Procurement Organization Redesign – Setting Up For Strategic Cost Savings Drive

A major industrial gas company’s North American Procurement Organization transformation journey highlights the importance of proper alignment to achieve significant and sustainable results. A major industrial gas company’s North American business aimed to significantly increase savings from their strategic procurement activities.  The company understood that in order to achieve their goals, they needed to re-align and optimize the Procurement Organization to fully harness its capabilities.  They hired a small team of consultants led by OnDemand Professional Network member Steve Strickman to significantly upgrade the function. Situation Overview: The company had a centralized transactional procurement team but lacked spend transparency and strategic sourcing skills.   Procurement was not seen as a value-added leader that could bring critical Sourcing and Cost Management expertise, which caused fragmented and localized execution of procurement activities across the company.  Driven by the new cost reduction mandate Senior Management’s goal was to upgrade Strategic Procurement across-the-board by building out a new organizational structure and strengthening its capabilities.  Approach: The Consulting Team first performed an assessment of the Procurement function, and the company graded poorly along seven high-level Procurement “success dimensions”:  Change readiness/willingnessStaff motivation and empowermentStructural alignmentSpend transparencyMeasurement and reportingBusiness process managementProcurement data capture and tools Understanding the current state was important in the successful re-design of the organization.  Among other things, the Team uncovered significant “Shadow Procurement” activity – procurement being executed by non-Procurement staff – that was causing significant downgrade in opportunity to save money and increased cost by excessive use of personnel resources (several dozen FTEs). The approach followed a proven concept – Current State Analysis/Gap Analysis/Future State Design across People, Process and Technology in...

Drive Explosive Growth With Comprehensive Business Assessment

An Independent Business Assessment presents an often overlooked opportunity to drive dramatic value creation and profitable growth.  Given the ever-increasing pace of change driven by enabling technologies and emerging risks such as pandemics, it is more essential than ever for businesses to drive their offerings and performance to the highest possible levels.  The Assessment can be done quickly (typically 4 to 5 weeks for small to medium sized businesses), does not require a significant resource commitment and delivers prioritized opportunities to improve business performance and mitigate risk.  This comprehensive Assessment covers Business Strategy, Deployment, Value Stream Core and Support Processes, Organization Design, Competencies and Performance, and Hard Assets (Footprint, Systems, Facilities, Equipment). Below are several areas where opportunities are often found: Business Strategy, Plan and Deployment – maintains a realistic, actionable Strategy Deployment with demonstrates progress on plan.Management Operating System – has effective PDCA (Plan-Do-Check-Act) based Business Management System with effective design of KPIs, reports, meetings to plan and achieve the business annual and strategic goals.Value Stream Best Practice Processes – standard work is documented, deployed and managed for compliance, effectiveness and continual improvementHigh Performing Team Culture – maintains and demonstrates progress to plan on an Organization Development Plan driven by Business Strategy Jim Schoen, a member of our OnDemand Professional Network has has completed many assessments during his Executive and Consulting career and has a structured approach for delivering the best value creation opportunities.  His recent work is highlighted in the Case Study below. CASE STUDY – $25M Consumer Packaged Goods (Cannabis) Supplier The Venture Capital Board of a $5M Cannabis start-up asked for a comprehensive business assessment...

Strategic Sourcing Can Help to Realign IT Cost Structure After Divestiture

SITUATION OVERVIEW The US arm of a Japanese multinational Consumer Electronics company required Strategic Sourcing support to tailor its centralized IT organization’s Service costs to match its new revenue structure after a key business unit (BU) exited the US market.  Due to the shared nature of the IT organization, initial IT cost reductions accompanying the BU exit were not proportional with the revenue reduction.  The situation caused a ‘stranded cost’ issue that impacted the remaining BUs profitability going-forward.  This issue was made more difficult by an IT expense allocation methodology that was overly complex. The company engaged Tony Raimundo, a member of the OnDemand Professional Network with Strategic Sourcing / IT Category Expertise and an extensive IT Operations background, to participate as a member of a steering committee with the CIO, CFO and representatives from the going forward BUs to address the ‘stranded cost’ issue.  The team was given 90 days to consider all options including outsourcing the IT function. DISCOVERY & EVALUATION After establishing a working team that included the CIO, the Finance team, and representatives from each BU, business requirements were defined and roles & responsibilities were communicated to the project team.  The team agreed that the following deliverables would be required. Articulation of a complete IT Service Catalog illustrating delivery costs for each serviceCommitments from BUs for IT Services & volumeDetailed Sourcing plan (including a detailed RFI document) to solicit proposals from IT Outsource (ITO) providers The team assembled internal & external data and analyzed IT spend for the previous 18 months clearly mapping relationships of costs to existing Services in the existing IT cost allocation...

Tail Spend Focus Can Deliver Significant Savings

Ever since Peter Drucker made his famous statement about procurement being the last frontier of finding corporate efficiency in 1982, companies of all sizes have embarked on implementing procurement enhancements as a way to control and reduce cost.  In nearly 50 years of procurement focus, one portion of vendor cost has gotten very little attention – Tail Spend, broadly speaking 20% of the overall spend that comes from 80% of vendors.  While Tail Spend is something that always will be present in the cost structure of any organization, below are some examples where Tail Spend represents inefficiency: Using local vendors for services when there are existing agreements with national vendors, e.g. housekeeping servicesUsing software services specifically for individual business functions when there are enterprise level services available, e.g. business intelligenceUsing services that are not required or are already provided by existing vendors, e.g. certifications, marketing research, project managementRogue spend, not approved under any budget Because of the relatively small amount of spend associated with any individual vendor, Tail Spend can escape attention from finance and procurement functions for a long time.  Paul Dhaliwal, a member of our OnDemand Professional Network has developed a systematic approach to identify suspect vendors within tail spend that may fit the criteria outlined above. This approach enables rapid identification of these vendors and take appropriate action in collaboration with individual spend owners.  Typical disposition off these vendors includes immediate shut-off of their services, transition of their services to existing vendors, or consolidation with a national vendor.  Tail Spend initiatives can yield cost reduction totaling 2% – 5% of overall total indirect cost and can...

Marketing Agency Sourcing – F100 Global Retailer Case Study

F100 Global Retailer was looking to source Agency of Record (AOR) in their largest division (Latin America). The AOR contracts were expiring, and client wanted to source a new agency for online and offline requirements. They had not replaced their agencies in over 3 years – the annual current spend of $67MM in was divided among 11 incumbent agencies. The current fee structure thought to be high (proven correct with savings of 50%), and the rebates were low (only 5% – the marketing team was convinced this was low given the spend size and knowledge of competition). Procurement and Marketing had never worked together in the past and Marketing viewed Procurement with distrust and lacking in the subject matter expertise needed to support this area. To build a common understanding, an outside consultant, Alan Rice facilitated several workshops to share knowledge between the two departments. Marketing learned how the Strategic Sourcing process worked, along with examples from other internal projects and the consultant’s experience with other external projects. Additionally, one-on-one discussions were held with the Chief Marketing Officer and his direct reports to establish a strong relationship and build a bridge as a trusted advisor. APPROACH After establishing a cross-functional team from Marketing, Finance and Procurement, business requirements were defined, and roles & responsibilities were communicated to the project team. The team assembled internal & external data and analyzed marketing spend over the previous 2 years, and the projected media budgets for the coming year. Agreed upon sourcing strategy included an RFI round, potentially 2 rounds of RFPs and potentially a final Reverse Auction round. RFI Round – RFI...