2. Internal Use
Procurement
Procurement involves the process of selecting
vendors, establishing payment terms, strategic
vetting, selection, the negotiation of contracts and
actual purchasing of goods. Procurement is concerned
with acquiring (procuring) all of the goods, services, and
work that is vital to an organization. Procurement is,
essentially, the overarching or umbrella term within which
purchasing can be found.
3. Internal Use
Procurement Objectives
Support operational
requirements
Manage procurement
Process and supply base
efficiently
Develop strong relationships
with other groups
in the organization
Support organizational
goals & obejctives
4. Internal Use
Enhance Reduce Increase
Eliminate Minimize
Competitive
Advantage Cycle Times
Supplier
Loyalty
Workaround
Processes
Rogue Spend
Procurement Objectives
5. Internal Use
Vendor Management Process
Define
Requirements
Search for
Potential Suppliers
Conduct Procurement Tender
Evaluate Tenders and
Select Supplier
Negotiation and Contract
Monitor Performance
Remediate
Exit, Terminate, Renew,
Renegotiate
6. Internal Use
Supplier 01 $20,434
Supplier 02 $32,665
Supplier 03 $24,676
Supplier 04 $12,525
Supplier 05 $23,676
Supplier 06 $20,575
$10
$10
$15
$5
$20
$40
Transitors - $10
Switches - $10
Sensors -$15
Battery - $05
Display - $20
Other -$40
Cost Reduction
Battery
Sensors
Other
Transitors
Display
Switches
0 5 10 15 20 25 30 35 40
Savings
Battery
Sensors
Other
Transitors
Display
Switches
0 10 20 30 40 50 60 70 80 90
Avoidance
Cost Savings & Cost Avoidance
Cost of Purchase Order
5 Year Trend This Year
$ 12.14
Cost Reduction
5 Year Trend This Year
$ 12.14
Cost Savings
5 Year Trend This Year
$ 12.14
Cost Avoidance
5 Year Trend This Year
$ 12.14
Procurement ROI
5 Year Trend This Year
$ 12.14
Battery Display Other Sensor Swiches Transitors
0
10
20
30
40
50
60
70
80
90
100
ROI Benchmark
Procurement ROI
(Cost of Procurement: $50,414)
Top 5 Supplier by Cost Reduction
Supply Chain Management KPI
7. Internal Use
9 Gold Partner
Bronze Partner
100
Savings $95.354
Foregone
savings
$55.354
Rate of Contract Compliance
by Supplier Category
100
400
300
Avg. Procurement Cycle - Supplier Classification
Short
Medium
Long
19%
50%
36%
% of Suppliers
Average Days in Procurement Cycle
Order
Placement
Confirmation Delivery Invoicing
0.6 4.6 1.6
$3.233.665
Total Spending
5-Year Trend
Category &
Top Supplier
# Supplier
Share of Managed Suppliers
by Category
45%
10%
75%
75%
50%
85%
500
500
500
500
500
500
Category 1
Supplier 0050
Category 2
Supplier 0145
Category 3
Supplier 0005
Category 4
Supplier 0305
Category 5
Supplier 0508
Category 6
Supplier 0508
Procurement Suppliers Compliance
50 Silver Partner
500
Supplier
65%
Contracted
45%
Unlisted
8. Internal Use
What
it
is
• Background
• Process
Overview
• Text Here
• Text Here
• Data Analytics
Pack
• Capability
Assessment
• Stakeholder
Questionnaire
• Text Here
• Text Here
• Documentatio
n Review
• Opportunity
Analysis
• Spend Analysis
• Best Practice
Comparison
• Text Here
• Single Council
• Review Analysis
Findings
• Validate
Opportunities
• Draft Strategy
And Roadmap
• Preparation Of
Roadmaps
• Distribution to
Key
Stakeholders
For Review
• Text Here
• PresentationtTo
Senior
• Management
Team
• Text Here
• Text Here
• Brining
Together
Participating
Councils
• Sharing of
Roadmaps,
Issues And
Opportunities
• Identification of
Collaboration
Opportunities
• Regular
Reviews of
Roadmap
Progress
• Tracking at 6,12
and 24 Monthly
Reviews
Who
attends
• All Council
Project
Leaders/ Teams
• Text Here
• Text Here
• Council Project
Team
• Key Council
Stakeholders
• Text Here
Support
• Text Here
• Text Here
• Text Here
• Council Project
Team
• Key Council
Stakeholders
• Text Here
• Council Project
Team
• Key Council
Stakeholders
• PMMS
• Project Leaders
• GM and Senior
Management
Team
• Text Here
• All Council
Project
Leader/Team
• Key Council
Stakeholders
• Text Here
• All Council
Project Team
• Key Council
Stakeholders
Kick-Off
Workshop
Final Program
Workshop
Roadmap
Workshop
Consultant
Analysis
Data
Capture
Roadmap
Review
Senior Mgmt
Presentation
Roadmap
Implementation
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Quarterly Procurement Map
9. Internal Use
What
it
is
• Background
• Process
Overview
• Text Here
• Text Here
• Data Analytics
Pack
• Capability
Assessment
• Stakeholder
Questionnaire
• Text Here
• Text Here
• Documentatio
n Review
• Opportunity
Analysis
• Spend Analysis
• Best Practice
Comparison
• Text Here
• Single Council
• Review Analysis
Findings
• Validate
Opportunities
• Draft Strategy
And Roadmap
• Preparation of
Roadmaps
• Distribution to
Key
Stakeholders
For Review
• Text Here
• Presentation to
Senior
• Management
Team
• Text Here
• Text Here
• Brining
Together
Participating
Councils
• Sharing of
Roadmaps,
Issues And
Opportunities
• Identification of
Collaboration
Opportunities
• Regular
Reviews of
Roadmap
Progress
• Tracking at 6,12
and 24 Monthly
Reviews
Who
attends
• All Council
Project
Leaders/ Teams
• Text Here
• Text Here
• Council Project
Team
• Key Council
Stakeholders
• PMMS Support
• Text Here
• Text Here
• Text Here
• Council Project
Team
• Key Council
Stakeholders
• Text Here
• Council Project
Team
• Key Council
Stakeholders
• Text Here
• Project Leaders
• GM and Senior
Management
Team
• Text Here
• All Council
Project
Leader/Team
• Key Council
Stakeholders
• Text Here
• All Council
Project Team
• Key Council
Stakeholders
Roadmap
Workshop
Consultant
Analysis
Data
Capture
Kick-Off
Workshop
Roadmap
Review
Senior Mgmt
Presentation
Final Program
Workshop
Roadmap
Implementation
Month 6
Month 1 Month 2 Month 3 Month 4 Month 5
Six-Month Procurement Map
10. Internal Use
Strategic Sourcing
This approach to procurement uses structured
and market-oriented processes to collect data,
perform quantitative analyses and apply qualitative
expert opinions. The goal is, to guarantee the best value
for money in purchasing.
11. Internal Use
Procurement vs. Strategic Sourcing
Traditional procurement focuses on
finding the lowest-cost suppliers.
Strategic Sourcing focuses longer-term
relationships with suppliers that offer quality,
value, a willingness to collaborate and the
flexibility to meet changing supply requirements.
12. Internal Use
Purchase Price
Payment to Suppliers
Total Procurement Costs
Demand Drivers
Specifications
Procurement
Processes Inventory
Planning
Internal
Processes
Operational
Practices
Internal
Guidelines &
Procedures
Scope of Strategic Sourcing
13. Internal Use
Establish Partnerships
with Suppliers
Contact with
New Suppliers
Reduce Costs
Share Best Practices
Specifications
Improve
Operating Efficiency
Increase Quality
Standardize Prices
ADVANTAGES OF
STRATEGIC SOURCING
14. Internal Use
This approach to procurement uses
structured and market-oriented processes
to collect data, perform quantitative
analyses, and apply qualitative expert
opinions. The goal is to guarantee the
best value for money in purchasing.
Stages of Strategic Sourcing
1
Procurement
Plan
2
Create
Profile
3
Develop
Strategy
16. Internal Use
Create profile
Develop
strategy
Implementation
Review & improvement
measures
Procurement
plan
Requirements &
evaluation criteria
Supplier selection
& negotiation
Implement
Evaluate & Select Suppliers
Collect and Analyze Data
Strategic Sourcing Process
17. Internal Use
Procurement Plan
Select Team Project Kickoff
Implement
Evaluate & Select Suppliers
Collect and Analyze Data
Strategic Sourcing Process: Step 1
Project Plan
Integrate industry analysis, customer
analysis, supplier analysis
Hold regular team meetings
Define scope
Acquire copies of existing contracts
Determine procurement
expenditures
Create profile
Develop
strategy
Implementation
Review & improvement
measures
Requirements &
evaluation criteria
Supplier selection
& negotiation
Procurement
plan
18. Internal Use
Create Profile
Industry Analysis
Internal Analysis
Create profile
Develop
strategy
Implementation
Review & improvement
measures
Procurement
plan
Requirements &
evaluation criteria
Supplier selection
& negotiation
Implement
Evaluate & Select Suppliers
Collect and Analyze Data
Strategic Sourcing Process: Step 2
Create Total Cost of Ownership Model
19. Internal Use
Create profile
Develop
strategy
Implementation
Review & improvement
measures
Procurement
plan
Requirements &
evaluation criteria
Supplier selection
& negotiation
Implement
Evaluate & Select Suppliers
Collect and Analyze Data
Strategic Sourcing Process: Step 2
Create Profile
Internal Analysis
Compile relevant data and information
and present it to team members and
stakeholders
Collect ideas
Issue detailed data requests to stakeholders
and suppliers
Collect data in a unified document
Reexamine contractual scope,
expenditures and savings
Industry Analysis Create Total Cost of Ownership Model
20. Internal Use
Create profile
Develop
strategy
Implementation
Review & improvement
measures
Procurement
plan
Requirements &
evaluation criteria
Supplier selection
& negotiation
Implement
Evaluate & Select Suppliers
Collect and Analyze Data
Strategic Sourcing Process: Step 2
Create Profile Industry Analysis
Industry Structure
Finances
Trends
Leading Practices
Conclusions about possible
procurement strategies within this
industry
Create Profile
Internal Analysis Create Total Cost of Ownership Model
21. Internal Use
Create profile Create TCO Model
Total Cost of Ownership Model (TCO)
is a model to understand all cost drivers
and cost-reducing approaches.
Divestiture
Supplies
Equipment
Maintenance
Equipment
Costs
Additional
Costs
Additional
Maintenance
Agreements
Acquisition Costs
Create profile
Develop
strategy
Implementation
Review & improvement
measures
Procurement
plan
Requirements &
evaluation criteria
Supplier selection
& negotiation
Implement
Evaluate & Select Suppliers
Collect and Analyze Data
Industry Analysis
Internal Analysis
Strategic Sourcing Process: Step 2
22. Internal Use
Develop Strategy
Cost Forecast
Create profile
Develop
strategy
Implementation
Review & improvement
measures
Procurement
plan
Requirements &
evaluation criteria
Supplier selection
& negotiation
Implement
Evaluate & Select Suppliers
Collect and Analyze Data
Strategic Sourcing Process: Step 3
Develop and Summarize Strategy
23. Internal Use
Develop Strategy
Create profile
Develop
strategy
Implementation
Review & improvement
measures
Procurement
plan
Requirements &
evaluation criteria
Supplier selection
& negotiation
Implement
Evaluate & Select Suppliers
Collect and Analyze Data
Strategic Sourcing Process: Step 3
Develop and Summarize Strategy
Cost Forecast
Connect TCO costs with annual sales to create a yearly cost
forecast. This can later be compared with established savings.
Annual Equipment Costs 800,000
Example:
Annual Maintenance 150,000
Supplies 20,000
Divestiture 5,000
TCO 543
Sales Volume 2,500
Cost Forecast (= TCO * Sales Volume) 1,357,500
24. Internal Use
Develop Strategy Develop and Summarize Strategy
Review previous analyses, decide on a suitable strategy
and identify required tools.
Low cost, but of operational importance
Availability & Delivery Capacity
TCO
Quality, Innovation & Service
Mass-produced items
Discounts & Other Savings
High cost, but operationally unimportant
Alternatives
Operational
Importance
Cost
Develop Strategy
Cost Forecast
Create profile
Develop
strategy
Implementation
Review & improvement
measures
Procurement
plan
Requirements &
evaluation criteria
Supplier selection
& negotiation
Implement
Evaluate & Select Suppliers
Collect and Analyze Data
Strategic Sourcing Process: Step 3
25. Internal Use
Requirements & Evaluation Criteria
Create profile
Develop
strategy
Implementation
Review & improvement
measures
Procurement
plan
Requirements &
evaluation criteria
Supplier selection
& negotiation
Implement
Evaluate & Select Suppliers
Collect and Analyze Data
Strategic Sourcing Process: Step 4
Examples of Evaluation Criteria Importance Supplier A Supplier B
(1-10) Evaluation (1-6) Result (=Importance*Evaluation) Evaluation (1-6) Result (=Importance*Evaluation)
Total unit cost 10 2 20 5 50
Delivery time 9 4 36 3 27
Service 7 5 35 2 14
Quality 7 6 42 3 21
Technology/innovation 5 4 20 1 5
Transparency 2 3 6 1 2
Timeliness 5 4 20 2 10
Total 172 Total 129
26. Internal Use
Supplier Selection & Negotiation
Create profile
Develop
strategy
Implementation
Review & improvement
measures
Procurement
plan
Requirements &
evaluation criteria
Supplier selection
& negotiation
Implement
Evaluate & Select Suppliers
Collect and Analyze Data
Strategic Sourcing Process: Step 5
Goal:
The overall best offer
Bottom Line:
The minimum requirement
Change of strategy: Options in case minimum
requirements aren’t met
Wants
Needs
Alternatives
What do I want to achieve?
What do I need to achieve?
What are the best alternatives?
The key to successful negotiations is preparation. The following questions should be resolved:
27. Internal Use
Implementation
Identify Savings
Create profile
Develop
strategy
Implementation
Review & improvement
measures
Procurement
plan
Requirements &
evaluation criteria
Supplier selection
& negotiation
Implement
Evaluate & Select Suppliers
Collect and Analyze Data
Strategic Sourcing Process: Step 6
Implementation Plan
28. Internal Use
Implementation
Create profile
Develop
strategy
Implementation
Review & improvement
measures
Procurement
plan
Requirements &
evaluation criteria
Supplier selection
& negotiation
Implement
Evaluate & Select Suppliers
Collect and Analyze Data
Strategic Sourcing Process: Step 6
Implementation Plan
Identify Savings
Variance Analysis
Cost
Forecast
(Step 2)
Actual
Determined
Costs
(Step 5)
Savings
- =
29. Internal Use
Implementation
Identify Savings
Create profile
Develop
strategy
Implementation
Review & improvement
measures
Procurement
plan
Requirements &
evaluation criteria
Supplier selection
& negotiation
Implement
Evaluate & Select Suppliers
Collect and Analyze Data
Strategic Sourcing Process: Step 6
Implementation Plan
The implementation plan contains all the necessary
activities to successfully implement the contract.
Work Plan Communication
Strategy
Benchmarking
