Oriflame Purchasing Management WorkshopModule 6 – Sourcing Strategy
• Marketing & Sourcing Strategy• Leverage Opportunities• IP Management• Standardisation• e Commerce / e Auction
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• Put together negotiation plans & channels.
• Ensure that the channel plans have been thoroughly prepared.
• Ensure a CDA is in place so that there is no market leakage of information.
• Analyse & evaluate completed RFQ’s
• Use/modify evaluation criteria
• Get key stakeholder input
• Discuss and develop Oriflame needs and wants.
• Discuss and agree the different Oriflame Negotiation roles & styles.
• Create the Oriflame
negotiation team (never alone!! and typically 3-4 people)
• Decide on negotiation team roles.
• Supplier Selection
• Legal Supply and Service level agreement and Total value plan,
• Performance Measures
• Supplier and Oriflame relationship management
• Communicate of results on a need to know basis.
Plan the Channels
& new Oriflame
Agreement
Plan the Channels
& new Oriflame
Agreement
DevelopNegotiation
Strategy
DevelopNegotiation
Strategy
Post Negotiation
Actions
Post Negotiation
Actions
DevelopNegotiation
Goals
DevelopNegotiation
Goals
Negotiate / Select the Suppliers
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Oriflame Customer
Needs
Oriflame Supply Side Value
Oriflame Sourcing
Oriflame Transactions
OrderPlacing
OrderNegotiation
Oriflame Sourcing
Supplier RelationshipManagement
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The Bow-Tie Relationship
Oriflame Supplier Sales Person
Oriflame Buyer
Supplier
• Management• Sales• Marketing• Operations• R&D • Supply Chain • Procurement
Oriflame
• Management• Sales• Marketing• Operations• R&D • Supply Chain • Procurement
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The Diamond Relationship
• Management• Sales• Marketing• Operations• R&D • Supply Chain • Procurement
• Management• Sales• Marketing• Operations• R&D • Supply Chain • Procurement
Oriflame Key Account Management
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Strategic Focus
Oriflame Relationship Management
Joint Development
Senior
Relationships
Joint Ventures
Supply Chain
Integration
Global AccountManagement
Customer
Service Joint Mark
eting
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Leveragepower of Oriflame suppliers
OriflameMarketLeverage
Threat ofNew
Oriflame Suppliers
Substituteproducts
or services
Oriflame Business
& Competitive Environment
Porter’s Five Competitive Forces
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Brand Management
Marketing champion the brand, and determine product and price strategy.
• Innovation pricing• Market skimming pricing strategy• Price elasticity [revenue versus volume]
Differentiated brands are premium priced – some relates to innovation cost.
• Marketing preserve “brand equity”• Create Market segments – same product: different price
"Price is a function of perceived value and emotion". "Price is a function of perceived value and emotion". The heart is 50x more electrical and 1000x more The heart is 50x more electrical and 1000x more
electromagnetic than the brain. electromagnetic than the brain. (e.g. Coca Cola, Virgin)(e.g. Coca Cola, Virgin)
"Price is a function of perceived value and emotion". "Price is a function of perceived value and emotion". The heart is 50x more electrical and 1000x more The heart is 50x more electrical and 1000x more
electromagnetic than the brain. electromagnetic than the brain. (e.g. Coca Cola, Virgin)(e.g. Coca Cola, Virgin)
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Sales Penetration & Exploitation
• Look to exploit the lack of internal communication and integrated supplier strategies
• Gain knowledge through telesales and engaging the over-communicators.
• Penetrate poor security and easy site access
• Use switchboard, networks, direct calls to locate key influencers & decision makers
• Try to avoid Procurement involvement until as late as possible
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Oriflame Penetration & Access
Board & CEO
R&D EngineeringSales
& MarketingBusiness
DevelopmentQuality Business Centre
I.T. Legal Finance
Direct
into
funct
ional
Direct
into
funct
ional
head or team m
embers
head or team m
embers
Top DownTop Down
Bottom UpBottom Up
How can P
urchasin
g main
tain
How can P
urchasin
g main
tain
levera
ge giv
en wid
espre
ad
levera
ge giv
en wid
espre
ad
penetratio
n and a
ccess
?
penetratio
n and a
ccess
?
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StrategicCritical
(Risk & Value)
Commoditisation & Leverage
ConflictSupplier tries toextract premium
pricing and controlsOriflame
ConflictOriflame exploits
relationshipand tries to
commoditise a specialty
Leverage or Alignment?
PerfectAlignment
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DOGS PROBLEM CHILDREN
CASH COWS STARS
PR
OD
UC
T V
OLU
ME
PR
OD
UC
T V
OLU
ME
PRODUCT PROFITPRODUCT PROFIT
Leveraging Product Types
KeyKeyLeverageLeverage
TypeType
KeyKeyLeverageLeverage
TypeType
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TIME (CAN BE MONTHS)TIME (CAN BE MONTHS)
0%
PR
OD
UC
T M
AR
KET S
HA
RE
PR
OD
UC
T M
AR
KET S
HA
RE
LAUNCHLAUNCH GROWTHGROWTH STAGNATIONSTAGNATION DECAYDECAY
1990’s1990’s
2000’s2000’s
50% INNOVATION INNOVATION
Leveraging Product Life Cycles
KeyKeyLeverageLeverage
TimeTime
KeyKeyLeverageLeverage
TimeTime
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Leveraging the Supply Side
Bargaining Power & LeverageBargaining Power & Leverage
Su
pp
ly S
ide V
alu
e d
elivery
(£)
Su
pp
ly S
ide V
alu
e d
elivery
(£)
• Standard Costing
• Pricing, Market Structures & Agreements
• Managing Supplier Procurement Costs
• Collaborative vs. Confrontational Leverage
• Supplier Development – Value Stream & Lean
• Managing Supplier Development Plans
• Supplier Performance Assessment
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The Competitive Box
Known / Unknown suppliers operating in traditional
value add ways with the cosmetics
customer base and competing for market share
Oriflame & Oriflame Customers
Conventional valuepropositions
New Supplier New Business Model
Superior
value
Superior
value
Three Choices for Oriflame
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Intellectual Property Management
• Adequate protection for Customer and Internal I.P.
• Controlled supplier access to sensitive projects, parts of the plant etc
• CDA from the beginning
• Joint Development Agreement with specifically named project members
• Joint Exploitation Agreement
• Potential licence fees and royalty income from all joint supplier inventions
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This is the second customer who has talked to me about this great new product opportunity and shared their expert knowledge.I'll even try to get a photo of the product from them..,
This is the second customer who has talked to me about this great new product opportunity and shared their expert knowledge.I'll even try to get a photo of the product from them..,
I have a problem here in Oriflame. Let me talk to you all about it, and what I am doing with other suppliers.
Intellectual Property Management
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" I think I've got something that could really help Oriflame. We've just invented it and filed for a patent...
" I think I've got something that could really help Oriflame. We've just invented it and filed for a patent...
Patentin the name of thesupplier
Patentin the name of thesupplier
That’s really good; it is just
like we wanted. I did not realise
that you had got a patent on it
though ! Could I have a sample
and price?
Intellectual Property Management
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Oriflame will pay top dollar for my product but I'll give a discount which they will value. There are other development projects I want to exploit
Oriflame will pay top dollar for my product but I'll give a discount which they will value. There are other development projects I want to exploit
Intellectual Property Management
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Standardisation and Rationalisation
• Many companies suffer from the "cost of complexity"
– historic specifications – obsolescent specifications.
• This in turn can lead to expensive set-up costs
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Standardisation
• 80 % of the cost is built into the product at the design stage
• If designers do not build in commonality and standard products/components then costs increase
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Specials vs. Commodity
1. What you think is special may not be special
2. Suppliers will try and create “special” to extract value
3. Suppliers will try and sell to your people and force you to specify “special”
4. You try and create “commodities” but they will want “specials”
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Current Supplier Strategy
Value Cost Avoidance
(Purchase Cost) (Std Cost Vs.Target)
WARP & WEFT (Euro) 1 1.65 165,000 -680
TAFENNY 13 0.994 342,745 -6,975
BCM (BCMKE) 3 0.79 237,000 14,580
WECKERLE SWISS 12 0.76 1,429,986 -5,767
FARBERON LIMITED 1 0.722 36,080 10,805
Prodene Klint 1 0.56 161,988 810
SUREFIL 4 0.54 270,000 16,650
SILVER OAK 14 0.495 3,527,180 190,047
Interspray 2 0.479 507,179 79,199
COLEP POSLKA SP ZOO 1 0.415 996,000 155,520
PROFICOS 11 0.407 586,494 107,538
OPP_ 7 0.374 1,596,260 322,250
Nordium Oriflame 3 0.343 901,395 82,648
GAMMA 1 0.31 93,000 1,770
RT Sourcing (RCHM1) 2 0.271 234,361 -4,257
Grand Total 76 0.616 11,084,667 964,137
Business Awarded to Fillers - Sort by Average Cost
SUPPLIER # Products Average Cost
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“Negotiation” Choices
• Over the phone
• Buy “On Line” – Sellers Catalogue
• Buy “On Line” – Buyers Catalogue
• E Commerce – Auctions, e Tenders, Portals
Indirect Channel
Direct Channel
OR
• Face to Face – Negotiation
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Negotiation – e Commerce
e Commerce Definition
e – Tools
Tool Comparison table
Reverse Auction - Positives and Negatives
Logistics and Freight example
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e–Commerce Definitions
• Use of the Internet, ERP or online tools in order to source products and services across global markets. market
• A Sourcing tactic, technique and tool and not a strategy
• Covers applications such as reverse auctions, electronic tenders and purchasing portals
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Reverse Auctions
• Live and interactive bidding online that makes use of ceiling prices & bid increments so that business finally goes to the lowest bidder
Electronic Sourcing & Tenders
• Uses the traditional tender process against an RFQ but makes use of the Internet to manage projects and obtain quotations. Far more effective than traditional paper methods.
Portals
• Internet / Intranet / Extranet site (portal) where user needs are positioned and supplier bids & information is electronically managed as part of the Business Sourcing process.
e-Tools
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Market Factor Reverse Auction Tender Negotiation
Supplier Relationship Leverage Strategic/Critical Critical
Supply Demand Balance Long Balanced Short
Type Commodity Speciality Special
Approvals Many Few One or Two
Globality Global Site to Global Regional
Large Business Turnover Widely Used Common Increasingly rare
Product Approval Easy Difficult Hard
Pricing Control Buyers Favour Neutral Sellers
e Tool Applications
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• Efficient (no lunch & lingo)
• Global Reach
• Aggressive bidding
• Transparent
• Transactionally efficient
e Auction – Positives
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– Requires Preparation
– Can be Costly (ROI)
– Need to integrate / involve IT and ERP
– Education and training (Buyers and Suppliers)
– Set Up time (people, ceiling prices & communication timings, bid size decreases, lot sizes, auction duration & overtime periods, single or nested, visibility & transparency)
– Final Allocation of business (Goes to the lowest price bidder you may not like)
e Auction Negatives
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• Procuri
• Big 5 Consultants – eg PwC
• SAP / Oracle
• E Bay
• Achilles
• Surestock
• etc etc...
e Auction Providers
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Logistics and Freight (Sea, Road, Couriers) is a good category for reverse auctions.
• Overcapacity leading to constant downward price pressure
• Significant options to destinations
• Many well qualified suppliers
• Non Strategic Supplier relationships
• Easy to assemble specifications and benchmarks
Logistics Example
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Questions ?