proc cost 1© the delos partnership 2005 procurement masterclass cost, cash and spend management
TRANSCRIPT
Proc Cost 1 © The Delos Partnership 2005
Procurement MasterclassProcurement Masterclass
Cost, Cash and Spend Management
Proc Cost 2 © The Delos Partnership 2005
Cost & Cash Spend Management Cost & Cash Spend Management
2 Cost, Cash & Spend – Management & Control
Proc Cost 3 © The Delos Partnership 2005
Workbook IntroductionWorkbook Introduction
Year 2004 2003 2002 2001 2000 1999 Last 3 Years Ave.
TurnoverProfit (Loss) before Taxation
Profit Margin (%)Cost of SalesVisible SpendEstimated Spend
Identified Savings - MinIdentified Savings - MaxNet Savings - 100% Performance Min Spend
Net Savings - 100% Performance Max Spend
BUSINESS & PROCUREMENT FINANCIAL FOCUS © The Delos Partnership
Proc Cost 4 © The Delos Partnership 2005
Cost, Cash & Spend ManagementCost, Cash & Spend Management
1. Cost Leadership
2. Creating a Total Value Plan
3. Getting Organized
Proc Cost 5 © The Delos Partnership 2005
Cost Leadership AssumptionCost Leadership Assumption
Low cost producer strategy normally entails : • Non Core competency outsourcing• Efficient capacity • P&L spending control and Balance sheet
optimisation• State of the art equipment• Global Sourcing• Cost minimalisation• Transaction efficiency
Proc Cost 6 © The Delos Partnership 2005
Cost Leadership AssumptionCost Leadership Assumption
Procurement is therefore normally focussed on supply side cost
improvement strategies which will allow companies to move towards a lower cost producer status and deliver the
cost improvement goals.
Procurement is therefore normally focussed on supply side cost
improvement strategies which will allow companies to move towards a lower cost producer status and deliver the
cost improvement goals.
Proc Cost 7 © The Delos Partnership 2005
Marketplace RealityMarketplace Reality
• Upstream cost increases cannot be influenced (straight cost pass on)
• Customer resistance to your justified price increases refused
• Risk of being the "meat in the sandwich"- powerful upstream suppliers & downstream customers
• Pure cost cutting has damaging effects on business & people
A better approach is to engage Suppliers and generate business wide value gains through streamlining the
supply chain and improving Total Value
A better approach is to engage Suppliers and generate business wide value gains through streamlining the
supply chain and improving Total Value
Proc Cost 8 © The Delos Partnership 2005
It is essential to engage the commitment from your suppliers to your company and value improvement projects and have suppliers correctly positioned...
Supplier Partnerships are Critical Supplier Partnerships are Critical
Its a great that we are working together on this project which means we can go faster and at much less cost
Proc Cost 9 © The Delos Partnership 2005
Cost and Cash ManagementCost and Cash Management
Creating a Total Value Plan
Proc Cost 10 © The Delos Partnership 2005
The Delos Model The Delos Model For Business Integration For Business Integration
InnovationInnovation
VisionVision
StrategyStrategy
PrioritisationPrioritisation
DemandDemand
SupportSupport
SupplySupplyTotal Value PlanTotal Value Plan
Proc Cost 11 © The Delos Partnership 2005
Total Value Procurement GoalTotal Value Procurement Goal
“Increase total value by a minimum of 10% in the first year and 20% over
the next 3 years by safeguarding S.H.E. and simultaneously improving Quality, Delivery and Service, Cost & Cash and driving Innovation across the six procurement dimensions”.
“Increase total value by a minimum of 10% in the first year and 20% over
the next 3 years by safeguarding S.H.E. and simultaneously improving Quality, Delivery and Service, Cost & Cash and driving Innovation across the six procurement dimensions”.
Proc Cost 12 © The Delos Partnership 2005
Total Value Leadership Total Value Leadership
• Demonstration that all costs are influencable
• Accurate forward demand forecasts• Negotiation power and no fear factor• Cross functional teams• Project Focus & Measurement System• Spending & authority restrictions and
control
Proc Cost 13 © The Delos Partnership 2005
Total Value ToolsTotal Value Tools
• Supplier Funding & Supplier Cash Flow
• TOWC Reduction
• Direct Flow – Inventory, Waste & Space Reduction
• Process Improvements
• Simplification and Standardisation
Proc Cost 14 © The Delos Partnership 2005
Total Value ToolsTotal Value Tools
• Appropriate Quality and User Requirement Specification
• RFTQ 100% OTIF
• Product Re-engineering
• Supply Demand vigilance & Market knowledge sharing
• Alternative technology
Proc Cost 15 © The Delos Partnership 2005
Cost Improvement ExamplesCost Improvement ExamplesCurrent Current
xxx xxx Cost Cost
(£000's) (£000's)
Forecast Cost ImprovementForecast Cost Improvement
£000's s £000's s
6 months 6 months Immediate Immediate
Focus Focus Full Year xxxFull Year xxx
1. Increase leverage across the complete cost & spend map
Add Data
Agree what are short and longer term priorities (Focus) and agree goals
2. Introduce an immediate price freeze Add Data
Agree what are short and longer term priorities (Focus) and agree goals
3. Achieve Direct and Non-Direct supplier price improvement
Add Data
Agree what are short and longer term priorities (Focus) and agree goals
4. Achieve Direct Materials cost improvement Add Data
Agree what are short and longer term priorities (Focus) and agree goals
5. Use E Procurement Add Data
Agree what are short and longer term priorities (Focus) and agree goals
6. Introduce / Reinforce Company Policies
(Procurement Policy, Authorisation Policy, Travel, Expenses, Company Card, Fuel Policy, Overtime Policy)
Add Data
Agree what are short and longer term priorities (Focus) and agree goals
7. Use Consortium BuyingAdd Data
Agree what are short and longer term priorities (Focus) and agree goals
Set Improvement GoalsSet Improvement Goals
Proc Cost 16 © The Delos Partnership 2005
Summary - Cost & Cash Summary - Cost & Cash Improvement Improvement Cost & Cash Improvement CategoryCost & Cash Improvement Category Six Months Six Months Medium termMedium term
Direct Materials - Cost & Value Improvement (Top 20)
Direct Materials – Cost & Value Improvement (B&C items)
Indirect Costs – Cost & Value Improvement
All Costs Improvement - Avoidance & Soft Costs (A, B & C)
Quality – Non Compliance Cost Improvement
Balance Sheet – Cash and RONA Improvement
Process, Workflow & Structure – Cost Improvement
TOTAL TOTAL
Proc Cost 17 © The Delos Partnership 2005
R Project Name 1 7
A Project Sponsor(s) Project Reviewer 2 8
C "Define" Start Date "Define"Completion Date 3 9
CCost Centre
Owners 4 10
I Business 5 11
6 12
01-J
an
08-J
an
15-J
an
22-J
an
29-J
an
05-F
eb
12-F
eb
19-F
eb
26-F
eb
05-M
ar
12-M
ar
19-M
ar
26-M
ar
02-A
pr
09-A
pr
16-A
pr
23-A
pr
30-A
pr
07-M
ay
1 2 3 4 5 6 7 8 9 10 11"DEFINE STAGE" TOTAL VALUE PROCUREMENT PLAN - STEPS
FROM THE COST BASELINE, DEFINE AND AGREE PROJECTS THAT WILL DELIVER A MINIMUM COST IMPROVEMENT OF £X OVER THE PERIOD FROM XXX TO YYY ACROSS THE COMPLETE COST AND SPEND MAP.
Informed about the project and provides support when required
PROJECT GANTT CHART
Communication required on project goals and progress
PROJECT OWNER PROJECT GOAL
Accountable for the project, supports and performs the project work
Consulted on project goals and progress and / or project sponsor
COST IMPROVEMENT PROJECT - "DEFINE" STAGE
Responsible for the project delivery & performs the project work COST IMPROVEMENT
Use Six Sigma DMAIC Stages
Use Six Sigma DMAIC Stages
Define, M
easure, Analyse, Im
prove, Contro
l
Define, M
easure, Analyse, Im
prove, Contro
l
Create Cost Improvement Projects Create Cost Improvement Projects
Proc Cost 18 © The Delos Partnership 2005
ProblemsOpportunities
Risks & Concerns
CustomerCustomerAssessmentEducation
ToolsBenchmarking
Assessment & Definition of Total Value
Improvementtargets
SupplierSupplier
Agreed Value + ProjectsAgreed Value + Projects
Sponsor
Assessment, Education, Projects and Timescales
Defined Value goals
Selection of Tools
Deliverables & Measurement system
Team in place and projects underwayTeam in place and projects underway
Total Value Project ApproachTotal Value Project Approach
ProcurementProcurement
Proc Cost 19 © The Delos Partnership 2005
Cost, Cash and Spend ManagementCost, Cash and Spend Management
Get Organised
Proc Cost 20 © The Delos Partnership 2005
Ideal Procurement Structure Ideal Procurement Structure
• Covers the complete Customer and Cost, Cash & Spend Map.
• Has clear responsibilities for Customers and Category Management
• Has clear responsibilities for Suppliers and Supplier Management
• Has support resources (R2P Process, Sourcing, Research etc)
Proc Cost 21 © The Delos Partnership 2005
Ideal Procurement Structure Ideal Procurement Structure
• Has education & development to promote the "Culture of Procurement Leadership“
• Is project, lean & agile and added value focussed
• Recognises and uses Global and Indirect Leverage.
• Stays up to date with business and market changes & innovations.
Proc Cost 22 © The Delos Partnership 2005
Procurement Customer FocusProcurement Customer Focus
Category A
Category B
Category C
Category D
Operations
Finance/HR/IT
Sales/MarketingHeadcount /
Budget /
Spend £?
Headcount / B
udget / S
pend £?
Common VisionLean, Agile,Customer
Focus
Proc Cost 23 © The Delos Partnership 2005
Organising - Customer & Organising - Customer & CategoryCategory
• Procurement objective is a complete e-driven spend map by– Procurement Category– Cost Centre– Major Customer
• The Spend Map is the basis of product & service strategies, reporting and project driven procurement.
Proc Cost 24 © The Delos Partnership 2005
Matrix Responsibility Matrix Responsibility
PROCUREMENT CATEGORIES
1. Raw Materials/Production Consumables.2. Packaging 3. Logistics (Inbound/Outbound Freight)4. Utilities5. Technical & SHE6. Goods & Services 7. Capital/MRO & Engineering
THE 4P's OF PROCUREMENT
1. People 2. Policies 3. Processes4. Programmes
Proc Cost 25 © The Delos Partnership 2005
Matrix Responsibility Matrix Responsibility
Each category leader needs to,
1. Complete Customer, Spend & Demand roadmap
2. Review current agreements (verbal and written)
3. Categorise Products, Services & Suppliers
4. Determine the Sourcing strategy
5. Create Business & Customer driven projects
6. Decide the Category Supplier Management strategy
Proc Cost 26 © The Delos Partnership 2005
Within the team there needs to be ownership of the 4 P's of Procurement
so that procurement intellectual property is developed, maintained and
cascaded internally.
Within the team there needs to be ownership of the 4 P's of Procurement
so that procurement intellectual property is developed, maintained and
cascaded internally.
Matrix Responsibility Matrix Responsibility