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NC Procurement Conference

Future of Procurement

Rob Handfield, PhD

Bank of America Distinguished University Professor

Executive Director

Supply Chain Resource Cooperative

November 30, 2017

• Our current partner companies and affiliates include major international organizations with dynamic, complex supply chain demands:

go.NCSU.edu/SupplyChain

Current SCRC Partners and Affiliates

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Course Leader

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Rob Handfield is Executive Director of the Supply Chain Resource

Cooperative (SCRC), and the Bank of America University

Distinguished Professor of Supply Chain Management at North

Carolina State University. He has published in more than 100 peer

reviewed journal articles, and a few popular procurement books.

Dr. Handfield has worked with many Fortune 500 companies, and

is a thought leader in the field of supply chain management and

procurement. He has spoken on those subjects across the globe.

Handfield’s blog “Supply Chain View from the Field” receives

over 50,000 visits annually (http://scm.ncsu.edu/blog)

Portfolio

Analysis

Supplier

Segmentation

Risk Analysis

Define

negotiation

objectives &

acceptable

ranges

Develop

negotiation

strategy

Plan &

conduct

negotiations

Spend

Analysis

Develop

hypotheses

Should-cost

models

Develop total

cost models

Price indices

Supplier site

visits and

research

Evaluate

scorecards

Single/dual

source strategy

Performance

metrics & tracking

Quarterly reviews

and continuous

improvement

Establish

pathways for

collaborative

innovation

Internal Profile:

Stakeholder

Mapping

Develop high

level value stream

map

External Profile:

Industry Analysis

Porter’s 5 Forces

Model

ProcurementAnalytics

Internal & External Market Research

Develop Sourcing Strategy

StrategicCost Modeling

Conduct Supplier Selection

Negotiate Agreements

SupplierRelationshipManagement

NEGOTIATION PREPARATION IMPROVEMENT

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Typical Cycle for Negotiating

a Procurement Deal

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NEGOTIATION EXECUTION

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Faces of Procurement in 2025

1. What will procurement look like in 2025?

2. How will this evolution occur?

3. What are the success factors for achieving this vision?

We Asked…Survey Participants

What everyone wants from

Procurement

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FUTUREBUY as a Financial Expert

P&L and

balance sheet

impact

Budget impact

Volatility

management

Data

governance

FUTUREBUY as an Internal Consultant

Aligned more

closely with

business

Listen and distill

requirements

Develop solutions

and drive value

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Key Differences: Centers on a longer time horizon and broader scope and scale of activities, all

aligned with the life cycle of the category processes

Understands the organization’s key value objectives based on continuous

communication and dialogue with business stakeholders

Drives business process innovation with key suppliers, which in turn drives

business value, using a Total Cost of Ownership approach

Strategic Sourcing Category Management

Goal Reduce purchase costs (project or

LOB based)

Maximize realized category value

(enterprise based)

Frequency Periodic and project-based Ongoing, day-to-day process

Approach Conducted via n-step sourcing

process methodology

Develops a category strategy and

applies appropriate value levers

Results Reduced contract pricing Category value is targeted

Source: The Hackett Group

Strategic Sourcing vs.

Category Management

FUTUREBUY as a Relationship Broker

Supplier

relationship

manager

Ongoing

performance

management

Customer of

choice

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Is Supply Management Missing Out on

Sources of Value to Internal Stakeholders?

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Category value objectives link to stakeholder objectives

Reduced purchased costs Improve cost of quality Improve marketing effectivenessImprove

flexibility/responsiveness/delivery

Reduce cost of risk Reduce working capitalAccelerate new product

developmentVariabilize asset structure

Reduce internal process costs Improve Delivery Performance Enter new markets Support sustainability goals

Reduce fixed costs Reshape consumption Enable new business capabilities Strengthen the brand

Support other goalsIncrease revenueReduce TCO

Case Study: The Thailand Flood of 2011-2012

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~ $46B in Economic Damages….

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FUTUREBUY as a Supplier Coach

From adversarial

to coaching

Early supplier

involvement

Tap into

innovation

Time to market

and top line

Suppliers as a Source of

Supply Chain Innovation

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None “Gray Box”

No supplierinvolvement.

Supplier“makes to print.”

“White Box”

Informal supplierintegration.

Buyer “consults”with supplier

on buyer’s design.

Formalized supplierintegration. Joint

development activity between

buyer andsupplier.

“Black Box”

Design is primarily

supplier driven,based on buyer’s

performancespecifications.

Increasing Supplier Responsibility

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FUTUREBUY as a Risk Mitigator

Source of supply

Regulatory

environment

Financials

Labor

Volatility

Brand

Apparel Manufacturing in Bangladesh

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FUTUREBUY as an Intelligence Agent

Market

intelligence

Internal

intelligence

Predictive

analytics

Traditional Focus of

Business Intelligence

CustomersSuppliers

Suppliers’ Environment Customers’ Environment

Stakeholders

Company’s Environment

Customer and

Market Intelligence

Supplier and

Market Intelligence

Business Intelligence

Supply Chain Intelligence is the convergence of four activities (information

gathering, analysis, dissemination and response) both upstream and

downstream in the supply chain.

A GUESSING GAME

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Transforming Data into Knowledge,

Knowledge into Action

STRATEGIC DECISION-MAKINGSupply Chain Risk Mitigation, Cost Management,Category Strategies, Stakeholder Value, Innovation

Gather, Analyze, & Synthesize Data & Information

Business Intelligence

Spend

Demand

Performance

Finance

Quality

Market IntelligenceMarketsIndustriesGoods & CommoditiesFinanceSuppliersCompetitorsTechnologies

DATA

INFORMATION

KNOWLEDGE

FUTUREBUY as a Steward

of the Environment

Regulatory

requirements vs.

client

expectations

Global code of

conduct

Managing,

coaching and

auditing

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Nike Sustainable Material Index

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FUTUREBUY as a Legal Expert

Contract

management

Weigh business

value vs. risk

Contract

compliance

Types of Contracts

Type of ContractBuyer

Risk

Supplier

Risk

Firm-fixed price Low High

Fixed-price with escalation

Fixed-price with redetermination

Fixed-price with incentives

Cost plus incentive fee

Cost-sharing

Time and materials

Cost plus fixed-fee High Low

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The terms that are

negotiated with greatest

frequency

Terms which would be more

productive in supporting successful

relationships1

Limitation of Liability Change Management2

Indemnification Scope and Goals3

Price / Charge / Price Changes Responsibilities of the Parties4

Intellectual Property Communications and Reporting5

Payment

Performance / Guarantees /

Undertakings6

Liquidated Damages Limitation of Liability7 Performance / Guarantees /

Undertakings Delivery / Acceptance8

Delivery / Acceptance Dispute Resolution9

Applicable law / Jurisdiction Service Levels and Warranties10 Confidential Information / Non

disclosure Price / Charge / Price ChangesSource: IACCM.com, 2012.

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Importance of Roles Will Vary by Organization

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Financial Impact and Data Governance

InternalConsultant

RelationshipBroker

IntelligenceAgent

LegalExpert

RiskAdvisor

SupplierCoach

Supply Chain Innovator

Trusted Advisor

Cost Savings Enabler

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FUTUREBUY – Bringing it all together…

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P2P Infrastructure