilities or regions? If No, Why Not?

▪ Does the level of spend provide a competitive advantage in the industry?

▪ Are there active contracts?

▪ Is there an “out” clause in the contract?

▪ Are you actively qualifying and/or engaging with non-traditional sources?

▪ Have the incumbents been adequately tensioned?

▪ Do you understand Total Cost of Ownership for each category?

▪ Are you proactive with Supplier Relationship Management?

▪ How did you differentiate your sourcing process from a standard RFQ?

▪ Did the supply base perceive the opportunity as credible?

▪ Are current market trends favorable or unfavorable

▪ Are you experiencing a buyer’s market or seller’s market?

▪ What actions are you taking to offset market effect?

Incumbent Suppliers▪ In each category of spend, has a single supplier supplied >60% of the category for

over 5 years?

▪ When is the last time you replaced an incumbent?

11

DON’T FALL VICTIM TO NOT PURSUING VALUE OPPORTUNITY BASED ON

INITIAL PERCEPTIONBelow are three examples of where a client’s perception of the opportunity could have limited the

value if best in class practices were not applied to identify the reality of the situation

Question Client Answer Identified Reality

Total Spend

Market

Trends

Competition

Can we consolidate spend

from other facilities or

regions?

Are you experiencing a

buyer’s market or seller’s

market?

How many supply options are

available?

Have the incumbents been

adequately tensioned?

“No, the products have

different requirements and

can only be supplied by local

suppliers”

“Definitely a seller’s market.

We keep receiving price

increases that we can do

nothing about”

“There are 3 main players in

the market”

“Yes, we always include all

during RFP processes but

never shift business”

There are multiple global

suppliers, and distributors,

seeking global customers

The price increases were not

market based and negotiated

away through a credible

sourcing process &

competitive tensioning

7 alternative sources

(including LCC) that are active

in the industry with clients

competitors

Incumbents do not perceive

historical RFPs as a credible

threat

12

JUST LIKE SALES SELLS TO CUSTOMERS…PROCUREMENT “SELLS” TO

SUPPLIERSSuppliers experience very similar engagement practices when dealing with customers…Standard

RFPs, tactical engagement, etc. Realizing Real Results Requires Differentiation

“Sales” Practices that Lead to

2 – 3 %

“Sales” Practices that Lead to

6 - 8% +Example Ways To Differentiate

X Tactical Engagement

X Email communication only to

kick-off a RFP process (low

competitive tensioning & lack

of credibility)

X Individual supplier discussion

X No clear objectives

X No differentiation from other

RFP processes

✓ Be Engaging…Tell a Story

✓ Bring the Opportunity to Life

✓ Give the Suppliers Something

to Be Excited About

✓ Differentiate your brand and

opportunity from Every Other

Sourcing Process Suppliers

are Involved in

✓ Provide Transparency.. Be up

front about the objectives

✓ Demonstrate commitment to a

Fair Process – Outline what it

takes for Suppliers to be

successful

✓ Team Selling

Category Overview

13

Requirements for

Commercialization

COURAGEOUSLY ENGAGING SUPPLIERS LEADS TO UNLOCKING

GREATER VALUEA supplier reset process will evaluate current state and reset expectations for the future state of

relationships with suppliers

Relationship Inflection Point

The point in the relationship

where a suppliers action will

either lead the relationship into

engagement focused vs.

transactional

ENGAGEMENT (+)

TRANSACTION (–)

2/23/2017

Week

Starting

3/2/2017 3/9/2017 3/16/2017 3/23/2017

Engaged by commercial group and invited to

Technical Summit

Supplier Reacted in Hostile Manner to

Technical Summit and Business Being

Taken to Market

Threatened to not attend the

Technical Summit unless

significant changes were

made to the relevant CDA

Signed the CDA after

multiple iterations

through legal

Attended the

Technical Summit

Communicated and

aligned on supply

expectations

Began discussions on

improving the relationship

Illustrative Example of a Supplier Reset

Background Action Outcome

▪ Direct Material

▪ Length of Primary Incumbency: >20 years

▪ % of Category Sourced with Primary

supplier: 80%

▪ Overtime:

▪ spread to market grew

▪ suppliers margins increased

▪ client’s market position

disintegrated

▪ Long Term Relationship & “Comfortability”

with the supplier’s product overshadowed

the weakening market position

▪ Held Top-to-Top Supplier Relationship

Reset Meeting with Primary Incumbent

▪ Reviewed current state of supplier

relationship and outlined how specific

actions impact(ed) the overall relationship

▪ Quality

▪ Price (un)competitiveness

▪ Etc.

▪ Communicated the relationship inflection

point:

▪ Improve Strategic Partnership

▪ Worsen Cease supply /

maintain transactional supply

relationship

▪ Primary Incumbent expected the

relationship to remain as is

▪ Did not change ways of working

▪ Did not become price competitive

▪ Etc.

▪ Engaged the secondary source,

communicated a similar narrative, and

presented the opportunity to grow into a

supply partner

▪ Identified a new primary supplier better

aligned with clients strategic objectives

▪ Secured 7.5% savings in a category that

historically experienced 3% price

increases YoY

Case Study Example

14

WHERE WILL YOU DECIDE TO START MAKING A CHANGE NOW?

15

▪ Focus on Big Picture Strategy

▪ Total Cost of Ownership

▪ Account Management of Supply Chain

Performance

▪ Commitment to Partnership

▪ Innovation

Fact Based Objectives

▪ Savings Levers That Indicate Value –

Common Questions to Ask Yourself

▪ RFP Materials (excel workbooks, process

documents, FAQs, etc.)

▪ Commodity Tracking Tools

▪ Reporting

▪ Productivity Tracking

Rigorous Spend Analytics

▪ Effectively Bringing Category Spend

Under Management

▪ Training on standardized processes

▪ When to deploy the right negotiation

process (Local, War Room, Strategic

Supplier Summit, etc.)

▪ Service level requirement understanding

and communication

Best In Class Procurement Processes

▪ Supplier Engagement for an RFP Process

▪ Supplier Relationship Management

▪ Strategic Supplier Resets

▪ Competitive Supplier Landscape

▪ Embedded and impacted supplier

relationships

Reset the Expectations of Supply Base

LEADING TRANSFORMATION WITH PROCUREMENT:

A RECENT EXAMPLEWith a recent client, we redefined success by Strategically Sourcing >20 categories accounting for

$725M in spend, resulting in >$50M in savings

Logistics Indirect Materials Direct Materials

Best of Best

(BOB)

Savings %

Standard

Expectation

Awarded

Savings %

Incumbent

Savings %

0%

5%

10%

15%

20%

25%

30%

35%

FTL Logistics MRO Industrial Gas CorrugatedPackaging

PVC Polyethylene

Standard Expectation Incumbent Savings % Awarded Savings % BOB Savings %

Sa

vin

gs

%

Avg. Incumbent

Savings: 9%*Avg. Awarded

Savings: 15%*

Avg. Best of Best

Savings: 18%*

A Re-defined Approach to Procurement Practices Allowed This Client To Realize Higher Savings and

re-position themselves in the marketplace

Results from 5 out of >20 categories

*Savings Averages are based on the 5

categories displayed in the chart above16

IT IS NOT JUST ABOUT DIRECT CATEGORIES. INDIRECT AND SERVICES

PROVIDE HIGH VALUE OPPORTUNITIES WHEN SOURCED THE RIGHT WAYIndirect & Service related categories, that fall to the bottom of procurement’s priority list, are ripe for

bringing under management for value extraction.

17

Marketing and Advertising Spend

Spend SubcategoryExpense

Base $MM

%

Savings

Number

of Events

Direct Mail /

Commercial1,389 23% 81

Print advertising 438 17% 13

Other Marketing 411 21% 29

Agency compensation 143 18% 8

Advertising production 23 25% 2

Personnel / HR Related Spend

Spend SubcategoryExpense

Base $MM

%

Savings

Number

of Events

Temporary Services 833 17% 45

Health Care 966 9% 25

Non-Health Care

Benefits183 21% 10

Other HR Expense 185 12% 16

Relocation 77 17% 8

Information Technology Spend

Spend SubcategoryExpense

Base $MM

%

Savings

Number

of Events

Telecom 2,337 14% 128

Distributed Computing 1,540 24% 92

Contract Programming 875 13% 22

Mainframes 916 14% 42

Other Tech Services 737 13% 39

Software 411 9% 32

Facilities and Infrastructure Spend

Spend SubcategoryExpense

Base $MM

%

Savings

Number

of Events

MRO 5,002 11% 80

Contract Labor 620 20% 33

Facilities 1,752 12% 26

Capital Projects

Improvement159 9% 6

Business Specific Spend

Spend SubcategoryExpense

Base $MM

%

Savings

Number

of Events

Business Services 3,918 13% 140

Overhead Spend

Spend SubcategoryExpense

Base $MM

%

Savings

Number

of Events

Travel / Entertainment 1,853 15% 65

Professional Services 710 9% 18

Paper and Supplies 1,006 23% 94

Office Equipment 318 23% 56

Distribution 337 18% 36

Other Overhead 118 13% 10

Vehicle Fleet 384 5% 12

Courier / Freight 416 12% 33

Utilities 133 7% 4

Packaging 465 10% 15

Office Furniture 200 18% 40

A&M’s RELEVANT SOURCING EXPERIENCE

Number of EventsExpense Base

$MMAvg. Realized Savings

Savings Achieved

$MM

1,260 $28,910 13% $3,850

On over 1200 events, A&M helped clients realize ~13% savings

on average

APPENDIX

Strategic Sourcing Execution

$4 Billion Global Heavy

Industrials Manufacturer

Background

● The client is a heavy industrial manufacturer with ~$4 Billion in annual revenue undergoing a Global Transformation.

● A&M was engaged to lead a spend assessment with the focus of identifying cost take out opportunities required to meet Client’s transformation objectives.

● Following the assessment, A&M was retained to conduct strategic sourcing work streams on direct, indirect materials, services, and logistics (including distribution center optimization), execute supplier negotiations, and deploy implementation support for sustainable value capture.

A&M Role

● Led an assessment to identify targeted categories of spend in North America, Europe, and Latin America to achieve savings through an improved cost position, best

in class commercial terms, redefined category management, vigorous spend analytics, and Supplier Relationship Management

● Analysed over $3B in annual spend, including direct and indirect, to develop a transformative POV on value creation though sourcing strategy recommendations

● Executed leveraged sourcing program representing >$725M in spend including the following categories:

● Provided ongoing support for contracting and supplier-led implementation, oversight and compliance

● Developed methodology for, and partnered with preferred suppliers to conduct post-implementation compliance and savings tracking on an ongoing basis

Outcome

● Achieved over $50M in total annualized savings accounting for 5% - 20%+ cost take out in various categories

● Bolstered the credibility of the broader transformation by proving early tangible results

● Developed strategic sourcing toolkits and methodologies to be rolled out globally and governed by the newly formed Procurement Center of Excellence

● Developed deeper supplier relationships with incumbents and non-traditional suppliers

● Ensured new suppliers met or exceeded service levels across the portfolio

● Identified additional value levers (e.g. supplier and spec rationalization) for client to execute in a second phase

https://na5.salesforce.com/a0I7000000LUKTm

• Wood Reels • Optical Fiber • MRO • Utilities • Domestic Logistics (FTL, LTL, Intermodal, etc.)

• Polyethylene • Temp Labor • Corrugate Packaging • Natural Gas • International Logistics (Ocean, air, etc.)

• FEP • Office Supplies • Pallets, Dunnage, & Wood Lagging • Mobile Equipment • Copper

• PVC • Waste • Janitorial • Security • Aluminum

19

Geoff Pollak

Managing Director

Performance Improvement

Geoff Pollak is a Managing Director with Alvarez & Marsal Performance Improvement in Atlanta and a leader in the Global Supply Chain

Practice, with more than 25 years of experience leading operations, purchasing, sourcing, sales and demand planning for multinational

companies. Mr. Pollak has led major transformations and turn arounds across sales, operations, strategic sourcing and supply chains.

At A&M, Mr. Pollak has worked on many strategic sourcing, logistics and supply chain projects for companies ranging from $1B - $25B

for global companies across consumer, commercial, industrial and high tech companies as well as government.

‒ Most recently, he served as interim Chief Procurement Officer of a $4B industrial company. While CPO, he designed a global

procurement organization, drove the move to a center led procurement organization and led a joint A&M/client team to tension 75%

of the direct and indirect spend. Once tensioning was complete, the team implemented the savings across direct, indirect and

logistics (4.5X implemented system).

‒ At a major packaging and CPG company, Mr. Pollak led the tensioning and resourcing of significant resin and finished product

spend including the selection of EMS suppliers for their automated dispensing products.

‒ He helped an $11B aluminum product client create, develop and implement a new Global Supply Chain Playbook. Mr. Pollak also

led the European Supply Chain as Interim head. In addition, he has led significant working capital projects and global strategic

sourcing projects including logistics and chemicals and coatings. He continues to serves as an advisor to the CEO, CFO and CPO.

Prior to joining A&M, Mr. Pollak held various leadership positions for AB Electrolux. These positions were focused on solving critical to

customer and shareholder issues across strategic sourcing, sales, supply chain and operations including:

– With over $3B of global supplier spend, as Vice President of Purchasing, Mr. Pollak led the transformation of purchasing from a

transactional and decentralized organization to a center-led strategic sourcing group across direct and indirect procurement..

– Transformational leaders across cross-functional CEO Tiger Teams to drive value across sales, cost and profitability opportunities.

– With over two million square feet under roof, Mr. Pollak had responsibility for more than 70% of the largest refrigeration factory in

North America. He helped lead the team to recover from a significant new product startup issue while managing parts of assembly,

feeder departments, quality, materials, warehousing and transportation

– As Director of International Operations, he led the distribution and supply chain of US and China based suppliers to over 160

countries. In addition, Mr. Pollak led the transformation from a brand organization to a regional infrastructure.

Previously, Mr. Pollak was COO of a startup consumer electronics firm, where he scaled the operations of a high growth company from

$130 million to $1 billion in sales in 18 months to major global retailers in North America, Central America and Europe.

Mr. Pollak earned an MBA from the University of Michigan and a bachelor of arts from the University of Minnesota.

20

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