category management l5 pp2012_v2
TRANSCRIPT
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Category ManagementAdvanced Diploma
in Procurement and Supply
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Purchasing: the traditional view • Purchasers are not involved until an actual, real need is
presented to them by the user. They remain involved only until the need has been fulfilled and paid for.
• Purchasers have little contact with or involvement in user functions’ planning and scheduling, and play a service role to them, perhaps as a sub-function of finance.
• Purchasers have very little influence. • Purchasers’ freedom to make decisions is very limited,
and tends to be focused on individual transactions.
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A simple purchasing cycle
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Non-strategic procurement• Managing the organisation’s spend• Furthering the organisation’s strategies• Maximising value added or released• Minimising total cost of ownership• The end-to-end acquisition process
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Procurement takes over where sourcing leaves off
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Strategy
• Plan a methodical, justified, resourced sequence of steps towards explicit,
measurable targets
• Ploy a move in a competitive situation that will gain an advantage over a
competitor
• Pattern consistency, coherence and identity in the organisation’s actions
• Positionthe fit between the organisation and its environment
• Perspectivea (unique) worldview and interpretation of events and conditions
A useful strategy will advance the organisation in respect of one or more of Mintzberg’s ‘5 Ps’:
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Tactical purchasing/strategic sourcingTACTICAL PURCHASING STRATEGIC SOURCINGTakes place within the department Takes place within the organisationReports to lower-level management Reports to top managementIt has a short-term decision frame It has a long-term decision frameIt is mechanical and reactive It is creative and proactiveIt makes narrow demands on purchasers It requires broad knowledge and skillPeople process documents People create informationRoutine acquisitions rank equally with novel ones
Resources focused on novel acquisitions
Make this transaction good Make future transactions betterPurchasers are focused on their internal customers
Relationships with suppliers and value for end-users are important
Suppliers are antagonists Suppliers are resources
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• Aggregationreduces price per purchase and overall costs by reducing the number of transactions
• Categorisationclassification of organisational requirements to promote expertise, market
knowledge and innovation
• Outsourcing achieves value from third-party expertise and from reallocating resources internally
to core concerns
• Relationship managementfacilitates information and knowledge exchange with suppliers and key stakeholders
• Standardisationa standard set of policies and procedures for individual users and cross-functional
teams
Strategic procurement’s five key tools
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Categories of suppliers• Transactional suppliers
The organisation has little or no ongoing relationship with them.Every supply is on a one-off basis with no expectation of a repeat.Switching is easy.
• Performance-managed suppliersThe focus is on tactical outcomes rather than on building a long-term
relationship.
• Relationship-managed suppliers Seen as having some strategic value, so are nurtured.
• Strategic suppliers Business critical. They cannot be replaced, they account for a large proportion of spend,
or they provide highly volatile (prone to risk) supplies.
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Sourcing strategies• Crowd sourcing• Dual sourcing • Ethical sourcing • Global sourcing • Insourcing• Low-cost country sourcing • Multi-sourcing • Outsourcing • Single sourcing • Sole sourcing
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• Category management is an organisational philosophy that permeates and organises its activities and attitudes
• Strategic sourcing is a focused, technical, tool-driven supply chain activity occurring within the strategic decision frame
Category management and strategic sourcing
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Strategic sourcing steps• Profile the category• Develop the sourcing strategy• Identify suppliers• Evaluate suppliers• Negotiate and award the contract• Transition to the supplier and implement the contract• Monitor supplier performance
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Transactional purchasing
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The strategic approach to sourcing
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Increasing relationship strength between two organisations
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Categorising expenditures• Who specifies the product?• Why is it needed?• How is it authorised?• How is it ordered?• Who supplies it?• How is it received?• How is it paid for?• Where is it stored?• When is it used?• How is it disposed of?
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Cost analysis• Costs related to the organisation’s level of activity
• Variable costs – depend directly on the level of activity• Fixed costs – not affected by changes in the level of activity• Semi-variable costs – have both fixed and variable elements• Step costs – fixed costs that increase in steps
• Costs attributed to specified purposes• Direct costs – directly linked to a specific unit or aspect of the
organisation• Indirect costs or overheads – spread over a number of identifiable
units or aspects
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Product and period costs• Product costs
costs identified with the organisation’s products and services
• prime cost of production – the total of direct materials, direct labour and other direct costs
• production overhead cost – the total of indirect materials, indirect labour and other indirect costs of production
• Period costs costs treated as expenses incurred during the period and
not related to product or service delivery
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Labour costs• Payment on time spent
Employees are paid for the hours they have worked at an hourly rate. If they work no hours, they receive no pay.
• PieceworkEmployees receive a fixed amount for every task completed,
regardless of the time taken. Working on commission involves receiving a fixed percentage of every sale made.
• Salary paid at the end of a specified time periodEmployees are expected to work a notional number of hours
and to complete the tasks assigned to them.
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ABC (Pareto) analysis
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O’Brien’s version of Kraljic’s portfolio analysis matrix
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Massin’s CSSB matrix
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• They come from a similar supplier source• They have similar production processes• They have a similar use or purpose• They have similar material content• They have similar specifications• They employ similar technology
Massin’s sourcing groups with six criteria
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A section of a sourcing tree
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Bartolini’s scorecard• Internal and organisational factors
aimed at filtering out any spends that will be difficult to fit into a category approach
• Market factorsbased on Porter’s five forces, and examines supply market competition
• Supplier factorsdescribe the capabilities and attributes of the suppliers in the specific
category
• Procurement factorsfocus on the procurement process and how the use of a given category
impacts the organisation and its outcomes
• Category-specific factorslook at the unique attributes of the category that will determine
suitability for category approaches
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• Value chain positioning (VCP)the process by which the organisation positions itself in the
market to reflect a margin-cost analysis of all the supply and value relationships within their market
• Market positioning analysisthe organisation comes to understand the value creation and
cost aspects of its own supply chains and how this benchmarks against competitors
• Extended relational competence approachthe organisation creates supplier and customer relationships
that are underpinned with a solid idea of how value is created, what contracts should look like, how to install efficient boundaries, and how best to exploit core competencies
Strategic procurement implementation
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The CIPS model (part 1)
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The CIPS model (part 2)
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Vision, mission and values• Vision
the end-state that the organisation wishes to achieve
• Missionwhat the organisation exists to do now and into the
foreseeable future
• Valuesthe guiding principles and priorities that determine what the
organisation will and will not allow itself to do
• Strategieslong-range plans for furthering the mission and approaching
the vision
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• What the organisation needs from its purchasing and supply management function
• How the function is positioned within the organisation• Its governance structure• Its objectives and activities• Ideal capacity, capability, competence, and structure characteristics• How it manages internal customers, users and buyers’ needs• Standing policies over eg rationalisation, standardisation, value management,
supplier development, corporate social responsibility• Key processes supporting the organisation’s control framework• Performance monitoring, benchmarking, continuous improvement• Management of supply markets
Purchasing and supply management strategy
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Process and competence analysis• Constituency mapping
map stakeholders onto the organisation’s structure, along with their roles, involvement and requirements
• Competency mappingevaluate the competencies of all those involved in purchasing and supply
management
• Awareness and understandinghow well do owners, directors and senior management colleagues understand
the purchasing and supply management function?
• Knowledgeestablish who knows what within the purchasing and supply management
function, both technical and organisational information, what problems are caused by any information asymmetry, and how to fix them.
• Controlsall systems, policies, procedures, and controls should be analysed and
evaluated
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Acquisition – pre-contractStage 1 Identification of needStage 2 Procurement planStage 3 Marketplace solicitation and developmentStage 4 Evaluate and select suppliersStage 5 Receive and evaluate offersStage 6 Create contractual relationship
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Acquisition – post-contractStage 1 Contract and relationship managementStage 2 Receipt of product or serviceStage 3 Asset managementStage 4 Lessons management
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The OGC procurement process model
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• Develop the evaluation strategy
• Ensure end-users and stakeholders are involved in the specification
• Determine the procurement route
• Plan the purchase, ensuring all tasks and deliverables are identified in sufficient detail to allow progress to be tracked and managed
Requirements definition and purchasing strategy
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Contract preparation• Does the contract accurately represent the requirement?• Have stakeholder requirements and views been taken into
account?• Do potential providers have realistic solutions to meeting the
requirement?• Does the organisation have the necessary skills and resources
to meet its obligations under the contract, and for managing the contract?
• Have you had appropriate, expert legal advice?• Has the future contract manager been involved in the
process?
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Strategic sourcing Stage 1 Positioning the function for strategic sourcingStage 2 As-is analysisStage 3 Mapping the organisation’s supply chainsStage 4 Consolidate data and generate optionsStage 5 Option selectionStage 6 Sourcing plansStage 7 Identifying new suppliersStage 8 Evaluation
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As-is analysis• Customer and business requirements
what do our customers need and what does the organisation need?
• Spend analysishistorical usage analysis of goods and services; supplier positioning;
supplier historical analysis; transaction cost analysis; criticality of products and services
• Future spend analysisforward/expected usage of goods and services; trends in the market
• Market analysisassessment of market capability; analysis of power dependency in
supply chains; analysis of individual marketplaces; supplier preferencing; relative positioning of your organisation; supply chain cost analysis; the nature of the market and appropriate sourcing strategy; potential and actual size of the supply base
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The AT Kearney strategic sourcing model
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The AT Kearney 7-step modelStep 1 Profile the categoryStep 2 Select the sourcing strategyStep 3 Generate the supplier portfolioStep 4 Select the implementation pathStep 5 Negotiate with and select supplierStep 6 Integrate the supplierStep 7 Monitor the supply market and supplier
performance
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The strategic sourcing gemstone
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• Segment the spend• Determine category strategies• Set up the governance for the categories• Execute the strategy and supporting projects and
processes• Monitor performance
Mitchell’s category management framework
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The CIPS category management model
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The CIPS model• Phase 1 Kick-off
• Step 1 Initiate/prepare
• Phase 2 Prepare strategy• Step 2A Identifying opportunities• Step 2B Prioritising opportunities• Step 3 Prepare/present category strategy
• Phase 3 Deliver strategyStep 4 Implement category strategy/Change
recommendationsStep 5 Maintain
• Phase 4 Align and improveStep 6 Improve and enhance
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The O’Brien model
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O’Brien’s processSTAGE 1 INITIATION
STAGE 2 INSIGHT
STAGE 3 INNOVATION
STAGE 4 IMPLEMENTATION
STAGE 5 IMPROVEMENT
Starts with a ‘Kick Off’ workshop
Starts with a ‘Situation Analysis’ workshop
Starts with a ‘Strategic Options’ workshop
Starts with an ‘Implementation’ workshop
(No workshop)
Ends with a Stage Gateway Review
Ends with a Stage Gateway Review
Ends with a Stage Gateway Review
Has a mid-point Stage Gateway Review
(No Stage Gateway)
Realises benefits
(No specific benefits)
(No specific benefits)
Realises benefits
Realises benefits
Stages 1–3 take 1 to 3 months, typically Takes 2 to 6 months, typically
Takes up to a year, typically
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Pick a model and stick with it• Only one process should be in place within an
organisation• Everyone should understand it and actively embrace it• The language of the process should be relevant to the
organisation• The process should broadly follow and reflect the
fundamentals of category management, change management and best-practice business improvement
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Skill profile for category managers SKILL, ABILITY OR CHARACTERISTIC RANKING IN 2010 RANKING BY 2015Strategic thinking 24 1Teamworking 11 2Supplier market analysis 19 3Influencing & persuasion 12 4Total cost of ownership analysis 23 5Integrity & professionalism 1 6Listening 5 7Purchasing category strategy 6 8Market knowledge 8 9Change management 50 10
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STRATEGY RELATIONSHIP MANAGEMENT DOMAIN EXPERTISE
• Deep experience and formal procurement process and skills qualifications
• Strategic thinking
• Stakeholder credibility and relationships
• Supplier credibility and relationships
• Change management expertise
• Cultural contexts (there may be more than one)
• Consultative selling skills
• Technical skills requirements for the category and experience of the complexity level
• Sufficient (category) supply industry experience
• Detailed business experience in order to understand requirements
The category management skill set (White)
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Snell’s category manager skill set• Change management• Commercial awareness• Communication• Creativity• Flexibility• Leadership• Market knowledge• Persuasion• Procurement skills• Tenacity• Vision
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Financial management questions • How does financial resource use break down over the organisation? Which
business unit and cost centre accounts for what? Are there opportunities to aggregate spend and gain efficiencies and buyer power?
• What are financial resources buying? Are they paying for pointlessly differentiated inputs? Could they be more effective if used on commodities?
• What are the trends in spend?• Which assets add most value? Which have the most strategic value?• Are financial resources gaining value for money? Are they being directed to the
most value-adding, efficient and effective people, processes, suppliers and so on?
• How flexible is spend? How much is locked in to contracts? On what terms? What can be renegotiated?
• Where does orderly financial resource use break down and why? Where are the maverick spends and budget variances?
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• Analysis of the cost structureall cost elements should be readily identifiable
• Cost estimatingfor each part of the cost structure
• Discountingexpressing future cost commitments in a common time
frame, ie their present day (present value) equivalents(This is not the same as adjusting for inflation)
Three basic principles of wholelife costing
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• Customer relationship management• Customer service management• Demand management• Manufacturing flow management• Order fulfilment• Product development and commercialisation• Returns management• Supplier relationship management
The supply chain as a collection of processes
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• Materials and servicesthe actual building blocks of the supply chain, the inputs into each link
that are processed to create its outputs
• Informationthe organising structure of the supply chain, letting every part know
what is expected of it
• Financethe compensation exchanged through the supply chain that rewards
earlier stages for the parts they have played in providing inputs to later stages
• Valuethe point of the chain is to create value for the participants in the chain.
Value should flow from step to step to step, growing at each stage
The supply chain as a system of flows
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Fulfilling the consultancy role• Attitude – how they approach the work• Skills – what they can do• Knowledge – what they know• Differentiation – what unique benefits they bring to the work• Currency – how up-to-date they are• Client focus – how they see service and the wider social
interest• Ethics – their positions on standards, trust, confidentiality,
impartiality and objectivity• Cost-effectiveness – their flexibility, quality and value for
money
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The purpose of risk management • Objectives are more likely to be achieved• Damaging outcomes will either not happen or will
become less likely to happen• Beneficial outcomes will either be achieved or will be
more likely to happen
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Negotiation• Purposeful persuasion
each party tries to persuade the other(s) to accept its case or see its viewpoint
• Constructive compromiseall parties accept the need to move closer to the other
position(s), identifying the areas of common ground where there is room for concessions to be made
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Emotional intelligence (EQ)• Self-awareness
• Self-regulation
• Motivation
• Empathy
• Social skills
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Influencing: not negotiation• Influencing is not a single event or series of events – it is a
continuous process.• Influencing need not be an intentional (or even conscious)
process for either or both parties.• Influencing need not involve conferring, or two-way
presentation of arguments. • Influencing need not end with an explicit joint agreement.• Influencing need not involve compromise or movement by
both parties to reach middle ground.
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Techniques for building rapport• Subtly matching or mirroring the other person’s posture, body
language and/or volume, speed and tone of voice• Picking up on the other person’s use of technical words,
colloquialisms and metaphors • Picking up on the other person’s dominant way of
experiencing and expressing things• Listening attentively and actively to what the other person is
saying• Finding topics of common interest, and emphasising areas of
agreement or common ground where possible• Remembering and using people’s names
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Resolving conflict (Thomas)
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Collaborative relationships
• Product and process information exchange• Operational linkages• Co-operative definition of norms and expectations• Relationship-specific adaptations to products, processes or
procedures
Collaboration implies integration and adaptation by both parties, in terms of:
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Skills of the change agent• Vision and leadership• Managing strategy• Managing processes• Project management skills• Team-building skills• Interpersonal skills• Personal flexibility• Commitment, perseverance and stamina
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Situation, target, proposal (STP) • Define the problem or issue you are trying to understand
• Brainstorm and list everything you know about the current situation as regards the problem or issue as you have just defined it.
• Sort the results from the brainstorming into some suitable categories.
• Decide on the outcomes, positions and resolutions you want to result from this process • These are the target. Targets should be well-defined and ‘SMART’.
• Decide on an action by which you will achieve the target• This is the proposal.
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Procurement questions• What have we bought in the past and what do we need in the future?• How much did we buy in the past and how much do we need in the
future?• Who buys this and why and how do they use it?• Are we buying the right things?• What scope is there to buy something different that fulfils the same
need?• Are there any opportunities for improving efficiency in the way we buy
and use this category?• Are there any technological advances now or coming that will present
opportunities to us?
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O’Brien’s Day One analysis
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Past demand data• Seasonality is a consistent pattern tied into a particular timeframe
• Products and services behave in different ways at different stages in their lifecycle; adoption, maturity and decline all have in-built trends
• Business cycles are longer-term patterns characteristic to many industries; when they coincide they can form a general economic cycle
• Events are self-contained shocks that can cause a substantial change which may or may not be permanent, long-lasting or short
• Noise is unexplained behaviour and random fluctuations in behaviour that is by definition unpredictable and cannot be forecast
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RAQSCI requirementsREQUIREMENT CONCERNED WITH…Regulatory Complying with laws and regulationsAssurance of supply The availability and accessibility of products and
services when they are neededQuality Consistency and fitness for purpose of products
and servicesService The way in which products and services are
supplied; support activitiesCost Costs and prices, including terms and mechanismsInnovation Continuous improvement for the organisation eg
to reduce costs, increase value, or create competitive advantages
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Understanding the landscape• To formulate an analysis of the spend, category development and so on• To see how the organisation actually operates in terms of its buying
behaviour and the strength or weakness of the contracts it holds• To enable review of structures, systems and processes within the
organisation pertaining to buying so that new ones can later be planned• To assist in understanding what stakeholders currently want and need• Building engagement within the organisation’s stakeholders to positively
effect category management within the organisation• To understand the enormity of, and highlight the improvements that can be
made through, the changes that categorisation can bring• To assist in the development of necessary exit management strategies from
existing contractual arrangements• To identify quick wins where value can be extracted early or cost reduction
made
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• To determine the value extracted from existing contracts by virtue of the terms applied
• To ensure that there is compliance across the organisation to the terms and that value is being gained and/or liability is not being attracted through misdemeanour
• To ensure that default remedy and exit clauses are understood if there are to be changes to the contract through negotiation or re-competition
Understanding terms and conditions
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Gathering data on marketsDATA POTENTIALLY WORTH COLLECTING POTENTIAL DATA SOURCES• Market conditions and the factors
driving them• Trends• Suppliers operating in the market now• Potential entrants to the supply
market• Market competitiveness• Technology trends and emerging
technologies• Market segments and niches• Potential opportunities• Potential threats• Our power and share of spend in the
market
• Industry publications• Interviews and discussions with
suppliers• Interviews and discussions with
experts• Financial reports• Media reports• Consultants• Public indices (eg commodity prices)• Trade shows
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• If we are using generic products or services the buyer has more ability to swap out and change products and suppliers in the market place.
• If we are using tailored products or services, then the tailoring will come at a cost to us in respect of eg intellectual property rights over specifications and plans which will be protected legally.
• If we have chosen to deploy custom-made products and services, then there is only one supplier and the uniqueness is the key to the business.
• If we have chosen to use proprietary products, then the buyer is strongly influenced to continue to buy that product or service through supplier control.
Product and service spend categories
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Opportunity analysis (O’Brien)
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Ease of implementation• Ease to effect the change within the organisation • Ease in the market place in terms of difficulty to
source from the market place
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Developing a PPCA• Determine the direct and indirect costs that sit behind a
product or service • List all indirect costs associated with the running of the
organisation behind these products or services• For both the direct and indirect costs, identify cost
estimates for as many items as you can• For those areas that cannot be estimated, agree actions
as to how to assess these costs• Once your research is complete, review it and interpret
what it is telling you
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Using the Kraljic portfolio matrixStep 1 Classify using portfolio matrix
Step 2 Assess the strength of the organisation’s position in the marketplace
Step 3 Determine the required strategic response – either Exploit, Balance or Diversify
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Placing categories on the matrix • If a category is mapped to the right-hand side, it points to there being a
high profit impact and therefore great worth in allocating resources to optimise the category position through category management
• If a category falls in the leverage box, the appropriate improvement activity might be to secure better pricing from the market
• If a category is strategic, the organisation perhaps should develop a long-term relationship with a supplier to optimise value and minimise risk
• If you are working in the critical box, then there will be market difficulties and little impact to be made on profit for all the effort being put in
• If we are in the acquisition box, then this warrants little effort as there will probably be little gain
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The balance of power mapped on to the portfolio analysis
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Strategic response• Exploit
to maximise the strength of the current position and use it to leverage results
• Balancemaintain the current position
• Diversifydo something that enables the organisation to move away
from the current position to a more favourable one
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Categorising stakeholders • Internal stakeholders
members of the organisation who operate within its boundaries
• Connected stakeholders outside the organisation, but with a significant stake in its
activities, frequently through formal ties such as contracts
• External stakeholders the wider range of groups who are less directly affected by
the organisation’s activities and their results
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Mapping stakeholders
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Creating the team• Appropriate executive sponsorship is essential; it
challenges and reduces resistance
• Managers of staff members seconded to the team will want to know how the initiative affects them
• Do not be surprised if some managers blame time lost to the initiative for sub-standard departmental performance
• Market the initiative to gain the widest possible organisational buy-in
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Sponsor duties • Being the figurehead for the initiative and its visible executive lead• Being responsible for securing provision of team members seconded from
other functions and departments, and any other required resource• Briefing and inspiring the team and attending kick-off meetings• Corresponding with those involved• Representing the project and communicating its progress at the executive
level• Ensuring that any high-level business requirement or issues that might
impact the project are communicated to the team• Signing off the sourcing strategy in consultation with stakeholders• Being an ambassador for implementation, and securing the necessary
support and resources required • Removing any obstacles to progress
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Team activities • Participation in the category management process• Delivery of actions arising• Communications activity and engaging with
stakeholders• Collection of data and information• Pursuing quick-win opportunities
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Purposes of a team charter • To gain alignment of understanding of the project
and the roles of the team members• To serve as a basis for discussions with the sponsor
about what is expected of them• To provide a basis to secure agreement for the team
and project remit• To provide a definitive document that summarises
the project; its aims, people and targets• To gain the commitment of the team to the project
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Typical team roles (Belbin)ROLE DESCRIPTIONPlant Creative, imaginative, unorthodoxResource investigator Extrovert, enthusiastic, communicativeCo-ordinator or Chairman Mature, confident, a good chairpersonShaper Challenging, dynamic, thrives on pressureMonitor-evaluator Sober, strategic, discerningTeam-worker Co-operative, mild, perceptive and diplomaticImplementer or Company Worker
Disciplined, reliable, conservative and efficient
Completer-Finisher Painstaking, conscientious, anxiousSpecialist Single-minded, self-starting, dedicated
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Situational responsibilitiesIn every situation, somebody will need to:
• Define the task or deliverable• Execute the task or deliverable and see that it is completed• Validate or gain approval for activities, requests and
deliverables• Inform the task or deliverable • Participate in the execution and completion of tasks and
deliverables• Review the task or deliverable and determine whether the
goals have been met• Sign off the completed task or deliverable
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Porter’s five forces
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Industry types• Monopolies
industries with just one supplier and therefore no competitive rivalry
• Oligopoliesjust a few suppliers dominate the industrylimited potential for rivalry and great potential for power over buyers
• Hyper-competitionthe frequency, boldness and aggression of competitor interactions
creates a condition of constant disequilibrium and change
• Perfect competitionbarriers to entry are low and rivals are equally matchedprofits in these markets are not high, but are stable at the minimum
levels for survival
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The industry lifecycle
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Cycles of competition
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Issues with market segments• Variation in customer needs• Specialisation• Strategic customers
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• Reducing the number of suppliers in the supply chain• Joint development of new products• Having responsive suppliers• Use of integrated databases and systems• Continuous improvement programmes
Cost reduction through the supply chain
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• The relative sizes of the buyer and the potential supplier
• Whether they have done business previously, with whom and for how long
• What type of industry and power base is in operation for the products or services
• Who else the supplier is supplying and the degree of reliance upon them that those customers have
Context information for financial appraisal
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Investigating the market• What is the marketplace?• What is happening in the marketplace and,
importantly, why?• What is likely to happen in the future and why?• What are the trends in the market?• What alternative marketplaces exist? Would any of
these be better?
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STEEPLE analysisFACTORSocio-culturalTechnologicalEconomicEnvironmentalPoliticalLegalEthical
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The Boston matrix• Stars
• Organisation has a high share of the market and the market is growing.• Should be invested in further to maintain growth.
• Cash cows• Organisation has a high market share, but the market is mature and slow-growing
or even declining. • Should be ‘milked’ to provide cash for investments in future product areas.
• Dogs• Organisation has low market share and the market itself is not growing.• Should be dropped from the portfolio to release funds.
• Question marks• Organisation has low share, but the market is beginning to take off or has
significant growth potential.• Need to be watched closely and investment maintained to keep a presence.
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The Boston matrix
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Layout of a SWOT analysis
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Typical CSR stancesLAISSEZ-FAIRE ENLIGHTENED
SELF-INTERESTWORKING WITH STAKEHOLDERS
MAKING A DIFFERENCE
Attitude Comply with the law
It is sound business sense
Sustainability and the triple bottom line
Change society and markets for the better
Leadership priority
Fringe concern Be supportive Champion Part of the vision
Management mechanism
A middle management responsibility
Create systems to ensure good practice
Board level issue with organisation-wide monitoring
Every individual’s responsibility
Organisational reflex
Defensive against outside pressure
Reactive against outside pressures
Proactive It helps define us
Relationships with stakeholders
Unilateral Interactive Partnerships Multi-organisation alliances
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Why pursue CSR?• It is good to do good; the alternative is to do bad• Both customers and suppliers expect to see ethical behaviour• It is better for the organisation’s reputation• Accidental breaches of compliance are less likely• Profit is a very narrow and short-term definition of value• The organisation cannot distance itself from society• Being a proactive member of society increases the organisation’s knowledge of
and access to potential suppliers and markets
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Guiding principles of sustainability• Attitude
ensuring the organisation understands society’s expectations of it, states its own values clearly, then reinforces these in a way that creates a process of continuous improvement
• Building the capacity to actdeveloping the tools and approaches to improve
performance across the three pillars of sustainable development
• Checking progresssetting targets and measuring performance
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The impact of responding to CSR
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CIPS advice on CSR• Link with the organisation’s overall CSR policy and exert influence on its approach
from the supply-side perspective• Ensure the responsible sourcing strategy delivers what the organisation as a whole
is aiming for, and that its commitments are entirely practicable • Identify which aspects of CSR are likely to be important to the organisation overall,
and particularly within the supply chain• Get high-level corporate buy-in for the supply-side and communicate this to
suppliers• Review products, services and suppliers for potential benefits or risks from CSR
impact• Prioritise analysis and action on higher risk and reward areas, and check the likely
impact throughout the supply chain• Balance the CSR impact within the organisation’s overall sourcing strategy.• No two organisations have the same requirements and therefore a unique risk
model will need to be developed that encompasses social, environmental and economic risks (triple bottom line)
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Step 1: ResourcesStep 2: Competitive advantagesStep 3: Competitive capabilitiesStep 4: Sustainable competitive advantages and
capabilitiesStep 5: Core competencies
The hierarchy of the development of core competencies
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• Value provides potential competitive advantage in a market at a cost
that allows the organisation to realise acceptable levels of return
• Rarityrefers to those capabilities possessed uniquely by one
organisation or by only a few others
• Inimitability capabilitiesthose that competitors find it difficult to imitate or obtain
• Non-substitutability refers to providing products and services that are valued by
customers but are difficult to usurp
VRIN analysis of distinctive resources
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A generic value chain
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Supplier preferencing
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Attractive factors for a supplier • Purchases are high volume, or high spend• Your brand is well-known and it would give kudos to the supplier to
be able to name you as a customer• Good payment terms and payment on time• Degree of profit margin• Ease of servicing the account• The fit of your type of business and the associated supply lines with
the supplier’s future strategy and direction• The fit of your operating locations with the supplier’s future planned
geographical supply footprint• A developed, good relationship with the supplier which they want to
keep up
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Integration options
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The make or buy decision‘Buy’ advantages• Allows downsizing• Allows focused investments on
people and other resources in core competencies.
• Leverages the specialist expertise, technologies, resources and economies of scale of suppliers
• Enables synergy through collaborative supply relationships
‘Buy’ disadvantages• Costs of services and
relationship/contract management• Loss of control and difficulties
ensuring service standards• Potential reputational damage if
service or ethical issues arise• Loss of in-house knowledge and
competencies (for future needs)• Loss of control over confidential
information/intellectual property• Ethical and employee relations
issues of downsizing
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Make or buy: Baily et al • Internal sourcing (the make option) is excluded for any item
which cannot be made on available equipment or using existing resources subject to capacity constraints.
• External sourcing (the buy option) should be excluded for items which can be made economically with in-house capacity.
• Tactical decisions involve procuring equipment, personnel or other resources without changing the fundamental nature of the organisation’s asset base.
• Strategic decisions take place on issues around the vertical integration wherein entire business units are acquired or outsourced. This results in either developing or closing down part of the capabilities of the organisation.
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Determining strategic outsourcing suitability
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Sourcing options• Single sourcing
The organisation chooses a single supplier to provide the entirety of a given supply.
• Co-ordinated single-sourcing or parallel sourcingThe organisation enters into separate, parallel agreements
with different suppliers for different parts of the same supply.
• Dual sourcingIf single-sourcing is considered to be too risky, the
organisation consolidates its spend to two suppliers.
• Multiple sourcingInvolves using multiple supply sources for the same product
or service.
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Procurement functional focus aims• Provide supplies to match customer needs • Reduce stocks and improve reliability• Introduce early supplier involvement and simultaneous
engineering• Develop effective make or buy policies, integrate purchasing and
capacity planning• Reduce the supplier base, adopt partnership and co-makership
approaches, reduce product complexity, increase accuracy and reliability
• Work with suppliers to establish world-class standards, improve flexibility of response to market conditions, liaise with technology sources
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• The need to respond to changing environmental conditions• Movement towards a proactive role which emphasises the
strategic importance of supply chain performance for organisations as a whole
• Strategies for supplier relationships• Performance-oriented sourcing strategies that control the basic
features of quality, delivery, cost and service• Organisation of the supply function• Application of information and communications technology to
supply chain management activity
Managing strategic change within procurement
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• The role and positioning (or repositioning) of an organisation within the total supply and value chain
• The configuration of the chain or network, and the competitive or collaborative nature of the relationships within it
• The selection of strategic supply chain partners• Internal and trans-organisational processes for materials and
information flow • Collaborative and integrative arrangements, where
appropriate
Strategic implications of supply chain management
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Porter’s value chain
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Porter’s value network
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RACI analysis of stakeholders• Responsible
the most active level of involvement, these stakeholders are responsible for doing the work or achieving the outcomes in question
• Accountablestakeholders accountable for what happens, they are the ultimate,
approving authorities for the actions taken by ‘responsible’ stakeholders
• Consultthose stakeholders whose opinions need to be sought and with
whom we have a two-way discussion over the issues
• Informthose stakeholders least actively involved, they simply need to be
kept up to date with events, intentions and progress
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Relationship with stakeholdersThere are those who:
• Are against it happeningResistance to change is the single biggest cause of sourcing project
failure. If we ignore it, we leave an open goal to the project’s opponents.
• Let it happenPeople with nothing to gain or lose, who need to be negotiated into
positive enthusiasm.
• Help it happenStakeholders who are generally supportive and believe in the project.
• Make it happenStakeholders who are supportive, but can also enable the project.
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Issues to discuss with stakeholders • Their definition or specification of the category and the items
procured within it• Their forecast needs within the category and the sourcing
projects planned or underway to address them• Their fundamental business needs in the category• What is particularly important to the organisation as they see
it• How their needs can be better met• Problems or issues they have in the category• The changes they anticipate in the future• The breakthroughs they seek
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Generating strategic options Step 1: Develop option
evaluation criteria
Steps 2–5: Options generation Step 2: Free-flow idea generationStep 3: Identify key themesStep 4: Group and summarise ideas
by themesStep 5: Compile multi-layered
themed ideas into strategic options
Step 6: Evaluate strategic options
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• Definition of the strategic option, explaining what it is and what it means for the organisation
• Features and benefits, setting out what can be gained from the approach
• Specific short-term activities to be conducted by team members and other stakeholders to get the strategic option adopted and the project underway
• Long-term activities and goals• Immediate next steps
Elements of a sourcing strategy statement
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Business requirements
• Have access to corporate strategy, policies, objectives, business plans and the intended future direction of the organisation
• Have access to category historical data and other relevant commercial landscape information
• Have access to the business requirements and goals, and what influenced their development
• Understand the RAQSCI model and how it applies to the category and supports the build of the requirement
• Understand value levers as a checklist of opportunities to investigate and pursue
Engaged stakeholders need to:
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Contractual planning• A written contract is always advisable.• A formal document will need to be prepared setting out how the
external provider should make proposals for the business of the category to be delivered.
• Contractual difficulty between parties can arise as to when a contract is actually formed.
• Procurement personnel are not necessarily legal experts and need to refer to contract specialists.
• Significant study should be undertaken on contract law separately.• Formal contract documents should contain a traditional contract,
specifications, commercial details, relationship management details, performance reviews, account planning, and terms and conditions.
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Contents of an NDA• The parties to the agreement• A definition of what information is considered confidential• The period (term) during which information may not be
disclosed• Any exclusions from what must be kept confidential• Provisions restricting the transfer of data in violation of
national security• The term over which the agreement is binding• Obligations of recipients regarding confidential information• Permissible disclosures• Law and jurisdiction governing the parties and the agreement
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Some features of EU directives • Common procurement vocabulary
An EU-wide coding system for categories of products and services that might be procured.
• Competitive dialogueA procedure that may be used for complex contracts.Requirements are defined in output terms. Purchasers may seek initial proposals from suppliers and then
have dialogues with some or all of them in successive stages, prior to requesting final bids from those that can meet the output specification.
• Framework agreementFollowing a competitive process, an organisation may conclude a
framework agreement with suppliers against which it awards specific subsequent contracts.
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Reducing the time impact • Ensure the correct procurement route is chosen• Streamline the process as far as possible – use appropriate pre-
planning and manage the procurement activity• Examine the existing approach to determine whether there is a
leaner approach that could save time• Examine capability within the team and stakeholder group –
insufficient capability can add cost and time• Sourcing readiness – know what you want and plan how to get it• Know and manage rate-limiting steps that will hold up progress• Measure progress and put in place robust assurance processes to
maintain schedules
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Key issues in negotiation• Context
• Supply market• Procurement decision• Relationship between the parties
• AimsClear, realistic, achievable objectives provide the basis for an
appropriate negotiation strategy, and from this a negotiation plan can be set out.
• ChallengesConsider negotiation variables such as the following:
• Power• Time• Information
• ConcessionsWhat does the other party want?
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Market approaches – featuresCOMPETITION DIRECT NEGOTIATION• More supply options at any one
time.• A distant relationship with the
supplier is more likely.• Suitable for more generic or
specified products or services.• Formal, recorded, regulated process.• Rigorous assessment and structured
evaluation with transparent scoring.• Time consuming.• High preparation costs, but no
guarantee of success.• Requires substantial data gathering
and analysis.
• Fewer supply options at any one time.
• Direct face-to-face engagement highly dependent on personal interactions.
• Influenced by negotiators’ choices and experiences.
• Suitable for complex environments or specialist needs.
• Process responds to tactical moves and power plays.
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Market approaches – advantagesCOMPETITION DIRECT NEGOTIATION• Provides leverage in the market
place.• Forces suppliers to work against
each other.• Forces organisations to be more
specific about what they want before going to market.
• Needs audit trail which will demonstrate unbiased decision making.
• Notionally open, transparent and fair for suppliers.
• All potential suppliers work off the same information and criteria.
• Little scope for change or adaptation unless specifically requested by a supplier.
• Permits closer relationships.• More collaborative – only seriously
rated suppliers involved.• Flexible to in-process changes.• Terms of reference more open.• More responsive to individual skill
and initiative.• Reflects less programmable factors
eg supply market competition, geography, power, risk, complexity, relationships, and people.
• More likely to need a back-up plan; greater chance of failure.
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Market approaches – drawbacksCOMPETITION DIRECT NEGOTIATION• Prohibits close relationships with
suppliers during process.• Sets requirements for organisational
behaviours.• High cost and time impacts.• Organisation cannot choose preferred
suppliers.• Less flexible decision making;
constrained by pre-programmed criteria and process.
• More difficult audit trail.• More subjective and biased.• Less transparent.• Negotiation is an open-ended process
rather than a carefully defined event; not clear where it starts and finishes.
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RFP or RFQ sectionsSECTION RFP RFQIntroduction and background Yes Yes*Scope and boundaries Yes Yes*Contacts Yes YesConfidentiality statement Yes YesNon-commitment Yes YesTendering process details Yes Yes*Requirements Yes Yes*Anticipated volumes Yes YesQuestions Yes MaybeAlternative proposal Maybe MaybePricing No YesTerms and conditions Yes YesAppendices and attachments If needed If needed* Unless it has already been covered in a separate RFP, in which case refer back.
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Supplier selection steps• Initial qualification or pre-selection• The RFP/RFQ tender – either RFQ follows RFP or the
two are combined• Analysis of proposals and quotations• Shortlist of suppliers• Final evaluations• Supplier is chosen
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Forms of e-auction• Standard reverse auction based on a single need to be satisfied at a pre-
determined time where suppliers will offer to supply what is required for the lowest price.
• Cherry–picked auctions with multiple needs advertised where suppliers can choose which needs they are interested in meeting and bid solely on those.
• Bundled auctions where multiple needs are bundled together and suppliers must bid for the entire lot.
• Dutch auction – the auction closes upon receipt of the first bid.• Cherry Dutch auction – a multiple-lot auction that closes upon receipt of
the first bid for that lot.• Japanese auction – the auction starts at a pre-defined price point that is
reduced in steps. Each supplier must accept each price step or they must leave the auction.
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• Lot strategy• Specification• Price awareness• Inviting the right suppliers• Selection criteria• Resources, training and communications• Post-auction
Factors that must be considered in e-auctions
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Typical governance structure for category management
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BENEFIT APPROPRIATE BENEFIT TYPES OR QUALIFYING FACTORS
Price reduction New prices are lower than those previously paid for similar products or services.
Cost avoidance Avoiding costs that would have had to be paid.
Efficiency improvements
That is, doing the same things but better; with less consumption of resources. These must be capable of being quantified in terms of tangible benefits. Efficiency improvements can take place within the organisation, but may also be passed on from its suppliers.
Applicable types of benefit and qualifying factors (O’Brien)
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• Defining the competencies needed for category management and for running an effective implementation
• Assessing the existing competency levels• Targeted education, training and development to address
any gaps found• Mentoring, coaching and support, especially in the first
phases of category management• Review and assessment of ongoing needs
Ensuring the right capabilities in each team
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Choosing the sourcing process
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Integrator responsibilities • Translating performance specifications into design
specifications• Selecting and evaluating suppliers• Negotiating with suppliers• Tracking performance and resolving difficulties
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• To continue the search for value using the value levers concept
• To refine and optimise the business requirements• To communicate and engage with suppliers• To innovate in line with what the market can offer
and the changing needs of the organisation• To drive effectiveness by aligning and adapting
supplier relationships
The organisation’s agenda in category management
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• Complex process interdependencies• Performance measurement difficulties• Uncertainty in requirements• High supplier dependency
Factors affecting opportunism in relationships
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Segmentation of suppliers SUPPLIER TYPE NUMBER FEATURES RELATIONSHIP
Strategic suppliers
A handful Suppliers who can add significant long-term value and/or where there is a business risk or criticality
Close relationship with nominated owner
Preferred suppliers
10 to 100 Positively selected, managed and measured
Relationship extends to regular reviews
Regulated suppliers
10 to 10,000 Greatest number, least value
Retained or removed according to need
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Stakeholder buy-in
• A thorough understanding of the organisation• To be aligned with the organisation’s vision and longer-term
objectives• A deep understanding of what stakeholder and customer
needs actually are and will be
The entire project team needs to be able to operate well at a strategic level. It needs:
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Key techniques for managing change• Education and commitment
People need to understand and value the proposed change.
• Participation and involvementMake everyone part of the team.
• Facilitation and supportBe flexible where you can to defuse conflicts.
• Negotiation and agreementIf someone loses out in one way, they should gain (if that is reasonable) in
another.
• Manipulation and co-optationSometimes you need to buy the change from an opportunistic stakeholder.
• Implicit and explicit coercionLeast happily of all, sometimes the change just has to be forced through.
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Types of stakeholder• Partners – supporters of your change• Allies – supporters, if given encouragement• Fellow travellers – it suits their purposes to go along with you• Fence-sitters – who are not clear on what they want to do• Loose cannons – who may obstruct you at random, despite
having no interest in the change• Opponents – who oppose the change, but not you• Adversaries – who oppose both you and your change• Bedfellows – support the change, but do not trust you• Voiceless – who cannot influence anything however they feel
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Communications programmePROGRAMME ELEMENT DELIVERED THROUGH, FOR EXAMPLE…AwarenessBuild general knowledge and the appreciation of benefits across all stakeholders.
• Publications of all types, formal and informal• Endorsements from respected authorities• Visibility-building publicity
PerformanceImpact and results information, specific and appropriate to individual stakeholders.
• Intranet with detailed documentation• Newsfeeds• Key metrics• Achievements against targets
Change managementSmooth transitions between performance states with simple, targeted messages.
• Memos• Posters• Incentives
Knowledge transferTargeted know-how sharing and learning documentation.
• Centralised knowledge bank• Training
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• Current situation• Business requirements• Strategic analysis and insight• Options for change• Recommended sourcing option• Risk and contingency plan• High-level implementation plan• Cost-benefit analysis• Next steps• Appendices (as needed)
Sections in a category strategic sourcing plan
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Pointers about the plan• It must go only to internal stakeholders because of its content.• It will vary in depth and complexity depending upon the nature of the
improvement exercise and the category change programme.• Its purpose is to get organisational and stakeholder sign-off, and ultimate
agreement to the recommended course of action.• It also provides documentary evidence of the journey through the category
that can serve as an audit, support future change in the management of the category, and provide a baseline against which to track the programme.
• It should include all of the information in one document.• It will provide an excellent communication vehicle to stakeholders and
customers across the organisation.• Making the sourcing plan available on the organisation’s intranet is a good way
to present it to stakeholders across the organisation.• Sign-off of the category management sourcing plan is critical to the entire
process.
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Determining how to pitch the plan to stakeholders
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Performance goals• A longer-term, strategic view on the organisation’s supply
needs• A hand in shaping those needs such that they can be
fulfilled in a more value-adding way• The organisation of supply needs into categories that can
be managed with the same strategy• Developing the most appropriate relationship with each
of the organisation’s suppliers• Enabling the organisation’s systems and processes to be
more efficient, effective and economical
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Category manager duties• Ensure that contracts are implemented according to the agreed terms• Ensure all users keep to established agreements• Act as the main point of contact with suppliers and internal stakeholders• Resolve operational issues raised by contract users and suppliers• Communicate operational procedures to contract users and stakeholders• Report on supplier performance, transaction data, savings and continuous
improvement initiatives to stakeholders• Ensure all goods and /or services are provided in accordance with the
contractual requirements• Progress the continuous improvement opportunities identified during
strategic sourcing• Maximise opportunities to improve the corporate social responsibility of
the organisation and its suppliers
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Compliance monitoring• Price monitoring
making sure invoiced prices match with contract prices, and that any discrepancies are justifiable.
• CSR and sustainability monitoringare suppliers complying with the organisation’s policies? If
not, is the organisation protected from eg reputational risk and can it move on to alternative suppliers?
• Contract usersmake sure all internal personnel are using the installed
contracts; identify and address off-contract spend
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Continuous improvement• Specification improvement
That is, to keep track of changes, identify refinements, and communicate and implement these as necessary, including reviews of needs and the supply markets, trend tracking, options for substitution and aggregation, CSR developments.
• Process improvementEliminate non-value-adding processes through modifications to
current processes and systems, facilitating best practice amongst contract users and suppliers, supplier forums and workshops, focusing high value-adding suppliers.
• Knowledge sharingWith procurement in general and other category managers in
particular.
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Project planning
• Is quick to grasp• Enables the widest set of stakeholders to use it• Enables collaborative planning• Enables communication and discussion• Can be easily changed and updated
Complex plans with many detailed activities are ineffective. It is much better to have something that:
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The brown paper plan format
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Waves of activity
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• Cautious management culture• Business-as-usual management processes• Initiative gridlock• Recalcitrant executives• Disengaged employees• Loss of focus during execution
Reactive forces in organisations that hamper change
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Finalising contractsThe following areas are particularly significant:
• Agreed arrangements for the supplyeg details of the products and services, specification, service
level and so on. Business requirements documentation will form the basis of the contract structure.
• The required relationshipAccount management provisions, eg reporting, performance
reviews, obligations placed upon the supplier in fulfilling the contractual bargain.
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• Organising formal and informal discussions between the suppliers
• Providing the incoming supplier with access to guidance and processes prepared and used by the outgoing supplier
• Facilitating transfer of contract-related assets to the incoming supplier
• Arranging discussions between the incoming supplier and stakeholders, so the supplier can gain insight on requirements and expectations
Information and knowledge transfer to the incoming supplier
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The role of a contract manager• Participating, as necessary, in developing the specification and
approach to the supply market• Monitoring the supplier’s progress and performance to ensure
provision conforms to the contract requirements• Managing any organisational resources used in contract
performance• Authorising payments consistent with the contract terms• Exercising remedies, as appropriate, where a supplier’s
performance is deficient• Resolving disputes in a timely manner• Documenting significant events• Maintaining appropriate records
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• Expected outcome measures• Costs• Contract performance• Acceptance and rejection terms and rights• Contract dates• Complete addresses
Planning for contract administration
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The post-award discussions agenda• Scope ie what exactly the organisation is buying• Terms full contract terms and conditions• Requirements technical and reporting requirements under the contract • Administration applicable contract administration procedures, including
monitoring and progress measurement• Rights rights and obligations of both parties and the supplier
performance evaluation procedures should be clear, bothfor this contract and the implications for potential futurecontracts
• Potential problems and potential solutions and contingency plans• Payment invoicing requirements and payment procedures.• Authority members of the contract team should explain the limits of
their authority and obtain the same informationregarding supplier personnel
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Information infrastructure• Compliance tracking• Contracts databases• Dashboards• Decision support• Portals• Procurement intelligence• Reports• Spend analysis• Sourcing databases• Supplier and contract lifecycle tracking
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Stakeholder feedback• Prediction and control
Feedback is used to understand the links between cause and effect, making it easier to predict and control events.
• Mutual understandingFeedback enhances people’s mutual understanding of each
other and a situation, what they expect, what they experience, and what it means to them.
• Critical reflectionFeedback enables people to reflect on situations and
challenge the goals pursued.
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Evaluating supplier performance • Site visits• Supplier questionnaires• Organising existing data• Internal questionnaires• External certifications• Own certifications• Third-party reviews• Conversations with suppliers• Independent ratings• Contact with other customers
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Metrics used in benchmarkingORGANISATIONAL METRICS PURCHASING PROCESS METRICS• Number of full-time employees per
£billion of spend• Purchase spend as a percentage of
operating costs• Purchase spend per purchaser• Total number of suppliers by category
and legal entity• Number of suppliers per £billion of
spend• Head count supporting sourcing,
supplier relationship management, and order processing
• Number of non-procurement staff involved in procurement
• Ratio of managers to staff
• Average cost to process purchase order through to delivery and payment
• Third-party spend per order• Average cost to process invoices• Volume of ‘straight through’ orders
(where no human intervention is required)
• Level of compliant spend by category, supplier and order channel
• Average time to process an order• Average time to pay a supplier• Percentage of total spend covered by
purchase orders
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Metrics used in benchmarkingCATEGORY-SPECIFIC METRICS RELATIONSHIP-SPECIFIC METRICS• Price per hour, unit etc. for goods or
services delivered by the supplier compared with the sector average, competitor price point, etc.
• Payment terms• Service levels• Guarantee periods• Number of suppliers as a percentage of
category spend• Contract coverage• Savings delivery (with the ability to track
to the bottom line)• Delivery compliance• Dispute resolution• Environmental and corporate
responsibility compliance• Savings per head
• Percentage of spend not transacted through procurement
• Suppliers using procurement as first contact
• Suppliers using the organisation as a best practice case study
• Internal perception of the procurement function
• Stakeholder utilisation of commercial agreements
• Usage of procurement tools and processes
• Percentage of engagement of procurement early in the procurement cycle
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• Align supplier performance goals with organisational goals and objectives
• Determine an evaluation approach• Develop a method to collect information about suppliers• Design and develop a robust assessment system• Deploy a supplier performance assessment system• Give feedback to suppliers on their performance• Produce results from measuring supplier performance
Developing and deploying supplier assessment
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Supplier improvement• Contact the supplier and find out what went wrong and
why. The results of the performance assessment should be provided to the supplier and can create a basis for discussion.
• Once the causes of a problem, or set of problems, have been identified, the next step is to devise a supplier improvement plan.
• If the problem is too severe, cannot be fixed in a timely manner, or poses too much of a risk, the organisation may wish to stop doing business altogether with the supplier.
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Capturing dataSome of the key actions required:• Strategic review of consumption patterns, key performance
indicators and contract performance patterns• Benchmarking reviews and research• Tracking improvement patterns
Some of the expected key outputs:• Assessment of the success of implementing value for money and
continuous improvement opportunities• Revised strategic sourcing and category management strategies and
objectives• Recommendations for future directions with given categories and
suppliers (once current contracts expire)
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Benefits trackingKey actions required:• Define the baseline(s) against which objectives and benefits will be
measured• Review the progress of any continuous improvement opportunities
taken, and report the results to the most critical stakeholders• Review the objectives, key performance indicators and benefits
identified in strategic planning and at contract starts, and analyse their ongoing validity
Key outputs will include:• Tracked spend and savings against expected outcomes and budgets• A moving baseline (increased expectations) as price and non-price
benefits are achieved• Management information reports
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Potential performance measures
• Have a procurement structure that truly aligns to categories rather than functions or business units
• Have categories that are determined by risk and business impact rather than by size of spend or other criteria
• Spend the majority of their time on strategic activities as opposed to tactical ones
• Are experienced and have progressed through many strategic sourcing cycles• Comply closely to policy, and are monitored often and corrected as necessary• Participate in formal, category-specific external networking or benchmarking• Outsource some elements of category management• Are proactive in influencing internal demand behaviours, and respond to
external market shifts
High-performing category managers and category management approaches:
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• Productivityoptimal tools, processes and information systems to develop category plans in a much
shorter timeframe
• Resiliencytools, processes and information to accurately develop and manage categories as well
as model changes for ongoing improvement
• Precisiondata integration, gathering and warehousing provide reliable, precise, real-time data to
category managers, who can then model real situations with real data
• Responsibilityclear, objectively-judged ownership by individuals and functions through unambiguous,
trusted scorecards
• Revenue and performancethe critical benefits on which the category management process is considered either a
success or a failure
Benefits tracked by high-performing category managers
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Spend dashboard key areas• Categorised spend• Contract compliance• Supplier concentration or supplier tail• Levels of process improvement• Interactive spend by business area
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Potential weak points to target• Training and development• Fully deployed category strategies• Fully developed and deployed e-procurement• Management of indirect spend decision-making• Contract compliance• Properly developed market analysis• Fully integrated cross-functional involvement• Total cost• Market-integrated pricing
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‘Market’ price factors• Buyer volume• Supplier capacity• Buyer specification• Changes in raw materials and direct labour• Local, regional and global conditions• Currency rates• Supplier efficiency• Supply chain costs• Market timing• Actions taken by other buyers and sellers• Length of contract
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Risk perception analysis processUNDERSTAND THE PRESENT
IDENTIFY POSSIBLE FUTURES
TAKE ACTIONS TO ADDRESS POSSIBLE FUTURES
Risk perception
How do stakeholders see the situation?
What do stakeholders think will happen?
Communicate precautions.
Risk analysis What actually happens?
Make predictive models.
Set early warning markers.
Scenario analysis
Develop evidence. Develop and test scenarios.
Make action plans.
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Qualitative risk matrix
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Risk analysis matrix
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Scoring likelihood and impactSCORES FOR LIKELIHOOD SCORES FOR IMPACT
1 Has never happened in this industry
1 Would have no discernible effect
2 Has happened in this industry but never in this group
2 Would cost 10% of this business unit’s net assets if it happened
3 Has happened in this group but never in this business unit
3 Would wipe out this business unit if it happened
4 Happens occasionally in this business unit
4 Would cost 10% of group net assets if it happened
5 Happens frequently in this business unit
5 Would wipe out the group if it happened
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Types of risk• Process risks
Internal processes are the sequence of value-adding activities undertaken by an organisation. Process risk is the risk of disruption to these processes.
• Control risksControls must be put in place to ensure that processes operate within
defined and considered parameters.
• Supply risksThe risk associated with an organisation’s suppliers being unable to supply,
or making supplies that do not meet specification.
• Demand risksUnexpectedly high or unexpectedly low demand and the consequences that
follow.
• Environmental risksThese are often viewed as unmanageable or remote (eg terrorism,
earthquakes, the wholesale collapse of Western banking...), so hardly appear in risk assessments. This is a weakness in risk monitoring rather than any inherent mystery of the risks involved.
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Risk management • Risk identification is the process of asking ‘what could go wrong?’ • Risk assessment or evaluation is the appraisal of the probability and
significance of identified potential risk events• Quantifying its risks allows an organisation to prioritise planning and
resources to meet the most severe ones, and to set defined risk thresholds at which action on an issue will be triggered
• Risk management strategies are often classified as the Four Ts• The organisation will need to make contingency plans to counter
high-impact risks• Monitoring, reporting and review (‘what happened and what can we
learn?’) is an important part of risk management
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Risks and contingency measures RISK PROBABILITY IMPACT REMEDIES
Operations team becomes overloaded
High Medium Renegotiate workload with managers. Push sponsor for more resources.
Demand increases beyond forecasts
Medium Medium Check demand calculations and monitor trends.
Supplier fails to manage transition to plan
Medium Medium Detailed project planning and ongoing management.
New supplier becomes insolvent
Low High Make two credit checks. Investigate switching costs.
Users reject a new product
Low High Carry out trials first.
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Two levels of supply chain flexibility
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Efficient/adaptable supply chains EFFICIENT SUPPLY CHAIN ADAPTABLE SUPPLY CHAIN
Focus Establish control to reduce variability and thus cost to compete
Embrace volatility and develop a superior ability to adapt
Decision time horizon
Short-term, quarterly results Long-term viability, while maintaining positive cashflow
View on turbulence
Bad, as it causes instability and cost
Inevitable, hence the need to pre-empt it by creating adaptable structures
Approach to dealing with turbulence
Use six sigma and other tools to eradicate it where possible
Use tools to increase flexibility and ‘bandwidth’ to cope
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Structural flexibility
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Achieving structural flexibility • Supply chain execution
• Buffers• Responsiveness and agility• Collaboration
• Supply chain design• Diversified manufacturing footprint• Diversified sourcing footprint• Diversified plant layout
• Product design• Modularity• Postponement
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Assumptions in the DRP• Which assets are we protecting?• What time periods are we prepared for?• Which information and knowledge have we kept
operational?• What resources will be available following the
disaster in terms of staff, equipment, communications, transport, facilities and sites?
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Assumptions to examine • The organisation’s main facility has been destroyed• Staff are available to perform the critical functions identified in the plan• Staff can be co-ordinated and can report to back-up site(s) for critical
processing, recovery and reconstruction activities• Off-site storage facilities and materials are unaffected• The recovery plan is up to date• The plan is modular – small-scale disruptions can be handled with sections
of the main plan• Alternate facilities are available• Sufficient short-term supplies survive• Communications links are available• Transport is feasible• Suppliers offer the maximum support that they can
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Termination notices• A description of the exact services included in the
termination (including processes, sites and territories)
• A description of liabilities involved• Details of transition arrangements• A timetable with significant milestones• Details of the manager in charge of the exit
programme and any other necessary contacts• Reporting requirements