Success Stories: Engagements

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Transforming Procurement Organization into Strategic Arm


Procurement Intelligence & Analytics: ECPO Case Study

Background

EmpoweringCPO works with clients of different sizes, some of them are Fortune 300 companies based in North America. One of our clients is $12 billion Company in Food & Beverage segment with an annual spend of $3.5 billion. We support their procurement organization for both Direct as well as Indirect goods and services.Our association started in January, 2012 and since then it has strengthened by leaps and bounds. EmpoweringCPO is considered an integral part of their procurement team;we have extensively supported them with our Procurement Intelligence and Analytics services. As is true, Procurement Intelligence & Analytics is the core ingredient for successful execution of Strategic Sourcing projects. Procurement Intelligence & Analytics is also at the heart of execution of assignments like – Spend Analysis, Opportunity Assessment, Supplier Diversity, Sustainable Procurement, Supplier Risk Management and Best Cost Country Sourcing.

The engagement is aimed at supporting the client onsite procurement team achieve its goals and objectives. The key result areas of our client procurement organization includes:

  • Achieving annual savings of $15 million
  • Supporting client group with Market Intelligence & Supplier Research
  • Category management and Compliance Management so as to strengthen the supply chain
  • Managing supplier risk on an ongoing basis
  • Implementing supplier diversity programs
  • Advancing sustainability goals

Client Procurement Organization Structure:

The procurement team of our client is divided into Direct and Indirect team led by senior management personnel (Associate Vice President – Sourcing & Supply) reporting into CPO (Vice President – Sourcing & Supply). These teams are further divided based on spend groups. Category Managers (Manager – Sourcing & Supply) are responsible for their own set of spend groups.The Category Managers are also supported by Buyers, Procurement Analyst and Procurement Support staff. Procurement Support staff is responsible for all transactional activities involved in procure to pay process. Overall, as a team,they are responsible for managing, sourcing and achieving the KRA listed above.

Our client currently has following 12 Groups (Level 1) as per spend taxonomy and each group is further divided into family, category and commodity. Commodity is the last level of classification and represents unique set of vendors.

Capital MRO/ Manufacturing Services Professional Services Direct Material
Contract Services General Services & Supplies Marketing Materials Packaging
Energy & Utilities IT/ Telecom Marketing Services Logistics

What were the challenges?

  • The volume of suppliers, categories and the Spend managed by each team was huge and hence this did not allow them to devote time to strategic activities. The way the procurement organization was structured the team eventually was always overloaded and sucked into “urgent” and “un-important” activities rather than focusing on “strategic” and “important” activities.
  • Categories were taken up for sourcing based on request from client groups, either because the category was new or the incumbent vendor was under performing and had failed.
  • Since the sourcing projects were not planned, in most of the cases the timelines were tight, so due diligence in terms of process was never adopted.
  • Critical stages of the sourcing process were skipped and hence the results were always sub-optimal.
  • Benefits of globalization were not reaped; principles of “Best Cost Country Sourcing” were not adopted as the experience earlier was not fruitful. The suppliers chosen from China & India had failed in the past.
  • Supplier failure rate because of performance and other reasons were very high as proper risk management plan and strategy was not implemented.
  • For “small spend” and “first time” categories the negotiation power was never leveraged as the number of suppliers identified and evaluated was low. (Sometimes just one).
  • Leading companies for specific categories were not known nor invited and hence the quality of suppliers or RFP participants was also inferior.
  • Data analysis required as part of ongoing category management as well as part of sourcing projects was lacking because of bandwidth availability.
  • The supplier diversity program was not successful as an appropriate strategy was not formulated. Also the procurement team was unable to track performance of their diversity goals. As a result they were lagging on supplier diversity metrics as compared to their competitors.
  • There was plenty of scope for improvement when it came to their annual Corporate Social Responsibility Report (CSR Report); the principles of sustainable procurement were yet to be embraced.

What did we do?

After the engagement with EmpoweringCPO started, the first month was all about understanding the procurement organization at client location and also the tools and systems adopted. The experience of the onsite team in the last few years, the type of initiatives and the results achieved were discussed. After elaborate discussion EmpoweringCPO team realized the current situation and the challenges faced by the onsite team. Accordingly to overcome the difficulties an appropriate solution was designed and proposed. The solution included deployment of 4 highly qualified offsite resources. The client was asked to participate in the selection process; the shortlisted candidates were finalized after approval from the client. All four resources had good analytical skills and were from leading Business Schools. The cherry on top was that all resources also had multiple years of procurement and sourcing skills.

The spend groups were divided into four parts and each resource was responsible for set of groups and hence also linked to set of onsite category managers. The offsite EmpoweringCPO resources were responsible for mirroring the KRA’s of onsite category managers. The KRA’s included quantifiable numbers along parameters like annual savings, increase in supplier diversity, risk management goals and sustainable procurement goals.

To ensure that the offsite model was robust and dependable proper reporting methodology was formulated. Weekly video calls with onsite teams were scheduled so as to collect feedback on an on-going basis, provide update on various categories and discuss upcoming categories & projects in the pipeline.

We helped our client with executing all their strategies to achieve their KRA, the heart of our offering was Procurement Market Intelligence & Analytics. As such Procurement Intelligence & Analytics is not a standalone service and plays an important role in executing all strategies like Spend Analysis & Opportunity Assessment, Strategic Sourcing, Best Cost Sourcing Country, Supplier Diversity, Sustainable Procurement and Supplier Risk Management.

In last three years we have supported onsite category managers by providing market intelligence for approximately 300 different categories of varied spend levels. The market intelligence was in areas like finding suppliers, identifying cost drivers, supplier industry trends in terms of growth, understanding competitive rivalry among industry participants and across many other different factors. Our deliverables were helpful to them in many ways like day to day decision making, helping them reduce risk, increase savings and to discover new suppliers.

We also supported our client with data crunching and analysis related assignments. Most of them were part of strategic sourcing process while some of them were more about day to day category management. Some of the examples are Cost Modeling, Baseline Preparation, RFP Pricing Worksheet Preparation, Savings Calculation, TCO Analysis, and Compliance Model Preparation. All these deliverables were aimed at supporting category managers to take informed decision instead of relying on intuitions.

Spend Analysis & Opportunity Assessment:

One of the main KRA was savings and hence from the second month onwards, we started with Spend Analysis and Opportunity Assessment. The last 2 year datapulled from various tools and systems as well as from the main ERP system was analyzed. The taxonomy was reviewed and the spend was reclassified so that the last level would represent unique set of suppliers, which would form sourceable buckets and would represent an RFP. After thorough analysis, the offsite team also reviewed all the categories which were more than $500,000 in annual spend. EmpoweringCPO used its proprietary opportunity assessment framework to analyze and research these categories; the categories were plotted on a graph representing “Ease of Sourcing” versus “Savings Potential”. The end result was a 3 year wave plan, with 6 waves of 6 month each. Each wave included set of categories to be taken up for sourcing.

Strategic Sourcing:

After submission of the Opportunity Assessment report the categories were taken up in sets of 5-6 categories based on the Wave Plan. EmpoweringCPO Strategic Sourcing framework was adopted to achieve savings for these categories. Thorough market research and data analysis were the bedrock of our success in achieving good savings results. In the last 3 years we have executed more than 35 categories across various spend groups. The spend size of these categories have ranged between minimum of $1 MM to maximum of $60 MM. The average savings have been around 5%.

Best Cost Country Sourcing:

As part of Opportunity Assessment, we also identified categories which were right candidates for Best Cost Country Sourcing. The categories were finalized after evaluating them based on “Supply Market” and “Product” characteristics. In the last 3 years, four categories were successfully sourced, two of them from India and others from China. The project took around 11 months because of stringent requirements related to approval from regulatory authorities. For all the four categories the savings were very high in the range of 20% -35%.

Supplier Risk Management:

To support our client with preparing and implementing Supplier Risk Management plan we started with identifying the main focus categories. The first step was to prepare category positioning matrix, we prepared a bubble chart for each spend group, and categories were plotted on a graph representing Business Impact versus Supplier Risk. EmpoweringCPO proprietary framework was used to prepare, classify and plot each category. As a next step, based on client feedback, we prepared risk management plan where in all vendors in the specific category were researched and evaluated. Our focus initially was high spend categories where the number of supplier was only one per category. We prepared mitigation plan and identified alternate vendors that can be included in the mix. For key categories in addition to financial analysis, to ascertain stability the vendors were also researched in terms of changes in management team, violations related to environmental laws, trade sanctions, occupational safety and health regulations etc.

Sustainable Procurement:

During our engagement with our client, Sustainable Procurement was identified as one of the focus area to enhance brand reputation. To support our client we proposed and implemented programs to that effect. We identified categories which can be replaced with suppliers more efficient in terms of sustainability. Example: we were able to identify vendors for SBS paperboard who were willing to use wood pulp with high content of vegetable refuse and were able to provide similar properties. We were also able to find suppliers that were using recycled material and eco-friendly material. In addition research was conducted on an ongoing basis to update performance of suppliers in terms of sustainability credentials. Our effort yielded good results and in the last three years the CSR report improved and efforts were commended by investors.

Supplier Diversity:

After one year of our engagement with our client, scope of work was increased to also include implementation of supplier diversity program. This was important as diverse supplier pool is considered a major competitive advantage and a powerful business tool. To begin with, as a first step, we cleaned the current spend data by reviewing and correcting the minority indicator for all the 4000 vendors, this allowed us to calculate the “As is” status in terms of percentage spend with minority vendors. After the baseline was established, we started the implementation plan. We leveraged our strong Strategic Sourcing capabilities to achieve this goal. Strategic Sourcing initiatives aimed at cost savings are the best vehicle to identify opportunities and increase spend with minority vendors. To achieve results along with the leading vendors we also helped them identify minority vendors for all the categories that were sourced. Our focus was the initial few steps of strategic sourcing process, as these are very critical to the success of any Supplier Diversity program.


Ongoing Engagement Mechanism:

To ensure the engagement is effective on an ongoing basis, mutually agreed score cards are adopted with following parameters:

  • Quality of Deliverable
  • Agreed Upon Turn Around Time
  • Innovative and Proactive Insights
  • Quality of Interactions
  • Savings Attributable to EmpoweringCPO Efforts

All the onsite team members are asked to rate EmpoweringCPO every 6 months, and in addition to the rating they are also asked to comment on following two areas:

  • Strengths of EmpoweringCPO
  • EmpoweringCPO’s main area of improvement

Weekly report format is also agreed to update all team members on regular basis, the report is submitted to all Category Managers on every Friday listing following fields (columns):

  • List of active projects
  • Onsite Stake Holder or Project Lead
  • Break up of hours for the current week and planned for the next 4 weeks across all projects
  • Description of Deliverable submitted in the current week.
  • Project stage (Ongoing, Completed, To Be Initiated)
  • Category Annual Spend/ Savings Achieved
  • Number of Deliverable submitted so far the category/ project

What were the end results? At the end of three years,we were able to transform the Procurement Organization of our client into a truly strategic arm.

  • At the end of three years,we were able to transform the Procurement Organization of our client into a truly strategic arm.
  • Procurement organization was able to effectively pursue Best Cost Country Sourcing strategy and this resulted in drastic savings on some of the key direct categories.
  • We have been providing Procurement Business Intelligence and Procurement Analytics services, this has improved decision making in areas related to category management as earlier the decision making was more about relying on intuition.
  • The supplier risk management strategy was formulated for all high impact categories and is being monitored on an ongoing basis. The disruption to the supply chain reduced drastically in the last three years.
  • Sustainable Procurement helped the company strengthen their CSR report; this was much appreciated by stake holders and investors. There has been significant improvement in the brand value.
  • Supplier Diversity programs were very successful and spend with diversity vendors increased from 4% at the end of 2011 to 11% at the end of 2014. Their contribution to the society was highly commended and this positively impacted their sales for key products and brands.

Success Stories – Category Specific

Capital Energy & Utilities Direct Materials
Contract Services General Services and Supplies IT/Telecom
Marketing Materials Marketing Services Professional Services
Packaging Logistics MRO/Manufacturing Services

EmpoweringCPO is one of the leading sourcing companies in USA, contact us to receive category specific case studies and to know about our procurement consulting services.

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