Purchasing Leader Pains

Top 10 Fears for 2016

2 © 2016 Advanced Purchasing Dynamics, Inc.

Attendees will be in listen only mode

A recording of this presentation and the slides will be available on the APD Website

Webinar attendees will receive the slides by email

Welcome to The Cloud Conference

3 © 2016 Advanced Purchasing Dynamics, Inc.

Presenters

Mike Wynn Senior Director

Jeoff Burris Principal

4 © 2016 Advanced Purchasing Dynamics, Inc.

5 © 2016 Advanced Purchasing Dynamics, Inc.

Agenda

Purchasing Leaders Top 10 Pains

About the survey

Four themes for 2016

What companies are doing

Purchasing Competitive Advantage

Competitive advantage assessments

Findings (will and won’t surprise you)

6 © 2016 Advanced Purchasing Dynamics, Inc.

Top 10 Pains of Purchasing Leaders (percentage of respondents identifying issue as a current priority)

Our procurement processes don’t provide “should be” costs for our key commodities

My executive intuition tells me I feel we need to validate that we’re paying appropriately for our key commodities

Our procurement processes aren’t providing us with the data to build effective cost models

Our purchasing team is overwhelmed with administrative tasks, and there's little time to be strategic

Our procurement processes don’t provide enough data to understand our supplier cost structures to drive savings

Our purchasing team lacks skills for building “should be” cost models

Our purchasing team lacks skills for implementing effective commodity strategies

Our purchasing team doesn’t have the time or expertise to do the cost savings projects we should

Our procurement processes do not allow us to manage commodities on an enterprise-wide basis

Our processes don’t provide an easy way to analyze supplier bid date over time to identify cost savings

0% 10% 20% 30% 40% 50%

58%

51%

46%

45%

42%

39%

38%

35%

31%

34%

Survey: APD Purchasing Priorities Survey, 10/15 through 1/16

7 © 2016 Advanced Purchasing Dynamics, Inc.

Survey Participants

80% VPs & Directors 48%

19% 32%

Titles

Director - Purchasing& Supply Chain

Purchasing Managers

Vice President -Purchasing

70% Automotive

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Theme 1: Should Be Costs

Our purchasing team lacks skills for building “should be”

cost models

Our procurement processes don’t provide “should be”

costs for our key commodities

Our procurement processes aren’t providing us with the

data to build effective cost models

Our procurement processes don’t provide enough data to

understand our supplier cost structures to drive savings

9 © 2016 Advanced Purchasing Dynamics, Inc.

Why Should Be Cost Models?

Can’t evaluate if you’re paying

appropriately

Too much effort to produce

customer quotes

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Doing About Should Be Cost Models

Add someone to your team who’s done cost engineering

Hire an outside consultant to conduct cost studies on a

project basis

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Swoop Curve

Time

Very

High

Open

Cost

Piece

Price

Level of

Savings

Very

Low

Medium

Cost

Breakdowns

Cost

Estimates

Knowledge Based Models

Hyper Optimized Models

3-7 %

3-6 %

2-5 %

12 © 2016 Advanced Purchasing Dynamics, Inc.

Theme 2: Paying Appropriately

My executive intuition tells me I feel we need to validate

that we’re paying appropriately for our key commodities

Our purchasing team lacks skills for implementing

effective commodity strategies

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Why Paying Appropriately?

Relying on supplier quotes means

leaving money on the table

Some commodities aren’t

being managed strategically

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Doing About Paying Appropriately

Improve cost modeling/strategic sourcing skills

Hire commodity managers

Developing their own strategic sourcing process, starting

with one commodity

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Commodity Segmentation

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Commodity Segmentation

Time

Very

High

Open

Cost

Piece

Price

Level of

Savings

Very

Low

Medium

Cost

Breakdowns

Cost

Estimates

Knowledge Based Models

Hyper Optimized Models

3-7 %

3-6 %

2-5 %

17 © 2016 Advanced Purchasing Dynamics, Inc.

Theme 3: Cost Savings Activities

Our purchasing team doesn’t have the time or expertise to

do the cost savings projects we should

Our purchasing team is overwhelmed with administrative

tasks, and there's little time to be strategic

18 © 2016 Advanced Purchasing Dynamics, Inc.

Why Cost Savings Activities?

Know we’re leaving

money on the table

Too much tactical work,

high performers will leave

Don’t have

skills on

staff

Can’t

make big

impacts

Most skilled

people

leave

19 © 2016 Advanced Purchasing Dynamics, Inc.

Doing About Cost Savings Activities

Lean out the clerical workload

Strategic vs. operations buying teams

Purchasing support services

Adopt purpose-built IT systems for purchasing

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APD and a client performed a side by side time study of time and keystrokes required to source 3 parts.

ProcureForce Provides a 93%

Reduction in Time and Keystrokes

ProcureForce

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Theme 4: Purchasing Systems

Our processes don’t provide an easy way to analyze

supplier bid date over time to identify cost savings

Our procurement processes do not allow us to manage

commodities on an enterprise-wide basis

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Why Purchasing Systems?

Too much effort wasted on

spend analytics

Can’t ensure pricing

consistency across regions

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Doing About Purchasing Systems

Capture 8-10 cost drivers in a spreadsheet

Analyze historical quotes to identify inconsistencies

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Variance Analysis

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Doing About Purchasing Systems

Capture 8-10 cost drivers in a spreadsheet

Analyze historical quotes to identify inconsistencies

Adopt a purpose-built system to handle quoting and

spend analytics

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ProcureForce

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Summary - What Companies Are Doing

Adding cost engineering resources

Implementing strategic sourcing and commodity

management

Leaning out the clerical workload for their strategic teams

Adopting purpose-built IT systems for purchasing

28 © 2016 Advanced Purchasing Dynamics, Inc.

Agenda

Purchasing Leaders Top 10 Pains

About the survey

Four themes for 2016

What companies are doing

Purchasing Competitive Advantage

Competitive advantage assessments

Findings (will and won’t surprise you)

29 © 2016 Advanced Purchasing Dynamics, Inc.

Competitive Advantage Assessment

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Overall CA Findings

Companies that are best at controlling material costs score higher on all dimensions of the CA.

The order of implementing best practices has a

significant impact on the results.

Example: Purchasing Organizations who EFFECTIVELY

measure cost performance achieve more from cost reduction tools than those who do not.

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High Correlation to Cost Performance

Robust program management of cost reduction ideas

Clearly defined roles and responsibilities

Ongoing employee performance management

Clearly defined performance objectives for all individuals

in the organization

Well defined key measures with accurate and timely

tracking of status

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The Payoff

Supply organizations that have successfully

implemented the high correlation processes

achieve year over year cost reductions two times

higher than companies who have not.

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Understand Vision

Develop

Purchasing Strategy

Deploy

KPI’s

Re-work Employee

Development

Tool Deployment

Buyer Training

Supplier Engagement

Competitive Advantage Achieved

Purchasing Leader Pains

Top 10 Fears for 2016