Strategic purchases

Service Background

Key recommendations from a preliminary assessment include the implementation of an S&OP process and development and strategic sourcing

Within strategic sourcing the project identified the need for analysis of direct and indirect spend and development of a sourcing strategy and agenda to drive cost improvements, leveraging purchasing power across key commodities and services

In this context, our service seeks to move forward in a supply chain transformational path, in designing and implementing a S&OP process closing the gaps to best practices identified, building on ValorX knowledge and experience accumulated during diagnostic phase and leveraging ValorX capabilities and know-how in implementing core SC processes such as S&OP and strategic sourcing

Service OBJECTIVE

• Develop understanding of purchasing spend for materials and indirect categories, defining commodity strategies and sourcing priorities for each

• Design a strategic sourcing process and procedures to support more efficiently current and future operations

Service SCOPE

Processes:

• Strategic sourcing - the scope of this project is limited to categories groups that represents 80% of total materials, indirect and capital purchases, max of 12 categories

Service APPROACH

The strategic sourcing project is to have a structured approach broken into three main steps.

We estimate that Step 1 will take approximately 14 weeks to complete

Step 1 – Create and Prioritize Category Profile

Defining category groups to organize strategic sourcing accordingly with the client’s total spend

• • • Understand at a high level what is purchased

    • Group spend items into categories/ review accuracy of categorization

    • Categorize spend through use of category trees

360 degree assessment of category requirements

• • • Understand what is purchased

    • Understand how it’s used in the business

    • Which categories would have potential to be purchased globally

Understand and document category constraints

• • • Three types – internal, external and regulatory

    • Contracts and purchase commitments

    • Qualification efforts

    • Regulatory requirements (if any)

    • Category evolution and new product introductions

DELIVERABLES

• • • Spend analysis

    • Category groups trees

    • Multidimensional database of spend

    • Ranking of items and suppliers

    • Total cost analyses

    • Documentation of constraints

    • Potential categories

Step 2 – Assess Marketplace

Perform value chain analysis of most relevant categories

• Understand key steps and how they add value or cost

• Identify inputs to determine cost drivers

Conduct supplier industry analysis of most relevant categories

• Examine industry rivalry position

• Analyze market forces at work

• Research global market to provide valuable insights

Determine appropriate suppliers

• Identify potential suppliers and geographies covered

• Segment suppliers and create evaluation criteria

• Develop qualified supply list

Design Standard Operating Procedures and prepare training of the client team

DELIVERABLES

• • • Market place assessment, including value chains analysis, supplier industry analysis

    • Potential suppliers considering global and local perspectives within 80% rule of spend

    • SOPs for Marketplace Assessment and the client central purchasing preparation

Step 3 – Develop Sourcing Strategies

Evaluate potential sourcing strategies and form opportunity hypothesis

• Suppliers – optimize supply base, drive process improvements

• Product – re-design supply chain, rationalize product specifications

• Volume –manage demand, consolidate volumes

• Information – exploit industry trends, analyze costs

Develop and validate hypotheses collectively during workshops with key stakeholders and specialists

Assess risks and benefits of each strategy

• Evaluate what scenarios make most sense given internal demand trends

• Evaluate the most important risks which need to be considered

• Evaluate what are the cross-over points given sensitivity analysis on identified risks

Prioritize categories into waves considering potential gains and ease of implementation, focusing in a global perspective.

Design SOPs and prepare training of the client team to develop central corporate purchasing capability

• Pre-task required: define profile and select/recruit team (core team)

DELIVERABLES

• • • Strategies applicable to each category focusing categories within 80% rule of spend

    • Implementation risks and benefits

    • Prioritization of categories and initiatives within 80% rule of spend

    • Purchasing SOP’s for categories implemented

    • SOP and training preparations for purchasing capabilities

Step 4 – Design and Implement Sourcing Organization and SOPs

Activity 1: Design the organization and infrastructure required to sustain benefits on strategic sourcing

• Description of required purchasing functions

• Design of “to-be” organization

• Describe sourcing organizational structures, roles and responsibilities, RACI matrices, skills and profiles

• Define resource allocation and staffing needs

• Define and redesign processes to drive cross-functional integration (e.g., supplier diversity) and business unit collaboration

• Define systems and tools improvements to enable productivity gains

Activity 2: Preparation package for Step 2 “Conduction of sourcing events and organization stand-up”

• Finalize SOPs for definition of RFI/RFP; Supplier conference(s); RFP analysis; Supplier short listing; Supplier Negotiation Handbook; final target savings; terms and conditions; supplier letter of intent; final master purchase agreement

• Train the client central corporate purchasing team in order to prepare for execution of step 2 (to be aligned with the client’s recruiting / on-boarding process for the corporate purchasing function)

DELIVERABLES

• • • Sourcing organization design

    • Preparation package for Step 2 (SOPs for RFI, RFP, negotiation strategy)