Future of Supply Chain from the CxO...

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Future of Supply Chain from the CxO Perspective

PISM GMM

Manila13th October 2011

Contents

Introduction to A.T. Kearney

Future of Supply Chain / Supply Management ?

Key Findings from 2011 Assessment of Excellence in Procurement (AEP)

Conclusion

Contents

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• Amsterdam • Berlin• Brussels• Bucharest• Copenhagen • Düsseldorf• Frankfurt• Helsinki• Istanbul

• Amsterdam • Berlin• Brussels• Bucharest• Copenhagen • Düsseldorf• Frankfurt• Helsinki• Istanbul

Europe

• Abu Dhabi• Dubai• Johannesburg• Manama• Riyadh

• Abu Dhabi• Dubai• Johannesburg• Manama• Riyadh

Middle East & Africa

• Bangkok• Beijing• Gurgaon• Hong Kong• Jakarta• Kuala Lumpur• Melbourne• Mumbai

• Bangkok• Beijing• Gurgaon• Hong Kong• Jakarta• Kuala Lumpur• Melbourne• Mumbai

Asia Pacific • New York• Atlanta • Cambridge• Chicago • Dallas • Mexico City

• New York• Atlanta • Cambridge• Chicago • Dallas • Mexico City

Americas

• New Delhi • Seoul• Shanghai• Singapore • Sydney• Tokyo

• Kiev• Lisbon• Ljubljana• London • Madrid • Milan• Moscow• Munich• Oslo

• Kiev• Lisbon• Ljubljana• London • Madrid • Milan• Moscow• Munich• Oslo

• Paris • Prague• Rome• Stockholm• Stuttgart• Vienna• Warsaw• Zurich

• Paris • Prague• Rome• Stockholm• Stuttgart• Vienna• Warsaw• Zurich

• San Francisco• São Paulo• Southfield• Toronto• Washington, DC

• San Francisco• São Paulo• Southfield• Toronto• Washington, DC

For over eight decades, A.T. Kearney has been among the leading high value-add management consulting firm with extensive global footprint

• 55 offices in 38 countries (offices with ATKPAS staff in white) • More than 2,700 colleagues (~200 ATKPAS colleagues)

Introduction

Client Competitive Advantage……On A Global Basis

We work on business issues in strategy, organizational, operations and technology

• Corporate vision/strategy• Portfolio structuring• Value-based restructuring• Strategic planning process• Global expansion strategy• Mergers and acquisitions• Economic value

analysis/industry benchmarking

• New product/market/channel strategy

• Brand Management• Domestic/export market

evaluation and validation• Market penetration planning• Category profitability• Measuring brand equity

• Organizational effectiveness and design

• Enterprise transformation• Change management• Organizational learning• Training and empowerment• Compensation• Measurement systems• Roles & responsibilities

alignment • Institutionalizing world

class capabilities• Process reengineering

• Product development/ management

• Manufacturing excellence• Quality improvement• Supply chain integration• Strategic/global sourcing• Logistics and transportation• Network analysis• Negotiations management• Customer service• Salesforce effectiveness• Cycle time improvement• Cash-flow management• Store operations• Performance management

• IT strategy• IT effectiveness —

diagnostics and blueprinting• IT planning architecture and

enterprise models• IT sourcing• IT implementation —

enterprise solutions and EIS• ERP value improvement• Customer solutions (CRM)• Sourcing solutions• Supply chain solutions

Information Technology

SkillsSupply Chain/

Operations ExpertiseOrganizationalEffectivenessImprovement

Strategy / IndustryInsights and Analysis

A.T. Kearney Capabilities

Introduction

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Our expertise spans a wide range of industries and business functions

ManufacturingManufacturing

Procurement /Supply ManagementProcurement /Supply Management

Sales & MarketingSales & Marketing

Busi

ness

Fu

nctio

ns

Financial Services Public Sector UtilitiesTransportationPharma &

Healthcare

Communications& High Tech

Consumer Products & RetailAutomotiveAerospace

& DefenseEnergy & Process

Industries

Our extended capabilities ensure client results are achieved and sustainable

Introduction

Our work continues to advance the Supply Management function through our ability to provide unique and cutting-edge solutions

"S-Teams""S-Teams"

"Invention" ofGlobal Sourcing

The Purchasing

Chessboard TM

House of Purchasing and

SupplySM

“Gemstone”Strategic Sourcing

ROSMA © & Procurement Performance

Advanced Analytics Solutions

• Development and introduction of a rigorous, step-by-step sourcing approach process still in use today and adapted by numerous clients and competitors

• AEP study generates database of leading practices across key procurement dimensions

• Customized client staff training

• Advanced analytics for procurement with expressive bidding used for complex categories and state of the art analytics techniques such as Cost Regression Analysis

• Innovative indicator and framework to address sustainable procurement performance

• A.T. Kearney’s House of Purchasing and SupplySM

• Introduction of eSourcing technology to enable the sourcing process

• Development of ACE teams and advanced category solutions

• New offerings to drive client Procurement Transformation efforts

• Detailed approaches identified to address challenges of demand and supply power

• Specialized global unit created to focus on Procurement and Supply Chain (ATKPAS)

• SharePoint and Web 2.0 for Procurement Enablement

• Analytics expertise leveraged beyond Procurement

Introduction

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A.T. Kearney is considered the premiere thought leader in the supply management community

Sample of Recent Seminars and Research• Institute for Supply Management (ISM)

– Only consulting firm on advisory committees– Co-founder of the Center for Strategic Sourcing Leadership –

where select corporations discuss and shape the future of Sourcing

• Center for Advanced Purchasing Studies (CAPS)– Continuing leadership in Future of Purchasing study and

BPO study– Recent study on Value Focused Supply

• A.T. Kearney CPO Executive Roundtable– Group of CPOs that meet twice per year to share best

practices on advanced supply management strategies• Sourcing Interests Group (SIG)

– Advisory Board member– Executive presentations at SIG Global Summit meetings and

SIG webinars• Council of Supply Chain Management

Professionals/Supply Chain Council/European Logistics Association– A.T. Kearney officers have served as President or Board

Members of major logistics association and regularly address logistics forums

"A.T. Kearney is the clear market leader in the procurement and sourcing space – their practice establishes a reputation for results-based consulting.” – Christine Overby, Forrester Research

Introduction

Contents




Conclusion

Contents

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ANY supply chain, today or future, must be structured with the capability to anticipate changing global conditions and respond flexibly

The World’s Best Supply Chain

Organizationally and Technologically Aligned

Risk Aware

Socially Responsible

Partner Networked

Complexity Balanced

Cost Effective

Customer Driven

Future of Supply Chain / Management

….as there’s no telling what ‘wildcards’ we will face

Dirty Bomb Bioterror Attack Iran closes the Straits of Hormuz

Confrontation with North Korea

Natural Disaster Global Pandemic Crop Pandemic Viruses Disable GPS Satellites

Power Strugglein Beijing Currency Collapse Carbon Sequestration

Breakthrough Quantum Leap

Future of Supply Chain / Management

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Research Objectives

How has Procurement progressed since 2008?

How ready is Procurement for the future?

What can we learn from leading Procurement organizations?

Leader Identification Over 1,000 elements benchmarked across 33

leadership practices covering 8 dimensions of Procurement

Selected and verified 13 leaders (7 Americas, 5 EMEA, 1 Asia-Pacific) across 12 industries based on:

– Top overall scores– Strong, world-class performance in at

least 3 dimensions– Above average overall performance in

each dimension

Participants 176 companies have submitted responses

Survey remains open; tracking to 500+ participation

Average participant is US$12B in revenues

AEP is a study that benchmarks cross industry supply management practices and captures the CxO perspective & vision of the function

Assessment of Excellence in Procurement (AEP)

Assessment of Excellence in Procurement (AEP) Study

Several themes have been observed from our series of AEP study over the years and the latest 2011 study

1992 19961999

2002

2004

2008

2011

• 25 Participants:− 25 North America

Inaugural Year

Assessment of Excellence in Procurement (AEP) Study

1

• 77 Participants:− 51 Europe− 26 North America

• 162 Participants:− 86 Europe− 50 North America− 26 Asia & Emerging

Markets

• 147 Participants:− 84 Europe− 45 North America− 18 Asia & Emerging

Markets

• 275+ Participants:− 127 Europe− 108 North America− 46 Asia-Pacific

• 295+ Participants:− 149 Europe− 111 North America− 35 Asia-Pacific

House of Purchasing

and SupplySM

born

2New definition

of global excellence for

21st century

3 Focus on eProcurement

4

New sources of value from procurement

5

Procurement at a

crossroad

6

ROSMA© performance management

metrics

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• 176 (currently) Participants:− 90 EMEA− 47 Americas− 39 Asia-Pacific

2011 Study Details

176 companies have submitted responsesSurvey remains open; tracking to 500+ participationAverage participant is US$12B in revenuesOver 1,000 elements benchmarked across 33 leadership practices covering 8 dimensions of Procurement

Assessment of Excellence in Procurement (AEP)

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Contents




Conclusion

Contents

AEP 2011 Key Findings

Alignment with Overall Business

Strategy

• 90% have increased their role in developing and executing the business strategy

• Leaders are 3-4X more involved in driving the top line and comprehensive risk management

Strategic Commitment of

Resources / Organization

Adoption of Rigorous SRM &

Performance Management

Procurement Value Creation

• 75% of procurement staff focused on strategic activities• C-level reporting has increased by 50%• Procurement influences ~75% of the total spend• All Leaders and most Followers continue to leverage center-

led or centralized organizational models to drive success

• Most performance metrics focus on cost but many are beginning to extend their search for benefits further

• Leaders are more transparent in their performance reporting and are significantly better at spend coverage, velocity, yields and managing internal procurement costs

Value Creation Through Procurement

Implementation of Advanced Sourcing

Techniques

• Leaders use 2-3X more strategies to impact cost and demand and eSourcing is their default approach

• BRIC sourcing is significantly increasing

Themes AEP(1) 2011 Key Findings

(1) Assessment of Excellence in Procurement (AEP)

ProductsTechnology

RevenueRisk management

Top Line

Bottom Line

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Create new business opportunities and revenue streams with suppliers

Reduce time-to-market for new products

Integrate suppliers into new product/service development process

Increase level/speed of innovation

Procurement Strategy Elements(% Companies Selecting “Plan is in place and yielding benefits”)

77%

84%

77%

69%

2011 Overall2008 Overall

2011 StudyLeaders

Leaders are contributing to the development of top-line strategies for growth…

AEP Key Findings

Increase integration with key suppliers to improve supply chain performance

Integrate procurement with business units to drive value creation

Realize synergies cross division/BU

Improve overall value for purchased goods & services

Improve working capital

2011 Overall2008 Overall

Procurement Strategy Elements(% Companies Selecting “Plan is in place and yielding benefits “)

100%

100%

100%

69%

92%

2011 StudyLeaders

…while still being held accountable for bottom-line efficiency improvements

AEP Key Findings

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Organization to which procurement reports(% companies, “Direct materials” and “ All others major categories”)

This opportunity creates higher expectations for delivering results

15%

24%

62%

18% 18%

64%

General/Functional managerreporting

VP level reporting C-level reporting

LeadersFollowers

Followers have experienced a major increase in C-Level reporting since 2008

2008

AEP Key Findings

Role of corporate in category strategies: strategic direction

Coordinated

Unit A Unit B Corporate purchasing

Cat. Dir.

Cat. Dir.

Role of corporate in category strategies: veto/arbitration

Corporate purchasingUnit Apurch.

Unit Bpurch.

Unit A Unit B

Cat. Dir.Cat. Dir.

Center-led / Partially Center-led

Role of corporate in category strategies: none

Unit A Unit B Unit C

Directorprocurement

Decentralized

Central procurement organization performs a mix of strategic and tactical procurement roles (varying by category) with enforcement capabilities (e.g. supplier selection, a voice in MBO-setting, performance input)

Central procurement organization performs strategy and policy setting functions across most categories, but cannot enforce

Business unit procurement organizations perform most procurement functions for most categories with some voluntary cross-unit coordination

Role of corporate in category strategies: decision making

Centralized

Unit A Unit B

Cat. Dir.

Corporate purchasing

Central procurement organization performs most procurement functions for most categories. Tactical execution may reside locally.

61% 39%

0% 0%

40% 39%

12% 9%

LeadersFollowers

All leaders and most followers prefer centralized and center-led organizational models

AEP Key Findings

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Strategic Focus of Employees of Procurement Organizations(% Employees Devoted to “Strategic” Activities)

Followers have almost eliminated this historic advantage leaders enjoyed

Leaders and followers allocate 75% of their Procurement employees to strategic activities

61%

73% 77%

73%

80%

36%

49%

75%

49% 60%

2006 2008 2010

Predicted in 2008

Predicted in 2008

2010 Actual

AEP Key Findings

The Purchasing Chessboard ®

(Average number of sourcing and category management methods ‘Systematically Used’)

Source: A.T. Kearney 2011 AEP Study

Low

High

Low HighDemand Power

Invention on demand

Core cost analysis

Vertical integration

Bottleneck management

Make or buyCompliance management

Design for sourcing

Intelligent deal structure

Political framework

management

Buying consortia

Closed loop spend

management

Functionality assessment

Composite benchmark

Product benchmark

Cost data mining

Master data management

Supplier consolidation

Spend transparency

Bundling across

generations

Value chain reconfigu-

ration

Supplier tiering

Collaborative capacity

management

Visible process

organization

RFI/RFP process

Supplier market

intelligence

Revenue sharing

Sustainability management

Virtual inventory

management

Vendor managed inventory

Expressive bidding

Reverse auctions

Best shoring

Profit sharing

Project based partnership

Total life cycle concept

Supplier development

Total cost of ownership

Cost regression

analysis

Strategic alliance

Value based sourcing

Supplier fitness

program

Leverage market

imbalances

Unbundled prices

Factor cost analysis

Demand reduction

Contract management

Bundling across product

linesBundling

across sitesGlobal

sourcing LCC sourcingLinear

performance pricing

Supp

ly P

ower

Specification assessment

Design for manufacture

Process benchmark

Complexity reduction

Standardi-zation

Procurementoutsourcing

Cost based price modeling

Sourcing community

Mega supplier strategy

Product teardown

Leverage innovation

network

Collaborative cost reduction

Price benchmark

Leverage Competition

Among Suppliers

LeadersFollowers

… and use a wider range of methods to tailor their strategy based on relative supply and demand power

Seek Joint Advantage

with Suppliers

Change Nature of Demand

Manage Spend

AEP Key Findings

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Use of eSourcing technology continues to increase, both in number of events conducted and percentage of spend sourced

1020

750

213269112 114

eRFX eAuctions Advanced eSourcing

Estimated Number of Sourcing Events in 2010(Average Count of Events for eSourcing Users)

LeadersFollowers

41%

66%

22%

39%

21%

38%

23%

40%

7%

20%

6%15%

2010 2012 2010 2012 2010 2012

Expected use of eSourcing Tools(% of Spend Sourced for eSourcing Users)

eAuctionseRFx Advanced eSourcing

LeadersFollowers1.6x

1.9x 1.8x

Source: A.T. Kearney 2011 AEP Study

eSourcing Technology Usage(% Companies)

92%

62%

eSourcing Technology Usage

LeadersFollowers

AEP Key Findings

Sourcing from emerging markets has continued, with significant increases in all BRIC countries

% of Participants Sourcing From Location

% of Participants Sourcing More Than 10% of Spend From Location

52%

61%

China

Russia19%23%

Brazil20%

37%

India35%

75%

2%3%

5%7%

4%9%

13%21%

48% of all participants also expect increases in other Asian countries, and over 36% in other European countries in the next two years

20%

26%

56%

64%

2 years from now(% of companies that expect an increase)

% of participants expecting an increase20082011

AEP Key Findings

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SRM objectives( % of companies selecting “Primary focus”)Share of Value, Sourcing vs.SRM

LeadersFollowers

Most expect SRM to become increasingly strategic, with leaders using a broader set of value drivers

AEP Key Findings

… and use a structured process focused on strategic and critical suppliers

Level of involvement of Procurement(% companies selecting “lead/co-lead”)

Structured process by type of supplier(% companies selecting “Yes”)

Critical Suppliers

Strategic Suppliers

LeadersFollowers

Leaders play a far more active role across a broad spectrum of SRM activities

AEP Key Findings

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Looking ahead, leaders indicated that performance tracking tools will have the most impact on the organization by providing visibility to CxO

Relative impact on how the procurement organization will work in the future based on allocation of 100 points

Method Followers Leaders

Performance tracking dashboards 24 25Business intelligence/analytics/data-mining 24 21Supplier self-service (my company's sponsored supplier portal) 13 12

Collaboration software 8 12Supply chain management /logistics 15 11Suppliers' CRM systems 7 11Third party content providers 5 5Web 2.0 / Social Media 3 3Other 1 -

Precise performance measurement will enable identification of areas for improvement within the procurement and the whole organization

AEP Key Findings

ROSMA© can support in defining the agenda and providing the KPIs for procurement leaders

ROSMA©

Return on Supply Management Assets (ROSMA©)

• Addresses the total spend that Procurement influences, along with consideration for the visibility and governance of that spend

• Evaluates the speed of addressing the spend under Procurement influence

• Encapsulates all the savings and other financial benefits gained from the spend addressed

• Evaluates how well the negotiated agreements and policies are followed and enforced

• Includes other financial benefits not captured already

• Captures the cost of the Procurement infrastructure and capabilities development

• Captures all the periodic cost, such as people costs, external support costs, etc.

Structural InvestmentPeriod CostsSpend

Coverage Velocity Category Yields Compliance Additional

Benefits

ROSMA© gauges the aggregated financial contributions related to procurement

performance; bringing clarity, rigor and convention to procurement

AEP Key Findings

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Spend Coverage Velocity Category

Yields Compliance Additional Benefits

Invested Supply Management

Assets • Total external

expendituresinfluenced by procurement

• Amount of external expenditures sourced by Procurement

• Number of sourcing events

• Yield of spend sourced by̶ Direct̶ Indirect̶ CAPEX̶ Goods for

Resale

• % of addressed spend sourced by procurement that complied with the new agreements over last 2 years

• Procurement has the full mandate to explore additional value creation opp.(innovation, profit inc., etc.)

• Cost of procurement as % of influenced spend

• Spend influenced by Proc./ # of Procurement FTE

94% 85% & 2145 8.2% 90% 77% 0.8% & $32m

72% 64% & 880 6.4% 79% 38% 1.1% & $26m

+42% +28% +14% +19%

Select Indicators(1)

Leaders

Followers

Average

Leaders 7.3Followers 4.6

+104%+144%+33%

Note: (1) A.T. Kearney 2011 AEP Survey Data. Complete assessment of the ROSMA© drivers include more quantitative and qualitative information

ROSMA© Quantitative Score

ROSMA©

Drivers

AEP Key Findings

Contents




Conclusion

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1.5x

1.3x

1.6x

1.4x

Expanded technical skills

As Procurement’s involvement in cross-functional efforts increases so does the need for “business savvy” skills

Skills/Capabilities Required From Procurement Personnel(% Companies selecting “Required”)

1.8x

1.6x

1.2x

1.2x

Deeper interpersonal

skills

Use of IT Tools

Spend Analysis

Supplier Development Programs

Team Building

Risk Management

Project Management

Change Management

Communication/Presentation Skills

The skill set requirements and expectation on procurement professionals are becoming broader and more complex over time

Contents

Supply Management can deliver higher financial results with a focused Procurement Performance Management (PPM) Transformation effort

% Influenced Spend

Sourced

ROSMA© Score(1) The first 105 participants (less outliers) that fully completed the AEP / ROSMA© survey questions

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

- 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00

Before PPMTransformation

After PPM Transformation

Total Spend $ 4B $ 4B

Spend Sourced 20% 50%

Velocity 300 1,000

Yields (%) 12% 18%

Compliance 72% 80%

Proc. Costs (%) 1.8% 1.2%

ROSMA© 1.0 6.0

Financial Results Delivered

$ 71MM $ 281MM

Illustrative ExampleWhat is the Value of Improvement?

Before PPM Transformation

After PPM Transformation

Same

Value of Improvement = $210MM

Conclusion

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In conclusion: It is time and it is expected that procurement to become more strategic and drive higher performance

Increased Pressure for Value Delivery

Greater alignment with business needs

Continued TCO reduction

More and faster innovation

Proactive risk management

Key Requirements to make it happen

Improved collaboration capabilities

Integrated performance management

Pervasive technology

Creative talent management

Leaders have moved from being credible business partners to being strategic contributors in creating value for the organization

Conclusion

Please contact [email protected] or [email protected] request for registration to participate

Your company’s supply management performance relative to industry and geographic peers

Your company’s absolute level of performance for each dimension of A.T. Kearney’s House of Purchasing & Supply

Your organization’s ROSMA©, a framework that measures Procurement’s financial impact on business performance

What you receive by participating:

There is still time to participate in the 2011 AEP survey and receive a detailed individual feedback report

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The AEP individual feedback report provides three different views of company performance on AEP Leadership Practices

Quartile rankings by Dimension

Dimensional scores vs. Industry and

Geography peers

Leadership practice scores and

improvement opportunities

Your feedback includes specific actionable opportunities for each dimension

If you complete the required information, we will provide two evaluations of your performance: ROSMA© Numeric Score and Performance Process Maturity Ranking

Performance Process Maturity Ranking

ROSMA© Numeric Score

Performance Process Maturity Ranking provides

an assessment of the processes that influence

the ROSMA © drivers

ROSMA© Numeric Score is an indicator of Supply

Management’s financial impact on the business

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Any questions?

Your ContactJessica L. MahreVice PresidentA.T. Kearney, Procurement and Analytic Solutions

22/FL Hang Seng Bank Tower1000 Lujiazui Ring RoadPudong New AreaShanghai 200120, China

Direct.: [email protected]

Keat YapSenior ManagerA.T. Kearney, Procurement and Analytic Solutions

Level 33, Menara Maxis,KLCC, 50088 Kuala Lumpur, Malaysia

Tel.: +603 2178 3208Mobile:+6012 4232614Mobile: +63 917 588 [email protected]

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