20130213 discovering the power of a world class pr…

Erste Group Procurement (EGP)Discovering the Power of a World Class Procurement

Robert SEMETHY

2013-02-13

EGP – Member of Erste Group © 2013All rights reserved

� Erste Group went public in 1997

with a strategy to expand its retail

business model into CEE

� Acquisition of more than 10

banks between 1997 and 2008

� Erste Group now runs market

leading retail banking operations

in the new EU member states,

which remain underpenetrated

compared to their Western

European markets

2000

2001

2005

2006

2007

1997

2004

2003

New holding structure improving Group Governance

2008

History: Austria’s first savings bank: Founded in 1819

� Erste Group’s customer base

grew from 600 000 in 1997 to

17,3 million in 2011


Erste Group in Central and Eastern Europe


Czech Rep

ProcurementDept. Serbia

Procurement Dept. Montenegro

Int. & Austria

Slovakia

Hungary

Croatia

Romania

Procurement Dept.Ukraine

Erste Group Procurement: Procurement of the Erste GroupF

unctio

nal

Leaders

hip

by E

GP

Erste Group Bank AG - Holding Board

CEO CFO COO CRO Group Markets Group Retail

Group Banking Operations

Group Org/IT

Erste Group Procurement(Procurement Services GmbH)

Group Services

EGP AT(incl. Centre Functions, as Finance,

HRM, Org/IT)

EGP RO

EGP CZ

EGP SK

EGP HU

EGP HR

Procurement RS

Procurement ME

Procurement UA

SPV DRUCK

Finance

Sourcing AT

Sourcing CZ

Sourcing SK

Sourcing HU

Sourcing HR

Sourcing RO Erste Group Procurement RO

Erste Group Procurement SK

Erste Group Procurement HU

Erste Group Procurement AT

Erste Group Procurement CZ

Erste Group Procurement HR

RS2)

1) Department of Erste Bank AD Podgorica - Montenegro

2) Department of Erste Bank Novi Sad

3) Department of Erste Bank Ukraine

SPV – DRUCK

EBSPK

Sourcing RS

Sourcing

Sourcing UA

Board Division Team in Matrix

UA3)

Org/ITHRM

ME1)

Management Board

Erste Group Procurement – (Procurement Services GmbH)

Established 2006

Erste Group Procurement Facts & Figures:

� Central procurement function within Erste Group

� Managed 3rd party spend more than EUR 1 billion

� Headcount over 165 employees in 9 countries

� Process owner for group-wide S2P process

� AT: Warehouse with more than 3 000 sqm

GCIB


Erste Group Procurement (EGP) Company Costs since 2008How much do we cost?

Procurement Company (EGP) cost development 2008-2012

Annual Procurement company operations costs decreased for more than EUR 30 million compared to 2008

2009

2008

2011 2012

69% cost reduction within 6 years18% average decrease p.a.

2010


Erste Group Procurement (EGP) CoA since 2008How much do we cost?

2009

1,8%

2008

2,7%

1,35%

2010

1,48%

1,2%

2011 2012

EGP Cost as a Percentage of EG Spend

*) CoA = group procurement costs (incl. VAT) vs. annual company spend

Peer Group Benchmark: 0.83%, World Class Benchmark: 0.63%

Cost of Acquisition (CoA*) – KPI continously decreasing


CR/CA

EG managed

3rd party

spend

3,86%

CR

1,26%

CA

3rd Party

Spend

Cost Reduction / Cost Avoidance

3,86%credible, transparent and auditable hard savings achieved.

→ Real and permanent reduction in the unit cost of goods manufactured or services rendered

without impairing their suitability for the use intended or diminution in the quality of the product.

Peer Group Benchmark*: 1.80%, World Class Benchmark*: 3.00%

1,26% soft savings achieved.

→ A purchasing action by means of which certain material/supplier increases are not incurred by the purchasing firm.

Peer Group Benchmark*: 0.20%, World Class Benchmark*: 1.39%

Savings resulting from purchasing activitiesHow much do we save?

EGP Cost Reduction (CR)/Cost Avoidance (CA) 2012 YTD

*based on Hackett Report


Erste Group Procurement (EGP) KPIs since 2008How satisfied is our customer?

Drove continuous increase of customer satisfaction while at the same time decreasing budget and Cost of Acquisition.

3% 2% 1,5% 1,3% 1,2% 1,1%

87%

93%98% 98% 98%

2008 2009 2010 2011 2012 2013

Cost Development

CoA

Customer Satisfaction


• Defined clearly formalised and structured process to avoid misunderstandings.

• Defined clearly roles & responsibilities to achieve the best joint decision.

• Transparent and documented process flows and results.

• Increased efficiency and effectivity.

• Ensured compliance to Erste Group standards.

• Ensured the purchase of goods/services at the optimum possible total cost in the

correct amount and the best quality.

How did we achieve these results?


Clearly defined EGP in Erste Group

EGP Cooperation with clients based on:

� Contract (SLAs)

� Responsibility (NDAs)

� Code of conduct

� Purchasing Policy & Handbook

Aligned priniciples within Erste Group:

…The central and single competence for procurement activities within Erste Group lies in Erste Group Procurement (EGP)…

…EGP has to be involved in any external spend of any Erste Group majority owned entity. Any exception has to be agreed between EGP and the respective Erste Group entity…

…All external spend should follow the principle of Total Cost of Ownership (TCO) and Quality, Cost and Delivery. In balance with socio-economic, ecological and customer relationship factors the assignment of a contract has to follow the highest added value for Erste Group principle…

…EGP owns, defines and aligns with the local entities the purchasing processes within Erste Group...


Clearly defined EGP Services in Scope

Sourcing

International/Local

Tactical

PurchasingOrder

Management

Business Process

Outsourcing

Operations of support

processes for the local entities, i.e.

• Travel Depart.• Print Shop• Warehouse

Provide cost-efficient

services

Purchasing Project

Contract Creation

Category MgmtVendor Mgmt

Contract Mgmt

Requisition &

Ordering

Documentation&

CR/CA Calculation

Receipting&

Evaluating

InvoiceProcessing

Erste Group Procurement

Purchasing Project

Contract Creation


Contract Mgmt

Requisition &

Ordering

Documentation&

CR/CA Calculation

Receipting&

Evaluating

InvoiceProcessing

Purchasing Project

Contract Creation


Contract Mgmt

Requisition &

Ordering

Documentation&

CR/CA Calculation

Receipting&

Evaluating

InvoiceProcessing

CustomisedProcurement

Services

Additional requirements

requested by customer

and are not in the scope ofpurchasing

Customer Satisfaction

Compliance with Outsourcing

Policy Provisionof Outsourcing

Project Documentation

Compliance to regulatory

and internal

requirements

OutsourcingCompetence

Center

Strategic, monitored purchasing in a team

approach

Ensure fast, easy and efficient execution

By EGP By EGP or Customer

On Customer’sDemand

Improved Servicesfor the customer’s benefit

Invoicing as a % of 3rd party spend Invoicing in a separate fee (SLA)


What is sourcing at a glance?

• Analysing the spend of

entity/supplier/category

• Strategic basis for the

procurement project

Reporting Package(SAP FI / QLIKVIEW)

• Allows the linking of information

to a 360°view of projects,

contracts, product categories

and suppliers.

• “In-house” development

Supplier / Country / Project Management tool (“CAP”)

• Live eAuctions

• Collecting of informationen (RfI*)

and offers (RfQ*) in a defined

specification form

eAuction, RFx(Electool)

Sourcing is the strategic process of identifying potential suppliers, conducting

negotiations, and agreeing on supply contracts in order to achieve a sustainable cost reduction and meet the customer’s expectations.

Supporting tools

*RfI = Request for Information*RfQ = Request for Quotation

Demand analysis

based on

Category ManagementSupplier ManagementContract Management

Identificaton of potential suppliersto conclude a GMA

support through

eAuction / RFx / negotiation

GMA


Sourcing International/Local

Category Management/Matrixorganisation

Sourcing Specialist, the first contact for the customer and groupwide Category Manager and Supplier Relationship Manager.

145 categories divided according to local and international opportunities.

Find opportunities, create & implement a strategy in a team approach with the Business Line.

Matrixorganisation Category Classification

Category Management

FM Facility Management (FM) IT Informationstechnology (IT) S&O&M Service & Operations & Marketing (S&O&M)

FM FM Maintenancerelated Services/Work IT Personal and Office Computing S&O&M Car Fleet

FM FM Investmentrelated Services/Work IT Telephony and Communication S&O&M Cards

FM Goods IT Networks S&O&M Consulting

FM Energy IT Branch Equipment S&O&M Logistic

FM Security Equipment IT Servers/Storage/Host Components S&O&M Marketing

FM Property Management IT Infrastructure Software S&O&M Office Equipment & Office Operation

IT Direct Application Software S&O&M Personnel Management

IT IT Services S&O&M Travel

IT Indirect Application Software S&O&M Security Service

Sourcing Categories

EGP – Member of Erste Group © 2013All rights reserved Page 14


Contract Management/Spend Data Analysis/Data Reporting

Structure spend by suppliers, categories, countries and entities.Real-time. Business Intelligence Tool for management

Define Spend categories, analyse it (spend & suppliers)

In a team approach with the Business Line.

Budget and Category Analysis Tool Data Reporting

Integrate all supplier contracts in Contract management solution and establish proactive & timely contract activity plan

Contract Management



Supplier Relationship Management Tools

• Standardised Questionnaire for Assessment and Self Assessment

• Document Management System, Reminders periodically and automatically

• Scoring through Business Line

• Risk Management

• Ethics

Supplier Audits

• Similar to Category Management

• Long Lists and Short Lists

SupplierStrategies

• Escalation management

• Single Point of Contact and coordination of all participants (Business Line, Legal, Countries, Suppliers)

• Identification of disqualified suppliers

Escalation

Identify and focus on key suppliers.

Implement supplier relationship model in cooperation with Business Line.

• HYR/QBR

• Standardised presentations

• Participants: Business Line, Supplier and EGP

• Measuring the cooperation

• Search out further cooperation/collaboration

Business Reviews


Tactical Purchasing (TP) and Order Management (OM)

Purchasing Project

• In 3 countries available

• Integration with MM / Accounting

• Covering about 55% of the spend

SAP SRM

The fast, easy and efficient execution of routine administrative tasks. These are day-to-day buying activities, which are low volume with no strategic importance or based

on agreements that have been set in place.

Supporting tools

Demand(online or catalogue) Offer

Purchase requisitionthrough GMA or catalogue(OM)

Tender Project (TP)

Agreement or

• In all EGP countries available

• Efficient eAuction through webbased form

• Supplier’s self registration for saving resources

eAuction(Electool)

• Standardised articles

• Order Processing for low purchases

• Integration in Warehouse Management System

Catalogue / OM Software(ITAM – Office Asset)


KPIs and the Reporting


How did we achieve these results?The Key Messages for a successful Procurement Organisation

Organisation &

Structure

� Centralised procurement in one seperate company with clear groupwide organisation structure and an agreed andapproved Power of Attorney (PoA)

� Unique systems and tools applied in all subsidiaries in all countries

� Unified processes with locally optimised deployment

� Service Agreement structure and hierarchy applied in all countries

Transparency&

Communication

� Full costs transparency through analytic tools and reporting

� Quarterly Business Reviews with clients and suppliers

� Defined communication and escalation process

Sustainability

� By using spend analysis tool the bypassing/‘maverick spend‘ procurement activities are identified and tracked

� High compliance through common cooperation with budget owners on the product groups strategies and/or supplierstrategies

Procurement Process

� Through active management of product groups and suppliers EGP creates a bond between suppliers and budget owners

� EGP is involved in the whole procurement process with clear tasks and responsibilities

� Educated procurement specialists (Sourcing Matrix)

Goals� Transparency in the level of achieved goals of the cost reduction through one clear methodology and tool-based

measurement


Thank you!

Erste Group ProcurementProcurement Services GmbH

Robert SEMETHYManaging Director

Chief Procurement Officer

Email: [email protected]


EGP’s development started at 2006

2007 2008

In the new Erste Holding structure s

Proserv reportsto the CFO

(previously to the COO).

100% subsidiary in HR. Start

operations in a Procurement

Department RS

EGP = World Class Procurement

Procurement Transformation (Centralization/ Consolidation)

100% subsidiary in

RO.

s Proserv renamed to Erste Group

Procurement - ThePurchasing of the

Erste Group.

2013

Start operations in a Procurement

DepartmentME.

Start operations in a Procurement

DepartmentUA.

Foundation of s Proserv

100% subsidiaries

established in AT, CZ, HU, SK

20142006 2015

• Transparency

• Service Quality in Sourcing and Procurement

• Cost Reduction and Cost Avoidance

• Ethical Standards

• Fraud Prevention

2011 2012

Start of NGPS project (New Group Procurement

Solution)

Finalisation of the news Proserv Business

Strategy

20102009

Aligned procurement principles within EG

(Purchasing Handbook)

Finalisation and approvalof the new s Proserv Business Strategy Start implementation of

Lean Enterprise OrderManagement (LEO)

Increase the value of a centralised procurement

company

Service optimisationSRM Management

Category ManagementNew RFx tool


An overview of the main steps in a RFI/RFP process

What is Request for Information (RFI)

and Request for Proposal (RFP)?

Filtering system:

1. Initial total solution space

2. Preparation marketing screening

3. RFI - Long list of solutions (up to 15)

4. RFP - Short list of solutions (3-5)

5. Finalist solutions (1-3)

What are the roles & responsibilities

in RFI/RFP processes?

1. A joint effort of Business, Operations,

Organization and Procurement.

2. Overall project and process is managed by a

project manager nominated by Organization

3. The procurement relevant part is driven by a

single point of contact nominated by EGP

4. Definition in a RACI matrix

What information is required for a

successful RFI/RFP process?

1. Introduction

2. Background

3. Subject of RFI/RFP

4. Requirements

5. Legal Disclaimer

What are the main steps in a RFI/RFP process?

1. Preparation

2. RFI (optional)

3. RFP

4. POC – Proof of Concept (optional)

5. Contract Negotiation

When we are announcing the winner?

1. EGP decides on commercial

2. Business decides on technical/content

3. Joint decision on supplier selection

1 2 3

45


What are the critical success factors?

DOs

• Early involvement of EGP

• Fully defined scope/specification by business before commercial negotiation starts.

• EGP in charge of all communication with suppliers unless otherwise agreed between EGP

and business line.

• Negotiation strategy and method selected by EGP.

• All supplier communication through Electool (EGP’s tendering and auctioning tool).

• Agreement on TCO and evaluation matrix before RFP starts.

DON’Ts

• EGP cannot decide on content/technical requirements.

• No commercial negotiation without EGP.

• Business triggers a RFx process without involving EGP.


RFI/RFP process for quickly focusing on feasible solutionWhat is Request for Information (RFI) and Request for Proposal (RFP)?

RFI/RFP process as filtering system Explanation

Request for Information (RFI)

� Survey used for requesting information to

− Secure basic understanding of market

− Gain first information on solution providers

− Identify Short List of solutions (3-5)

� No legally binding proposal; not suitable to engage with supplier

� Up to 100 requirements

� Little interaction with solution providers

� Limited internal efforts; project organisation not necessarily required

� Mandatory alignment with Erste Group Procurement

Request for Proposal (RFP)

� Formal invitation for solution providers to bid on supplying solution within specified time period and process

� Formal proposal; mandatory task before engaging with supplier

� Legally binding for solution provider (appendix for final contract)

� More than 100 requirements

� Intense interaction with solution providers

� Requires involvement of several internal units with substantial internal efforts and a clear project organisation and structures

� Mandatory involvement of Erste Group Procurement

Solu-tion

Solu-tionSolu-

tion Solu-tion

Solu-tion

Solu-tion

Solu-tion

Solu-tion

Solu-tion

Solu-tion

Solu-tion

Solu-tion

Solu-tionSolu-

tion

Initial total solution space

Solu-tion

Solu-tion

Solu-tion

Solu-

…

Solu-tion …

Solu-tion

Solu-tion E

Solu-tion

Solu-tion

Solu-tion

Solu-tion

Solu-tion

Solu-tion

Solu-tion

Solu-tion

Solu-tion

Solu-tion

Solu-tion

Solu-tion

Solu-tion

Solu-tion

Finalist solutions (1-3)

� Identify key stakeholders

� Understand business and business objectives, strategic framework and TOM

� Define generic solution concepts and identify potential solutions and solution providers out of total solution space (Long List)

Long list of solutions (up to 15)

Preparation/Market screening

Short list of solutions (3-5)

RFIMain characteristics:

• RFI is an information only

• RFI is the best to cooperate

• RFI can be initiated by BL

• RFI can be part of Market Research and

done independently by EGP

RFPMain characteristics:

RFP is always a BL request

RFP will result in a purchase

RFP is always in cooperation

A RFI process can be a joint effort OR can be done independently by EGP (as part of Market Research).

A RFP process is a joint effort of Business, Operations, Organization and Procurement.


A solution selection project and RFI/RFP process is a joint effort of Business, Operations, Organization and Procurement. Whilst the overall project and process is managed by a project manager nominated by Organization, the procurement relevant part is driven by a single point of contact nominated by Erste Group Procurement.

General responsibilities in RFI/RFP processWhat are the roles & responsibilities in RFI/RFP processes?

Project Manager (PM)

(see Erste Group Project Management Standard)

Org – Business Analyst (Org-BA) Business/ Operations Representative (Bus/Ops)

Project Sponsor (PS)

(see Erste Group Project Management Standard)

Erste Group Procurement (EGP)

IT Expert

(incl. IT Solution Management, IT Operation, IT Architecture)

• Planning, coordination and tracking of all project activities

• Consolidating of inputs from the various streams

• Reporting to project sponsor and steering committee

• Defining and evaluating requirements along the six defined

categories

• Ensure that strategic and operational business

requirements are considered throughout the project

• Operational support for Business/Operations

• Communication with external suppliers

• Consolidation of RFI/RFP documents

• Commercial and legal negotiations with solution providers

in all phases

• Contract management

• Definition of requirements for business functionality

• Evaluating of business functionally

• Defining expected benefits business and operations

• Defining and evaluating technical requirements and

requirements for implementation and ongoing support

• Providing IT expertise and input where needed

• Management of testing environments

• Defines the goals and priorities

• Approves business case, project charter

• Ensures the funding of the project

• Provides strategic guidance and leadership to the project

• Approves project deliverables

Key Activity PS PM EGP Bus/Ops Org-BA IT IS CON LA

0.1 Understand business and IT objectives, strategic framework and TOM 0.1.1 Perform focus interviews with stakeholders A C C R C

0.1.2 Draft strategic requirements for needed solution A C C R C0.1.3 Research external case studies with comparable business objectives I A C R C

0.1.4 Enrich understanding of challenges & framework with case study findings I A C R C0.1.5 Outline benefits of needed solution A C C R C

0.1.6 Define strategic requirements A C C R C C0.1.7 Agree on measurable KPIs for project success A C C R C C

0.2 Market screening & “big picture”0.2.1 Perform market research of potential solutions (internal & external) A C R C

0.2.2 Review case studies (internal & external) A C R C

0.2.3 Collate and present research findings I A C R C

0.2.4 Define generic solution concept A C C R C C

0.2.5 Consider make or buy decision A C I C R C C

Sample of a RACI Matrix for an IT Project

RACI Matrix


Draft RFI/RFP according to standard contentsWhat information is required for a successful RFI/RFP process?

Topic Subtopic Description Important appendices

1. Introduction • Objectives of the document • Explains purpose of RFI/RFP

2. Background • Entity’s Background• Current situation• Objectives of RFI/RFP

process

• Description includes− Overall strategy the RFI/RFP process supports− Selection goals− Affected business processes or operations− Specific capabilities that on business requires

to realise improvements

3. Subject of RFI/RFP

• Scope of the solution• Planned implementation time

frame (if applicable)• Response documents and

deliverables• Schedule and time frame of

RFI/RFP process

• Outlines required applications and services• Explains expected time frame

• Outlines required response format and content (e.g. solution overview, cost breakdown)

• Outlines selection process, e.g. rules of the “game”, terms• Informs about deadlines and time table

• Information on organization, volumes, FTE s etc.

• Roll-out roadmap

4. Requirements • Business functionality• Non-business functionality• Technology (if applicable)• Implementation and on going

support• Solution provider• Cost indication/TCO

• List of organized questions to confirm availability of desired requirements and to measure solution provider’s competencies, reliability and ability to fulfil requirements

• Excel file with detailed requirements

• Interfaces• Cost evaluation sheet

5. Legal disclaimer

• - • Includes e.g. liability and non-disclosure agreement


• Understand business objectives, strategic framework

• Market screening

• Design „big picture“

• Develop and issue RFP

• Evaluate RFP responses

• Reference checks

• Solution provider presentation

• Plan roadmap

• Estimate costs

• Evaluate solutions

• Define and prepare POC approach

• Perform workshops, tests and demonstrations

• Evaluate POC results

• Agree on scope, project plan, milestones and success criteria

• Conduct and finalize commercial and legal contract negotiations

Ac

tivit

ies • Develop and issue RFI

• Evaluate long list of solutions

• Joint understanding of business challenge /strategic framework

• First thoughts on business, operations and benefits

• Strategic requirements

• Generic solution concept

• Long list of solutions (up to 15)

• Defined selection process

Ke

y D

eli

ve

rab

les

• Requirements

• RFI, NDA (Optional)

• RFI responses

• Qualitative evaluation

• Feasibility cross check

• Short list of solutions (3-5)

• Agreed further selection process

• Detailed requirements

• Weighting and evaluation approach

• RFP, NDA (mandatory)

• RFP proposals

• Evaluation results

• TCO4 & benefits analysis

• Roll-out roadmap

• Implementation and resource plan

• Finalist solutions (1-3)

• Feasibility and cost/benefit check

• Agreed further selection process

• Proof of concept approach & process

• Test cases and test data

• POC3) report

• Updated evaluation

• Updated TCO4) & benefits

• Feasibility and cost/benefit check

• Updated ranking of finalist solutions (1-3)

• Finalised contractual documents and appendices

• Handover material (if applicable)

Overview solution selection approach in five stepsWhat are the main steps in a RFI/RFP process?

Key d

ecis

ion

po

ints

2 3 51 4• Short list of solutions

(3-5)

• Go/No go decision

• Long list of solutions (up to 15)


• Defined selection process

• Finalist solutions (1-3)


• TCO4 & benefits

• Contract ready for signature

• Updated ranking of finalist solutions (1-3)

• Updated TCO4) & benefits


1 RFI = request for information 2 RFP = request for proposal 3 POC = proof of concept 4 TCO = Total cost of ownership

RFPRFI POCContract

Negotiation1 2 3 4

Ph

as

es

Preparation0


EGP Sourcing Specialist starts a negotiationproject and owns the process

„Negotiations“ and „Winner Announcement“When we are announcing the winner?

Joint decision on Short List

EGP ensures the right quality in the right time to the right price of goods

and services in the most efficient way by selecting the appropriate

supplier.

Commonly selected supplier signsthe contract

A negotiation …

.. process is owned by the sourcing specialist

.. can be focused with one selectee

.. lasts until the contract is signed

In case no signature is reached with the first selectee a negotiation ...

…can be restarted with other selected suppliers

…can run parallel with multiple bidders

The supplier - who signs thecontract - is the ‚Winner‘ and will be

announced as such.

The EGP Sourcing Specialist must document theachievements and offers/wording in discussion/analysisduring all negotiation stages

EGP

Commercial Decision

EGP

Commercial Decision

Business Line

Content/Technical Decision

Business Line

Content/Technical Decision

Joint decision

on supplierselection

Joint decision

on supplierselection

NOTE: Only after signing a contract a winner is to beannounced!

20130213 discovering the power of a world class pr…

Documents

world class benchmark

peer group benchmark

erste group procurement

procurement services gmbh

procurement relevant part

successful rfi rfp process

erste group 2013

erste group