all rights reserved - sarmento silva, c.p.m. development of channel partners “critical supplier...

All Rights Reserved - Sarmento Silva, C.P.M.

Development of Channel Partners

“Critical Supplier Issues-

Moving Toward Enterprise Spend Management”

2004 Northeast Supply Chain Conference

September 21, 2004

Supply Chain People, Process & Technology

“What’s Missing”

Purchasing Professionals

Suppliers

• Strategic Commodities• Sourcing the Best Suppliers• Building Relationships• Understanding Contracting• Transition through Enterprise Spend

Management (ESM)

STRATEGIC COMMODITIES

• Conduct spend diagnostic

• Validate Commodities

• Drive opportunity capture initiatives

–Perform high-level spend analysis

– Identify strategic sourcing opportunity areas

–Define scope of each initiative

–Lay out preliminary cost savings ideas

–Estimate savings potential

–Generate, validate and prioritize potential cost savings ideas

–Develop implementation plan around agreed upon ideas and syndicate with relevant stakeholders

–Develop Strategic Sourcing Initiatives

–Develop tracking and reporting mechanisms

–Build hard savings estimates into budgets

STRATEGIC COMMODITIESH

igh

L

ow

Po

ten

tia

l s

av

ing

s*

Easy Hard

Ease of capture**

CSOs

Line Equipment

Consulting

Consumer

advertising

Professional

promotions

Investigator

payments

CROs

Travel

Meetings

Computer hardware

Electric

Fleet

Maintenance and repair

Legal services

HR

Freight

Contractors

Special media

Journal ads

Sample Commodity Charting

MRO

Direct Materials


Suppliers


Management (ESM)



STRATEGIC SOURCING INITIATIVES

• Create a Strategic Sourcing Team within the Purchasing Organization to facilitate and lead

• Utilize cross functional teams to create “Buy In”

• Approve additional Purchasing staff to maintain organization’s ability to maintain infrastructure support while working to drive other on-going cost savings efforts

• Allow budget dollars for team initiative needs such as contractors, market consultants, temp labor, etc.

ORGANIZATIONAL DESIGN


• Maintain manageable number of high impact teams at any one time

• Allow time for initiative planning

• Drive identified opportunities

• Continue to drive other on-going efforts around smaller opportunities in parallel to major initiatives

• Focus on identifying and capturing quick hits first

• Provide periodic status reports to executive management

PROCESS PRINCIPLES


SAMPLE WORKPLAN

Phase 1

Define analysis/scope

Establish team

Conduct initial analysis

Develop cost saving action plans

Develop cost tracking/ reporting system

Phase 2 Phase 3 Phase 4 Phase 5

• Define specific categories (segments) for analysis (within defined scope)

• Define basic team structure, objectives and responsibilities

• Identify specific team members

• Identify and secure potential additional resources

• Generate potential cost saving ideas

• Establish baseline spend and savings targets

• Identify initial data requirements and collect initial data

• Substantiate cost saving ideas and savings estimates

• Prioritize ideas

• Gather additional data to resolve issues

• Develop implementation plans around agreed upon ideas as well as contingency plans

• Develop procedure for measuring actual savings vs. baseline over time

• Establish formal system to report actual savings vs. target

6–8 weeks


GUIDING PRINCIPALS

Objectives • Identify and realize significant savings for individual spend category

• Train broad cross-section of internal customers in best-practice purchasing methodology

Milestones • 6-8 weeks per team for cost savings idea identification • Several weeks/months thereafter for implementation and realization

Approach • Teams facilitated by full time experienced staff from purchasing organization

Resources • Typically 4 - 6 part time members per category team (coaches, internal customers, finance)

Role of teams • Generate, analyze, and commit to cost savings opportunities

Role of internal customers

• Identify team members for each initiative• Provide access to data, opportunity identification, and sequence


• Sufficient participation and buy-in from internal customers

• Senior management support to promote idea generation, drive implementation, and capture budget savings

• Appropriate timing and sequencing of initiatives to reinforce sense of urgency

• Early syndication of strategic sourcing team mandate • Savings not at the expense of quality of service

• “Outside the box” idea generation

• Emphasis on achieving compliance

KEYS TO SUCCESS


Suppliers


Management (ESM)



Building RelationsBuilding a strong relationship with critical suppliers is the greatest challenge for Supply Chain professionals.

Suppliers need to be handled with the same “care and feeding” you give to customers …

Building Relations

… but suppliers need to understand that the Pharmaceutical Industry has changed and that today we all face ‘shark infested waters.’

Building Relations

Because suppliers faces similar challenges in technology and process changes, Supply Chain staff should help suppliers understand the benefits and impacts of being the “Best of the Best” through ...

Aligned Objectives Teamwork

Building RelationsPharmaceuticals faces the challenge of slowing “top line” sales.

… to focus on controlling the bottom line.

In the past top line sales drove revenue and profit but now these market pressures has driven the industry…

Revenue

Spend

Profit

Building Relations

Benefits for Suppliers: Increased sales and establishment

of strategic relationship due to leveraged volume spending

Improved customer satisfaction due to improved product and process visibility

Improved market share within customer’s organization due to reduction in maverick spending

Process efficiencies through use of electronic transactions

WIIFM

Supply Chain Professionals must focus suppliers attentions on the Benefits of working together.

Building Relations

The bottom line is that suppliers want to perform beyond our expectations because they understand the benefits of working to become a valued partner in our individual supply chains.


Suppliers


Management (ESM)



Understanding Contracts

Teamwork

A critical piece of the puzzle is building the contracts that organize, define and and clarify how we will do business with our suppliers.


Good contracts are more than words on a piece of paper … …more than drawings, diagrams, and legal terms … … more than prices or signatures.

Contracts define the working relationship between us and our suppliers.

They should also define the relationship of our suppliers with their suppliers.

… and so on.

True Supply Chain

https://brandspace.accenture.com/livelink/livelink.exe?func=ll&objId=355009&objAction=properties&nexturl=%2Flivelink%2Flivelink%2Eexe


Good contracts mean all parts …

… going in the same direction

SpecificationsTerms and conditionsPricingLogistics and Inventory

Master AgreementsStatements of WorkOutline AgreementsIntellectual Property

DeliverablesService LevelsWarranties and GuarantiesRemediation or Termination

Strategic Tactical Transactional


Cross Functional Review

A critical component of contracting is thorough cross functional review especially utilizing:

FinanceLegalSafety, Health & EnvironmentQuality ManagementEngineeringManufacturingInformation Services


Good contracting saves time …

… and time is money


Management (ESM)


Suppliers



“Enterprise Spend Management”

Business Challenges

“Spend data is too time consuming to compile, and often there isn’t enough data or available data is not accurate.”

“The sourcing process takes too long to complete…I am swamped with paper forms and spreadsheets, and analyzing vendor responses is like comparing apples to oranges.”

“Everyone does his/her own purchasing… no one knows we have preferred suppliers and negotiated contracts.”

“The requisition transaction is complicated and not everyone has access to the ERP system.”

“Invoices are sent to the requesters who keep them for weeks, even months. Our suppliers are upset that they are not getting paid on time and the AP department has no visibility to the outstanding payables.”


Aligned Strategy• Strategic Supplier Partnerships• Global Leverage• Business Strategy Development

Optimized Organization• Continuous Learning• Cross-Functional Involvement• Global Organization

Coordinated Processes• Strategic Sourcing Process• Process Efficiency• Supplier Process Linkage

Enabling Technology• ERP Leverage• Efficient Data Exchange• Data Collection and Analysis

Measured Results• Balanced Scorecard• Total Cost of Ownership Measurement• Transaction Volume Metrics

Aligned Strategy

Measured

Results

Enabling Technology

Optimized Organization

Coordinated Processes


The objective of spend management is to focus on spend for sustainable savings:

• “Spend-centric" focus — systematically aligning the organization's mission, resources, and processes around effectively managing spend

• Implement closed-loop management processes that deliver continuous feedback by capturing spend data and supporting best practice spend management strategies

• Enable companies to constantly measure and improve their results — so they can find the savings, get the savings, and keep the savings on an ongoing basis

Spend Management Solutions include:

Data Warehousing & Analysis Solution

Electronic Sourcing Solution Electronic Procurement Solutions

including: eBuying, eContracts, and eInvoicing platforms


A Key Priority

Pharmaceutical organizations must recognize the Pharmaceutical organizations must recognize the opportunity to drive business value and process opportunity to drive business value and process efficiencies in its procurement operations.efficiencies in its procurement operations.

Commit to achieve expense reduction goals in delivering value through spend management.

Spend management becomes a key priority.

Drive initiatives with targeted benefits.

Develop projects to drive value through spend management processes, tools and techniques.

Pharmaceutical organizations must recognize the Pharmaceutical organizations must recognize the opportunity to drive business value and process opportunity to drive business value and process efficiencies in its procurement operations.efficiencies in its procurement operations.

Commit to achieve expense reduction goals in delivering value through spend management.

Spend management becomes a key priority.

Drive initiatives with targeted benefits.

Develop projects to drive value through spend management processes, tools and techniques.


Traditional Purchasing:• Time intensive, paper based

transactions• Transaction processing,

tactical focus• Limited time & focus on

supplier management• Limited competitive

landscape • Lack of visibility to

negotiated contracts and preferred suppliers

• Maverick spending• Lack of spend data, limited

spend analysis

Spend Management:• Electronic transactions, intuitive

user interfaces• Reduced purchasing intervention • Reduced cycle time in sourcing

activities• Increased time and focus on spend

and supplier management• Full visibility to contracts and

preferred suppliers• Reduction of maverick spending• Improved spend data capture and

reporting capabilities

Improved spend leverageImproved process effectivenessIncreased purchasing savings


• To be successful in spend management, an organization must recognize the change impacts to various groups of stakeholders.

• Two groups of stakeholders that will experience significant changes in the area of spend management are suppliers and purchasing professionals.

Lessons LearnedLessons Learned

Potential Impacts to Suppliers: Technical requirements to participate and support new technology

Adoption of new processes to support new technology Training of personnel to perform new roles and responsibilities

Less competitive, non-strategic suppliers may not retain/gain business with existing customers

Benefits for Suppliers: Increased sales and establishment of strategic

relationship due to leveraged volume spending Improved customer satisfaction due to improved

product and process visibility Improved market share within customer’s

organization due to reduction in maverick spending

Process efficiencies through use of electronic transactions

New Technology• Training on the use of new technology enablers• Technical support to ensure uptake• Monitor usage and performance to ensure

successful implementation

New Processes• Early and active involvement in design of to-be

processes• Communication and training of process changes• Establishment of supportive policies

New Roles & Responsibilities• Clear role and responsibility definition• Communication and training of new activities and

tasks• Supportive structure to ensure smooth transition

New Technology• Training on the use of new technology enablers• Technical support to ensure uptake• Monitor usage and performance to ensure

successful implementation

New Processes• Early and active involvement in design of to-be

processes• Communication and training of process changes• Establishment of supportive policies

New Roles & Responsibilities• Clear role and responsibility definition• Communication and training of new activities and

tasks• Supportive structure to ensure smooth transition

Purchasing professionals face a number of challenges to achieving spend Purchasing professionals face a number of challenges to achieving spend management capabilities.management capabilities.



Enterprise Spend Management creates greater business visibility and speeds reaction time by creating a centralized data model and rapid enablement of best practices across a corporation.


For the next generation of Supply Chain excellence, ‘Managing Spend’ is not optional; deciding how intelligently you will do it is the only issue at hand. Executives must create a culture of fiscal discipline and back that up with an enterprise spending management system that enables every employee to participate in keeping their own companies competitive. Do this and you create a legacy of increasing value in the long term while providing solid and impressive results in the short term.

Sarmento Silva, C.P.M., is a 25-year career Purchasing Professional, currently serving AstraZeneca Pharmaceuticals as Director, Purchasing System Development and Re-engineering on assignment as Leader for their current mySAP ERP and Ariba Buyer implementation project. AstraZeneca is a Global leader in the Pharmaceuticals industry whose 2002 sales totaled more than $8 Billion in the US. Prior to coming to AstraZeneca, Mr. Silva was Global Manager of Packaging and Printing for Rubbermaid© Corporation. He is a Life Certified Purchasing Manager carrying the certification since 1984. He has been an active member of the Institute for Supply Management (formerly NAPM) since 1980 and has served at every level of the organization including National Vice Chairman for Membership Activities. He currently serves on the Editorial Review Board for “Inside Supply Management” ISM’s signature Magazine. He has a BA in Communications and a MBA in Marketing. In 1993 he was awarded the Distinguished Service Award from the Western New England Purchasing Management Association, Massachusetts House and Senate and received a citation from the Governor’s office for statewide excellence.

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all rights reserved - sarmento silva, c.p.m. development of channel partners “critical supplier...

Documents

strategic sourcing team

savings potential

potential cost savings

strategic commodities

preliminary cost savings

savings estimates

ongoing cost savings

management esm slide