IMPLEMENTATION OF AN ESOURCING TOOL IN A

GREENFIELD ORGANISATION

eWorld

27-09-2016

Ilse Claus (Group Procurement Manager)\

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Agenda

• Short Introduction to Milcobel

• Procurement: Where do we come from?

• E-Sourcing Tool: Why? Expected Benefits

• Challenges in the Implementation Process

• Stakeholder Challenges and their Feedback to the Tool

• Current status – Realised Benefits

• Taking eSourcing to the Next Level: Strategies to be

depolyed over the next 12 months to maximise results

Milk. Our craftmanship, our future

Short Introduction to Milcobel

Procurement: Where do we come from?

E-Sourcing Tool: Why? Expected Benefits

Challenges in the Implementation Process

Stakeholder challenges and their feedback

regarding the tool

Current Status - Realised Benefits

Taking eSourcing to the Next Level:

Strategies to maximise results

Questions & Answers

AGENDA

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Short Introduction to Milcobel

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Key Figures 2015

Belgium’s n°1 dairy company

Annual turnover: approximately € 1 billion

Annual milk collection: approximately 1,2 billion litres

(actual 2016 = 1,4 billion litres)

Cooperative owner structure: 2,700 dairy farmers

(+300 ex-RFC since 1 February 2016)

Specialised in: cheese (consumer & industrial), powder, butter and

cream, liquid dairy products, ice cream

Ca. 2,000 employees

8 locations

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Situation vs Target

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Procurement Milcobel Dairy: < 2015

•

• No Transparency

• Reactive

• Ad hoc

• Acceptance of the situation

• Purchasing: Everyone in the

organisation

• Only operational purchasing –

‘serve the factory’

• Visibility

• Proactivity

• Right balance: e.g., quality versus cost

• Central approach

• Dedicated Category Buyers

• Courage to change

• Procurement involved at right time

• Cross-functional approach

GAP

SITUATION < 2015 TARGET

HOW TO CLOSE THE GAP?

• Spend Map

• Choose your battles

• Contracts/Procedures in place

• Tools in place

• Training - Professionalise

• Show value: gain trust

• Setting right expectations

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Procurement Milcobel Dairy: Today Tomorrow

Maturity Levels of a Procurement Organisation – Van Weele

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E-Sourcing Tool: Why?

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E-Sourcing Tool: Why? (1)

• Admin workload

Easy follow up of RFQ

Fixed deadline

Send reminders via system

Follow up if supplier has logged in and submitted their offer

Q&A via platform

Uniform quotations

Force supplier to answer in your way

Consolidation of answers by the system – system summarizes results

Historic data available on one platform

Start from another exercise – no need to start from scratch

Acceptance by supplier prior exercise: NDA, T&C, etc.

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As a method to force category buyers in the agreed workflow

From making a phone call to the known supplier professional RFQ with several suppliers

Invite internal stakeholders to follow RFQ

Transparency

Create trust and buy-in

Increase credibility

Remote follow-up possible

Category buyers working from different locations, online follow up of RFQs possible by Procurement

Manager

E-Sourcing Tool: Why? (2)

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Challenges in The

Implementation Process

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Procurement team without experience

No experience with an

e-sourcing toolNo procurement

experience in general

E-Sourcing Tool: Challenges in the Implementation

Process (1)

Challenges within Procurement

Is this tool really helping save time?

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E-Sourcing Tool: Challenges in the Implementation

Process (2)

Stakeholder challenges and their

feedback regarding the tool

‘’Doing e-Auctions is not

fair towards suppliers’’

‘’You can use eSourcing for other categories

But not this one as it is VERY special and more

complex than others!’’

“There is only one supplier

who can deliver what

we need’’

‘’All information visible to invited stakeholders

• Also downsides > clear framework

necessary’’

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Current status with Procurement

Team, Processes and Tools

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Current Status With Procurement Team, Processes

and Tools

Procurement Team Milcobel Dairy

Routine in organising RFQs and using the e-sourcing tool

60% of the addressed spend via Scanmarket (4/2015-5/2016 – 29 mio €)

o eSourcing system even used for RFIs in order to update master

data, update specifications, etc.

First e-Auctions done with good results

Other tools

Contract templates ready

ERP re-setup: project defined

Procedures described – implementation soon

Mintec: market intelligence

Reporting

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Current status – realised benefits

Approximately 25% time saved on

average tender process• Less need for face to face

meetings, less mail follow

up, etc.

E-sourcing platform as a tool to

help implementing a workflow More transparency than

traditional processes

Realised savings of the RFQs

done via Scanmarket• 17% costs savings in

average

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Taking eSourcing to the Next Level

Aim to achieve:

Greater Savings

Greater credibility

Greater visibility

Greater efficiency

Greater compliance

More spend under management

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Greater Savings - eAuctions

Direct correlation between number of suppliers and savings generated:

for every extra supplier taking part in an English Reverse eAuction there

is an average further 1.1% saving (cut-off point 8 suppliers)

On average only 75% of suppliers invited to take part actually will take

part, therefore always invite a larger number than your target number

Scanmarket:

Analysis of tens of thousands of eAuctions

17 years’ experience

Advanced Strategies training:

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When to use eAuctions

Use of eAuctions should be limited to commoditised products only

WRONG!

1) Scanmarket’s 3C model:

Compelling Spend

Competition

Clear Specifications

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When to use eAuctions

Non-critical: Low complexity/Low Category spend -

Utilize eAuction tools to run negotiations with suppliers

with a minimum of time and resource consumption

Leverage: Low complexity/High Category spend -

Utilise eAuctions to exploit the market, as you have

both buying power and a large spend to operate with

Bottleneck: High complexity/Low Category spend –

First priority is to minimise the risk, which should be

considered prior to the utilisation of any eAuction tool

Strategic: High complexity/High Category spend -

Large spend which could be exploited, however in-

depth strategy analysis should be made to make sure

the high complexity is taken into account

Best Practice companies utilise the eAuction tool for all categories within

Krajlic’s Portfolio model – and not just the easy “Leverage” products:

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Which type to use

2) Correct type of eAuction must be used and set up correctly

English Reverse

Japanese

Dutch

...an eAuction is an eAuction is an eAuction - WRONG!

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eAuctions Continued…

Japanese eAuctions:

Suppliers siloed

No visibility of the activity/presence of any other supplier

All start off with an opening bid (importantly, starting prices can be

completely different from each other’s)

Suppliers invited to accept lower and lower bids, suggested by the system

(set decrements and time interval between bids defined by supplier).

Once supplier fails to accept X bids in a row, they are out of the eAuction

Perfect for:

• competition is low - even if there is only one supplier

• suppliers are offering products/services that differ considerably in quality/cost

• strategic categories

• where company has a strong preference for a particular supplier

• when buyer is sourcing – not taking best bid as final decision

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eAuctions Continued….

Dutch eAuctions:

Start off with the same starting bid (15-30% lower than RFQ price)

System will suggest higher and higher bids (again set increments and

time intervals are defined by buyers)

First supplier to accept a bid wins the eAuction

High pressure eAuction for suppliers and yield’s amazing results

Ensure participants are approved suppliers only

Perfect for:

• Equally qualified suppliers but no competition (e.g., where one

supplier’s bid is 10%+ lower than other bidders)

• Perfect for allocating specific projects to framework suppliers

• Commoditised products/services where there is no preference

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Supplier activity

Sounds obvious, but the more supplier activity, the greater the savings.

Therefore, aim to maximise supplier activity by:

Communication

Preparation

Training/Conditioning

Functionality

Use of Scanmarket’s traffic light system:

not winning, winning, and to indicate close (within a pre-defined percentage

to the best current bid)

Chat function

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Advanced functionality- eRFx and eAuctions

Build all pertinent parameters into both eRFx and eAuctions:

Suppliers are happy that other factors other than price are being taken into

consideration

Give long-standing excellent suppliers an advantage by adding a switching cost

levy to other suppliers

To maintain supplier relationships and to

ensure best overall value is achieved:

Quality differences

Service levels

Lead time

Warranty

To calculate TCO:

Rebates

Transportation

Other charges

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Advanced functionality – eRFx and

eAuctions continued ….

Scanmarket’s dynamic parameters:

eRFx

Suppliers can select payment terms and enter their best price.

The system will add pre-defined levies based upon the option

they have selected:

E.g., 3 payment term options 30, 60, 90 days

30 days = +2%, 60 days = +1%, 90 days = +0%

eAuction

Suppliers can, in real-time, change payment terms, lead time,

etc., and their current and future bids will be amended accordingly based upon the pre-defined levies

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Other reasons for eAuctions

Contrary to popular belief, eAuctions are not solely used to

generate savings. They are also used for:

Avoiding cost increases

Quickly and easily determining true market value

Bolstering and diversifying your supply chain (get 2nd and 3rd

choice suppliers to improve pricing for future dealings)

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Ramping up use of eAuctions

Together with Scanmarket, we have identified that

65% of our sourcing projects planned for the next 12

months are suitable for eAuctions, based upon the 3C

model

As we are able to quickly transfer the info from the

eRFx module straight into the eAuction module, we

can very easily run those eAuctions without impacting

resource

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Please stop by the stand to pick up a copy of the

presentation:

All slides from today’s presentation

Plus bonus slides covering more advanced

eSourcing strategies we plan to deploy to achieve:

Greater efficiency

Greater compliance

Greater visibility

Greater level of spend under management

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Thank you for listening