source: inverto © inverto 2011 | iod | 15.06.2011 | slide 1 why procurement matters increase your...

Source: INVERTO

© INVERTO 2011 | IOD | 15.06.2011 | Slide 1

Why Procurement Matters

Increase your profit – through effective procurement

Birmingham, June 15th, 2011

Source: INVERTO


Agenda

• About INVERTO

• Why procurement matters

Source: INVERTO


INVERTO is an international management consulting firm

specialised in procurement cost optimisation

We deliver real, sustainable savings which directly impact on

our client‘s operating profit.

Source: INVERTO


INVERTO is 100% focused on improving its clients’ procurement performance

Services

AssetsSpecialists Know-how Tools

INVERTO’s Co-Sourcing approach

Expertise Knowledge bank Software

Team-Sourcing® Fast reduction in costs of purchased goods and services

Consulting Improving strategy,

process & organisation

Training/CoachingUp-skilling and

development of

resources

e-SourcingSuite of professional

procurement management tools

Source: INVERTO


With the experience, scale and reach to deliver large, international projects

1) Outsourcing in 20072) Global Sourcing Offices

UKLondon

IndiaSourcing Office: Mumbai

Team Former retail, industry andconsulting executives

Clients Germany, Belgium, The Netherlands, Austria, Swiss,

locations around the globeProjects Global purchasingMarkets Europe, Asia, America

ChinaSourcing Offices:

Hong Kong and Shanghai

U.A.E.Branch: Dubai

PolandSourcing Office: Warsaw

BeneluxRotterdam

GermanyHead Office: Cologne

Number of employees (average p.a.)

Germany

090807060502 0403

IT1)

10

Turnover (€m p.a.)

02 03 04 05 06 07 08 1009

3,34,6

8,0

11,5

22,5 23

20,5

2,4

25,0

21

29

42

70 68 70

15

20

30 33

48

79

91 90 87

20

~ 120

International

30

7 21 22 17

New office 2011 Munich

Source: INVERTO


Private Equity Investment

ConsumerGoods

Retail,Wholesale

AutomotiveMechanicalEngineering

OtherIndustries

Pharma/Health care

Our clients are leading mid-cap companies, large corporate groups and some of the world’s top private equity businesses

http://images.google.com/imgres?imgurl=http://www.montaguequity.com/images/logo.gif&imgrefurl=http://www.montaguequity.com/&h=53&w=133&sz=4&hl=en&start=9&tbnid=orY6XmPoTe617M:&tbnh=37&tbnw=92&prev=/images?q=montagu+private+equity+logo&svnum=10&hl=en&lr=&rls=IBMA,IBMA:2006-19,IBMA:en

http://www.hema.nl/site/HEMA-NL/Home/default.aspx

http://www.vangansewinkel.eu/nl/default.aspx

http://www2.ratiopharm.com/de/de/dep/home.cfm

http://upload.wikimedia.org/wikipedia/de/c/cd/Stada_Logo.svg

http://www.permira.com/

http://www.adb-airfieldsolutions.com/Default.aspx?ID=5997

Source: INVERTO


INVERTO´s proprietary leading-edge e-Sourcing solution; “e-Contor”;

• Manages the entire strategic sourcing process

• Rapidly conducts large, complex tenders

e-Sourcing Software

We deliver results in the shortest possible time through a unique combination of skills, knowledge and tools

INVERTO consultants with specific category experience to;

• Co-ordinate each work stream

• Support the buying organisation on-site and

• Execute delivery

Sourcing Experts

Local sourcing offices in:

• Warsaw (Eastern, SE Europe)

• Mumbai (South Asia)

• Hong Kong and Shanghai (China, SE Asia)

In-country supplier research, audits, negotiations, ongoing operational supplier mgmt.

Global Sourcing Offices

High speedimplementation

Global supplier/ benchmark database with comprehensive data on currently over 85.000 qualified suppliers, including:

• Audit reports

• Performance records

• Price benchmarking

• Production capability

INVERTO Supplier/Benchmark Database

„Hands-on“

„Managed“

Source: INVERTO


Agenda

• About INVERTO

• Why procurement matters

Source: INVERTO


Procurement in context

• Price deflationary pressures from new competitors

• Suppliers consolidating and increasing prices

• Commodity price volatility driving up costs

• Labour related costs optimised

• Company margins squeezed

• P&L and Balance Sheet impacted

• Declining EBITDA

Your Customers

YOU

Your Suppliers

Source: INVERTO


External expenditure is responsible for more than 75% of a company's costs

Company (Example)

Total costs (%)

Labour

Material costs

Other

100

Retail Assembly Manufacturing Service

60-70%

50-60%

10-20%

40-50%

Direct purchasing costs per sector (%)

Direct materials

Indirect materials

≈ 30%

≈ 60%

≈10%

Source: INVERTO


Effective procurement adds value to any business - It really is that simple

Reduction of external purchased costs ...

Purchased costs

Labour

60 %

£60m purchasing volume50 % addressable

7.5 % savingsBottom-line impact = £2.25m

Result equivalent to arevenue increase of 75 %

or £75m EBIT

Simplifie

d

3 %

30 %

7 %Other expenses

EBIT +75 %

... leads to significant profit improvement

£100m

Source: INVERTO


Pro

cure

me

nt

influ

en

ce w

ithin

th

e o

rga

nis

atio

n

Procurement evolution over time/ Savings realisation

Companies are improving their procurement, and driving out savings

Focus is “on-time, to budget”

Savings through price reduction

Procurement managed by professional resources

Suppliers recognised as a external sources of knowledge

Savings through a Total Cost of Ownership approach

Supply Chain Management and strategic partnerships with key suppliers

Savings through cost-out and value-add

Procurement strategy recognised as a integral part of company strategy

Procurement and supply base as a source of Added Value

No savings

Category management based on effective processes

Part-time sourcing , in the business

Availability Focus

Price Focus

Cost Focus

Savings

Value Focus

Source: INVERTO


Many companies

have started

initiatives to elevate

procurement

• No senior management awareness

• Procurement still undeveloped

• Lack of management expertise/capability within procurement

• Lack of investment in support tools

• Procurement not integrated into all business functions

• Percentage of Low-Cost Country Sourcing still comparatively low

• Procurement involved too late in business decisions

• Too little focus on “Indirect Spend”

…but

Our experience shows that procurement is still under-leveraged

… which leads to….

…high levels of opportunity for significant EBIT impact

Source: INVERTO


What could procurement improvement do for your business?

Source: INVERTO


Driving profitability through procurement at

HUGO BOSS

Case Study


Source: INVERTO


Agenda

• About HUGO BOSS

• The Role of Procurement

Source: INVERTO


• Corporate Sales €1,686 m.

• Net Income €112 m.

• Employees 9,593

• Market Presence 110

countries

• HUGO BOSS Shops 1,389

• DOS* 330

• Point of Sales over 6,100

*directly operated stores

Source: INVERTO


The Times They Are-A-Changing

• Decline in sales approx. -7% in 2009

• Strong decline of annual net profit approx. -27% in 2008

• Retailers adjusting strategies

• Owner Permira (Private Equity) still has high profit

expecations

• Urgent need for corrective action in 2010

Times are changing!

• Continuous sales growth approx. +10 % p.a*

• Continuous EBIT growth approx.+13% p.a.*

• Worldwide store expansion approx. +25% p.a.*

• Successive adjustment from franchise to DOS

• Strong brand development and licensing of several

products

The past!

*from 2004 to 2008

Source: INVERTO


HUGO BOSS has largely neglected Non-Production Material Spend for years

• Purchasing volume of Non-Production-Material HUGO BOSS AG (HB) in 2008 approx. 274 m. € (amounts to 1/6 of total sales!)

• Approx. 2,700 suppliers Non-Production-Material (NPM)

• Total spend structured in 12 categories – 94 subcategories

• NPM has been neglected by management over the years

• Approx. 35 % of purchasing volume sourced locally

• Approx. 78 % of purchasing volume sourced in Germany

• Approx. 5 % A-Suppliers

HUGO BOSS: Initial situation of procurement of indirect spend (Non-Production Material)

Source: INVERTO


Agenda

• About HUGO BOSS

• The Role of Procurement

Source: INVERTO


Introducing 5 principles to NPM Procurement at HUGO BOSS

Procurement is a core processin the HUGO BOSS value chain

»«

Procurement increases thecompany value

»«

Our buyers are as importantas our sales people

»«

Procurement activitiesmust be sustainable

»«

´Sourcing Governance´ to ensure compliance

»«

1

2

3

4

5

Procurementof Non-Production

Material

Source: INVERTO


Changing global parameters lead to a strategic role for procurement

Globalisation

Scarce resources

Shorter innovation

cycles

Increased competitive pressure forces companies to focus on core competencies

=> More products and services procured externally

Spend increases and procurement starts to play pivotal role in value chain

Strategic tasks ofprocurement dept.:- Define procurement

strategies- Supplier

management- Internal pooling of

demand

• Clear cut procurement processes (strategic, transactional)• Central procurement organisation

Requirements

1

Source: INVERTO


“Procurement makes half the profit”2

Reduction of external spend ...

External spend

Labour

50 %

€274 m NPM volume50 % addressable

15 % savingsBottom-line impact = €20m

Result equivalent to arevenue increase of € 133m

EBITDA Simplifie

d

20 %

25 %

5 %Other expenses

EBIT +15 %

... leads to significant profit improvement

100%

Procurement responsible for prices and payment terms which significantly influence cash flow and thus, company value

Source: INVERTO


Change perception of procurement – shape up the image!3

• Despite of its increased importance in recent years, procurement is still neglected in many

companies and does not hold the position it deserves

• Often, a negative image of procurement is reflected in budget, remuneration and motivation

• Clear metrics to measure performance and success in procurement (share of profit derived from

cost avoidance for production and non-production materials)

• Management attention (install CPO or direct report to CFO)

• Motivate high potentials – show career path in procurement

Source: INVERTO


Sustainability – buyers will become supplier networkers, who safeguard andmaximize yield

4

• Globalisation

• Increasing cluster risk

• Decreasing vertical integration (therefore

increased supplier dependance)

• Concentration of supplier markets

Professional SRM

• Establish long-term relationships

with suppliers

• Improve procurement through

centralisation, training, inter-

nationalisation

Determining factors for procurement in the future

Source: INVERTO


Get a grip on compliance risks in procurement5

Study shows1):

• With 45% procurement is one of the departments most susceptible to corruption

• 64% of corruption cases are systematically planned, 37% are recurring cases

• Culprits mostly men (aged 41-60 years) with higher qualification, who occupy same

position for 6-10years

• Procurement is responsible for identification and evaluation of risks along the supply chain and to

mitigate the damage potential

• Suppliers are stakeholders who define the image of a company

• „Four-eyes-principle“ between procurement and the demand owner

Introduce „Sourcing Goverance“

1) IIR Study on corruption in procurement, 2006

Source: INVERTO


Case studies - Procurement in a company like

yoursIncrease your profit – through effective procurement

London, September 22nd, 2010

Source: INVERTO


Extensive experience sourcing over £3bn in direct and indirect spend categories across all industries

Shopping trolleys for retailers

Steel tubes for the automotive industry

Mannequins for department stores

Electric motors for automotive suppliers

Logistics services and equipment

Industrial robots for automotive suppliers

Textile fashion for retailers

Gears for machine tool manufacturers

Dairy for discounter

Blister packaging for pharmaceutical

Source: INVERTO


Case study: Packaging – FMCG company

Industry: FMCG - Production and retailing Turnover: €3.6 bnEmployees: 12,500Locations: 4 production locations, 1000 stores

Demand• Total project spend: €790 m. • Packaging: €23.1 m.

• Number products: 282• Number suppliers: 12

Procurement situation• Complex product requirements• 23 products with 282 different print

specifications • 12 suppliers across 5 European

countries • Long and close supplier relations• Supplier selection done by head of

procurement and production

Initial situation Implementation

Data analysis/validation• Analysis of current contracts• Aggregation of demand data into 3

product groups

Product group strategy• Bundling• Reduction of number of suppliers• Enhancement of competition

Implementation• Tender with 60 suppliers from 7

countries (D, I, GR, TR, PL, A, CH)• 2 negotiation rounds with 19

suppliers, 3 site visits • Identification and implementation of 2

new suppliers (D, PL)

• Project duration: 7 months• savings: 2,1 m. € (9%)• Closure of 18-month contracts

(Price indexation)• Reduction of suppliers from 12 to

9, with the introduction of 2 new suppliers

Results

Source: INVERTO


Company: Retail chainstoreTurnover: ca. €1,700m Employees: > 9,000Stores: > 1,000 stores in 21 countries

Demand:Total project: €10.6m

- Catalogues, Brochures, Mailings

- Number of services: 42- Number of suppliers: >40

Sourcing situation:• Decentralised and independent

procurement in each country • Sourcing responsibility of marketing

functions• Different sourcing approach,

process and professionalism in each country

• Incomplete and non-existant specifications


Data analyis/validation:• Analysis of each individual product

requirement• Analysis of the process and

requirement for each individual user

Product group strategy:• Bundling of similar/standard

requirments• Pool of preferred suppliers defined• Standard process defined

Implementation:• Setup IT tool with catalogue• Tendered complete requirements• Selection of 10 suppliers in 7

countries• Setup of strategic and operational

purchase teams

• Project duration: 4 Months• Savings: €1.3m (12.5%)• Number of suppliers reduced from

40 to 10• Seperation of strategic sourcing

from local procurement, ensuring long term sustainability

Results

Case study: Marketing – retail company

Source: INVERTO


• Savings: €263k from €2.2m over 7

product categories (11.8%)• Supplier consolidation:

- 4 new key suppliers introduced to

improve competition- Traders were identified and

switched to producers where

possible.

• Extensive analysis and

benchmarking of 13 categories• Identified 7 categories with saving

potential through China sourcing• Defined goals, strategies, product

specifications, quality and production

requirements• Identified potential Chinese and

Asian suppliers in each of the

categories

PreparationI TenderII

• Managed tender programme for 7

product categories (524 products)

engaging directly with more than 150

Asian suppliers• More than 30 pre-audits and supplier

visits of current and potential suppliers• Direct communication with suppliers

before, during and after the tender to

ensure maximum efficiency and

outcome

ImplementationIV Negotiation

• Language and culture difference

continue to be the biggest barrier

negotiating with Chinese suppliers• Client representation ensured through a

deep understanding of the client and

their business requirements• Fast and highly targeted negotiations

speaking “the language of suppliers“

Sourcing Process

III

China

Sourcing

China

Sourcing

III

IV

I

II

Case study: Low-Cost Country Sourcing – Cosmetics Manufacturer

Source: INVERTO


Company: Department storeTurnover: ca. €3,500m Employees: > 25,000Stores: 123 stores in 2 countries

Demand:Total project: €38,0m

- Loose inserts (newspaper)- Radio ads- Ads in class magazines- Newspaper ads

- Number of services: 4- Number of suppliers: 1 media

agency

Sourcing situation:• Procurement of media services

through inhouse agency which is responsible for all formats

• Client had to accept corporate prices

• Client assumed that inhouse agency didn´t have market prices


Data analyis/validation:• Analysis of every single advertising

medium including publication date, price, circulation

• Identification of all relevant media agencies

• Invitation of 27 media agencies to pitch

Media pitch:• 1 rd.: qualitative evaluation of

agencies through case study incl. first price indication

• 2. rd: detailled quotation of > 14,000 individual prices by 4 top agencies

• 3. rd: price negotiation with 2 agencies

• Project duration: 4 months• Savings: €10,4 m (27,4%)• Award to new external agency• Considerable increase in service

level

Results

Case study: Media spend – Department store

Source: INVERTO


Case study: Steel Tubes – Automotive company

Initial situation:• Commodity: Precision steel tubes• Purchasing volume: €24m p.a.• 61 parts for 9 plants worldwide• 6 existing suppliers, partly local• Centralised sourcing from HQ

Preparation RFQ/RFI Implementation

Step 1 Implementation

Step 2 Negotiation

• 260 suppliers pre-qualified

• Product groups/ specifications

developed

• RFQ with open- book-calc. set

up

Market pricelevel

Supplier strategy,RFQ concept

Sustainablecompetition

Savingsshort-term

Savingsmid-/ long-term

2 Months1 Month 1 Month 12 Months1 Month

4.1m0 5.1m 4.1m (17.1%)0

2.4m0 1.0m 2.4m (10.0%)2.4m

Savings(€ m)

Existing suppliers

New suppliers

• 14 supplier negotiations

held

• Samples, target prices passed to

suppliers

• Suppliers evaluated by

team

• 27 qualified quotations

received

• All major suppliers

worldwide identified

• TCO-benchmarks set up

• Price agreements

fixed with current

and new suppliers

• Refusal sent to remaining suppliers

• Release process (Samples, assembly

tests, series start) accompanied

• Barriers removed as ”Moderator“

Review/ Re-Negotiation after 24 months generates

additional € 0.5m

Source: INVERTO


Case study: Facility management (cleaning) – manufacturing company

Industry sector: Mechanical engineeringSales: € 1,524mEmployees: 4,617Sites: 3 plants

Demand:• Project total indirect spend:

€ 200m• Cleaning: € 1.8m

- No. of items: 60- No. of suppliers: 10- Demand pattern: 89%

janitorial cleaning, 11% industrial cleaning

Sourcing situation:• Decentralised buying from local

sites• No uniform procurement

guidelines/functional specifications for supplier requests

• Large number of small suppliers


Data analysis/validation:• Data retrieval from SAP system• Aggregation of data• Validation of data base and

definition of functional service specifications

Category strategy:• Consistent approach for facility

management• Bundling of demands• Reduction of no. of suppliers• Increasing competition

Implementation:• Tender with 60 suppliers• Site inspections/supplier day• Negotiations with 10 suppliers

• Project duration: 10 months• Savings: €640k (36%)• 18 month contracts• Decrease of no. of suppliers to 4• Increased knowledge of specific

service requirements• Strong negotiation position based

on full understanding of cost drivers

Results

Source: INVERTO


Tools, Techniques, Knowledge



Source: INVERTO


Agenda

• Spend – how much, on what, with whom?

• Tactical cost reduction techniques

• Strategic supplier management

• Containing supplier price increases

Source: INVERTO


• Definition of comprehensive procurement strategy• Development of category management approach• Streamlining of purchasing processes

- Strategic sourcing- Operational purchasing

• Resource development and training analysisprogram

• Action plan• Project management• Resourcing

Procurement strategy & organisation Implementation road map

• Prepare sourcing initiatives (wave 1, 2, 3)- Aggregation of demand data- Analysis of relevant supply markets

• Develop and implement “quick wins”• Full sourcing and tender pipeline• Train staff „on-the-job“ in approach and e-sourcing tools• Negotiate contracts

• Analysis- Categories- Suppliers & contracts- Strategies- Organisation, processes- Systems

• Results- Spend cube- Savings potential per category- Levers- Effort/barriers - Team organisation, resources- Planning

Opportunityanalysis

Immediate cost reduction initiatives

Savings generated by systematically extendingterms of payment and re-negotiatingdiscounts for all suppliers

Co-Sourcing projects Working Capital Program

First tangible results after 2-3

months

Typical INVERTO Project

Nearly all our assignments start with a spend analysis

Phase 2 (6 – 12 months)Phase 1

4 – 6 weeks

Source: INVERTO


…and are based on detailed data collection and analysis

The spend cube provides answers to the questions: who buys what, from whom, at what price?

Categories

Suppliers

Business segments/Functions

Marketing

…

Manufacturing

IT

VolumeValue

FunctionDepartment

...

1 2 3 … … …

Accounts payable master

1 2 3 … … …

Cost drivers / Cost analysis

1 2 3 … … …

Material group codes

Supplier

Cost types on cost analysis pageCost analysis from the profit and loss account

Master dataPurchasing volumes

Material group key

SupplierPurchasing volume

subsidiary1

subsidiary2

subsidiary…

subsidiary…

…

...

Finance

Finance

Material management

Source: INVERTO


Buyers

Categories

Transparency requires three dimensions of analysis(a) Suppliers(b) Buyers

(c) Categories

• Identification of key suppliers;Company

Business UnitCategoryContracts

by annual valueby volumeby parts

• Identification of who is buying, and for whom

Suppliers

Understanding your spend is the foundation of successful procurement

• Identification of key cost categories;

CategoriesSub-categories

• Identification of key metrics;Preferred suppliersNon-contract spend

Pareto analysis

The output is a complete understanding across the entire organisation; „who buys what, from which supplier, at what price“

Source: INVERTO


and allows you to quantify the financial opportunity

Leverage Savings potential

Bun

dlin

g

Inte

rnat

. S

ourc

ing

Incr

ease

co

mpe

tiotn

Sys

tem

sup

plie

r

Spe

icifi

kat.

Sta

ndar

dis.

Pro

cess

op

timiz

atio

n

Kno

w H

ow-

Tra

nsfe

r

Sup

plie

r de

velo

pm.

Sub-category from[£k]

to[£k]

%

Pur. Vol. [£k]

£347k – £502kTOTAL 7.3%–10.6%£4,741k

Prio

Maintenance & Support 8-12825.0 66.0 99.0 2

Oracle 6-9819.5 49.1 73.8 3

Agency Contractors 5-9378.7 18.9 34.1 2

Network Equipment 5-7344.2 17.2 24.1 2

Applications 4-6337.3 13.5 20.2 3

Server & Network Software 12-15320.2 38.4 48.0 3

Storage Devices 8-12312.8 25.0 37.5 1

Consultancy/Development 10-14296.5 29.7 41.5 2

Laptops 8-12290.7 23.3 34.9 1

Network Equipment (Sun) 5-7219.4 11.0 15.4 2

Network Equipment (Intel) 5-7112.8 5.6 7.9 2

PC’s / Workstations 8-12211.3 16.9 25.4 1

Peripherals 5-7103.3 5.2 7.2 1

Consumables 18-2288.8 16.0 19.5 1

Lines Phones, Faxes 14-1780.4 11.3 13.7 1

Source: INVERTO


Agenda





Source: INVERTO


Price Evaluation Price leveling Price benchmarking Comparison of terms and conditions Target price calculation

Focus on your Leverage suppliers and use tactical commercial levers

Cost Reduction Levers

Priceevaluation

Demandaggregation

Product optimisation

Competitive leverage

Optimisationof value-add

3

1

2

Process optimisa-

tion

Commercial Levers Cross-functional Levers

Demand aggregation Volume consolidation Supplier rationalisation Extend contract scope/duration External aggregation in

procurement communities

Competitive leverage Extension of supply base Competitive leverage Global sourcing Development of new suppliers

Product Optimisation Standardisation Design-to-cost Specification review

(no nice to have’s, simplification)

Process Optimisation Supplier development Simplification of interfaces and

processes Improved procurement logistics

Optimisation of Value-Add Elimination of intermediate

levels/dealers Re-tailored supply scope

(split, merger)

Cost Reduction Levers of

Procurement

3

1

2

Source: INVERTO


235

94 1-4

Invited suppliers

Proposals provided

1. round negotiation

2. roundnegotiation

No of potential suppliers

•Detailed market research (INVERTO DB)

•Comprehensive tender documents

•Start tender, motivate suppliers•Evaluation of proposals,

negotiation•Screening, audits, trials•Tender award, contract

122

44

29.09.2009 12.10.2009 14.10.2009

Audit/implementation

Registeredsuppliers

11.11.2009 21.11.2009 23.12.2009

Example

Co-sourcing ensures delivery of results for clients through; resource, skills, expertise, technology, fee model

To convert savings into £££ P&L impact - execution is everything

Tender process

Source: INVERTO


Agenda





Source: INVERTO


Categorising your key suppliers will help you define the best approach to each

Each segment will have a different strategy

Annual expenditure

Mar

ket

dif

ficu

lty

High

Low0 £ £££

Critical suppliers

Acquisition suppliers Leverage suppliers

Strategic suppliers

Source: INVERTO



Acquisition suppliers

Annual expenditure

Mar

ket

dif

ficu

lty

High

“Streamline administration”

Move to Leverage: Bundle volumes Consolidate suppliers Agree volume rebates

Simplify and automate: Catalogues and transaction platforms Automate – minimise day-to-day effortLow

0 £ £££

Critical suppliers


Strategic suppliers

Source: INVERTO



Critical suppliers

Annual expenditure

Mar

ket

dif

ficu

lty

High

Low0 £ £££

Critical suppliers


Strategic suppliers

“Reduce the risk”

Move to Acquisition: Market analysis – find

alternatives Seek substitution options Risk and vulnerability

analysis Manage the risk:

Enter into co-operation Guarantee delivery Back-up supplies Hold safety stock

Source: INVERTO



Strategic suppliers

Annual expenditure

Mar

ket

dif

ficu

lty

High

Low0 £ £££

Critical suppliers


Strategic suppliers

“Create competitive advantage” Move to Leverage

Review specifications Develop new suppliers Unsettle existing suppliers

Guarantee stable relationships Exclusive agreements JV’s, partnerships Board to board contact Push for performance and value-add

Source: INVERTO



Leverage suppliers

Annual expenditure

Mar

ket

dif

ficu

lty

High

Low0 £ £££

Critical suppliers


Strategic suppliers

“Minimise price”

Maximise competition vs. Preferred Supplier Use market power – hard negotiation No/short contracts Maximise competition – RFPs/e-Auction Change suppliers often

Source: INVERTO


Agenda





Source: INVERTO


Pro-Active Re-active

Cost avoidance and containment – PARC it!

P A R C

Pre-empt

Research

Shelter

Forecast

Condition

Co-ordinate

Avoid

Ignore

Minimise

Substitute

Eliminate

Reject

“No” – outright

“No” – LOA

Delay

Deny

Challenge

Impose

Contain

Negotiate

Escalate

Postpone

Offset

Justify

Evaluate

Source: INVERTO


• Supplier for wooden pallets

calls for price increase of 3%

due to higher material costs• Steel price increased• Wood price dropped

significantly

£10.00

Wood

Production

Transportation

Steel

Wood

Production

Transportation

Steel (+60%)0.80

Should-cost pricing

Wood

Production

Transportation

Steel (+60%)0.50

0.90 0.90

3.10

5.50

0,90 €

3.10

4.30

0.90

Price (£/piece)

Initial situation Supplier price request

£10.30 (+3%)

£9.10 (-9%)

5.50

3.10

(-22%)

“prices should reduce by 9%”

0.80

Description

Example:wooden pallets

Justify: “Price is a policy, cost is a fact”

Source: INVERTO


Thank you!

Source: INVERTO


Panel Session – Q&A


London, September 22nd, 2010

Source: INVERTO


Retail – Direct Spend: Significant tangible savings for brand / private label merchandise

Merchandise

Category Product class

Savings p.a. [k €]

Savingsp.a. (%)

Ø Duration(months)

Lever

Examples

270 7,0% 8 Increased competition


336 8,0% 5 Increased competitoin


190 10,0% 6 supplier management

248 11,0% 5 increased competition

416 21,0% 6 LCC Programme


591 8,4% 9 LCC Programme

112 3,5% 5 supplier managment

1.400 5,8% 9 supplier managment

Purchsg. vol. p.a. [k €]

3.850

2.103

4.200

2.140

1.900

2.250

1.980

7.402

7.000

3.250

24.000

2.850 86 3,0% 4 supplier managment

Kitchen storage (bags, containers, ...)

Nutritional supplements

Laundry

Surface care

Fresheners /Deodorisers

Insect / Pest Control

Tableware (disposable)

Pet food (shelf stable)

420 6,0% 4 Increased competition7.000Baby hygiene (diapers, pads etc.)

Gen. personal hygiene (paper, tissues etc.)

Feminine / Nursing hygiene

Hair products

Oral hygiene

Pet care / Food

Metal products

Metal products

Metal products

Metal products

Homecare

Household / Kitchen Merchandise

Baby care

Metal products

Metal products

Metal products

Beauty / Personal Care / Hygiene

254 13,0% 3 Increased competition1.950Baby furniture

Source: INVERTO


Retail - Direct Spend: 3 examples of INVERTO´s approach

Pet Care / Food

Pet Care

Pet Welfare/Hygiene

Pet Nutr. Supplements

Pet Accessoires

Pet FoodPet Food/Drinks

Pet Drinks

Beauty / Personal Care / Hygiene

Skin Products

Hair Removal Products

Hair Products

Hair Care ProductsCosmetics/Frangrances

Personal Hygiene Products

General Personal Hygiene

Feminine / Nursing Hygiene

Oral Hygiene

Body Products

Cotton Wool Products

Antiperspir. /deo

Toilet Paper

CustomerPurchsg. vol. in m €

Action taken Savings Main lever

Nat´l super-market chain

Demand

Private label dog food: Dry/canned,

biscuits, treats3.230

Int´l tender with64 pre-qualified

suppliers

630 T€= 19,5%

Preassure on currentsupplier: Increased

competition through 34 alternative qualified

proposals



WholesaleHair Products

Demand

Hair Care Products(Brand product):Hair care assort-

ment of int´lbrand

6.733Data analysis,

negotiationwith supplier

808 T€= 12,0%

Transparency of price components and calcu-lation through detailedanalysis. Well prepared

negotiation.



Discounter

Demand

Private label toiletpaper

3.114Int´l tender with 48 pre-qualified

suppliers

452 T€= 14,5%

Identification of a newhighly qualified supplier

in Slovenia

Excerpt

Source: INVERTO


Retail – Direct Spend – Fashion / Non Food

Produkt

Kategorie Produktklassen

EKV p.a.T. €

Ein-sparung

T. €

Ein-sparungp.a. (%)

Dauer(Monaten)

WesentlicherStellhebel

Plastic, rubber products

2200 176 8% 8 LCC ProgrammeCandles

2.103 147 7% 3 Increased competitionFoils

Metal products

Metal products

Metal products

Metal products

3.200 690 24% 9 supplier developmentUnderwear (seaml.)

6.400 1.150 18% 12 LCC ProgrammeT-Shirts

12.600 2.208 18% 6 supplier developmentBras

5.640 1.620 29% 5 increased competitionStockings

6.363 886 14% 6 supplier developmentJeans/Denim

Fashion (Private Label)

Household articles

Toiletries / misc. articles7.402 518 7% 2 Increased competitionPet food

7.000 420 6% 2 Increased competitionTissues

Metal products

Metal products

Metal products

180.000 14.400 9% 9 supplier managmentWomenswear

109.000 9.800 8% 12 supplier managmentMenswear

14.000 800 5,5% 6 supplier managmentChildrenswear

47.000 1.400 3% 5 supplier managmentAccessoires

Fashion (brands)

…

.

.

.

Back

Examples

Source: INVERTO


Retail/ FMCG - Indirect spend: significant savings potential across all categories

INVERTO Projects (Indirect Spend) Purchsg. vol. p.a. in m €

Savingsp.a. (m €)

Savingsp.a. (%)

Ø Duration(months)Product classes (Excerpt INVERTO database)Category

29,4 3,7 12% 3Packaging machines, cleaning machines, escalators, refrigerationunits, bale press machines etc.Capex

48,0 8,8 18% 5Advertising / marketing agency, POS agency, printing (magazines, brochures,flyer), lithography, image processing, outdoor advertisingMarketing

20,1 3,9 19% 5Cleaning services, cash transportation, safes, alarm systems, store detectives, waste disposal, utilitiesFacility Mgmt.

3,5 0,7 20% 4Printing paper , toner, ink, stationary, foilsOffice Supplies

10,3 3,2 31% 7Hardware, Network, IT Services, Software, Licensing, Handheld Mobile Devices (outlets)

IT / Telecommunication

58,4 5,5 9% 5Shopping bags (PE, paper), transportation packaging, paper, paletts, crates, cases, containers, adhesive tape etc. Packaging

14,0 1,7 12% 4Construction work, lighting,fixtures , shlef systems, X-Mas decoration, manne-quins, fittings etc.Shop fitting

101,0 12,1 12% 6Sea freight, containers, truck logistics, warehousing, air freight etc. Logistics

7,7 0,8 10% 3Working Capital, “rapid cash”, auditors, leasing, A/P recovery etc. Financial Services

27,7 3,2 12% 6Management, skilled, unskilled laborTemporary Labor

10,4 0,7 6% 2Electricity, gas, waterUtilities

32,0 1,8 6% 6Car rental, leasing, travel management, airlines etc. Vehicles / transportation

Examples

Source: INVERTO


Industrial - Direct spend – deep sub-category experience in metal components

Savingsp.a. [Mill. €]

Savingsp.a. [%]

Ø duration[months]

Total vol.[Mill. €]Sub category

3,6 0,3 8% 4Aluminium profiles, steel profiles (non-alloy), steel parts, metal parts,shafts with profiles, mast profiles

Profiles

Products, services (excerpt)

5,0 0,9 18% 5Equipment lockerChassis

10,1 0,9 9% 11Consoles, discs, rod end bearings, angular sheets, bottom parts, forks, brackets,stamping parts, drawn parts, bearing plates, unlocking devicesStamping parts

91,8 4,8 5% 6Rod end bearings (precision steel), piston rods, squeezed tubes, bended tubes,precision steel tubes, pipes (seamless)Rods, tubes

44,5 4,4 10% 6Fork tines, chain cables, eyebolts, chain holders, gear housings, wheel hubs, etc.Forging parts

0,6 0,04 7% 3Springs for motors, coil springs, saucer springsSprings

34,2 1,3 4% 6Sheets, belts, plates (aluminium), mild steel (plate, flat, round, angle)Sheet metal parts

2,6 0,4 15% 3Fasteners, sleeves, pinsFasteners

0,4 0,05 13% 5Gearing partsGears

2,4 0,6 25% 4Jigs, tools, mouldsTools, moulds

62,3 6,5 10% 5Iron casting, spheroidal iron casting, magnesium die casting, sand casting, aluminium casting, zinc die casting, hook blocks, counterweightsCasting parts

66,8 5,2 8% 7Ball pins, turning parts, precision turning parts, milling parts, pistons, bearing parts, valve seatingTurning parts

Total 348,3 27,4 8% 6

24,0 2,0 8% 6Aluminium pistons, steel pistonsPistons

Purchased spend (direct spend)

Examples

Source: INVERTO


Industrial - Direct spend – electronics and electrical components

CompressorsCompressors 2,5 0,1 4% 6

Electric standard motors, DC motors, lifting units for cranes (DC motors),hydraulic motors (AC motors)DC/AC-motors 3,0 0,3 10% 9

Heavy duty connectors, plug cords, power supply lines, isolatorsElectrical connectors 2,1 0,3 14% 5

Convertors, power supply units, transformersTransformers 4,1 0,4 10% 4

Control systemsSteering systems 1,5 0,3 20% 8

Electric cables, electrical goods, conductors, switches, circuit breakersCables, conductors 3,3 0,2 6% 3

Ultrasonic sensorsSensors 0,3 0,1 33% 3

Electronic subassembly, PCBsElectronicsubassembly

14,5 1,4 10% 6

Electronic devices, electrical assembly, integrated circuitsElectrical, electronicsystems

19,5 1,4 7% 6

Control cabinets, control cabinet mountingsControl cabinets 3,9 0,3 8% 5

Wiring harnessesWiring harnesses 14,0 1,7 12% 6

Total 68,7 6,5 9% 6

Purchased spend (direct spend) Total vol.[Mill. €]


Savingsp.a. [%]

Ø duration[months]Products, services (excerpt)Sub category

Examples

Source: INVERTO


Industrial - Direct spend - plastic parts, raw materials and additives

30,3 1,0 3% 5PA, PE, PC, PP, ABS, PMMA, HFFR Compounds, etc.Polymers

13,6 0,9 7% 6Brake pads, plastic/rubber/foam partsPlastic parts

23,8 2,5 11% 7Flexible hoses, fibre-reinforced hosesHoses

12,7 1,0 8% 6Solid rubber wheelsTires

0,3 0,1 33% 7Brake rings, duroplastic partsPressing parts

25,1 3,5 14% 9Piston rod guides, ball cups, guide bushings, return elements, oil cushion units, spring cages, separating pistons, bumpers, housing parts

Injection mouldedparts

8,6 0,9 10% 7Stamped gaskets, foamed gaskets, shaft sealsGaskets

Total 84,1 8,9 10% 7

Plastic parts

11,7 1,2 10% 5Master batches, additives, dyePolymer additives

Raw materials, additives

Total 42,0 2,2 5% 5

Purchased spend (direct spend) Total vol.[Mill. €]


Savingsp.a. [%]

Ø duration[months]Products, services (excerpt)Sub category

Back

Examples

Source: INVERTO


Industrial - Indirect spend categories

Purchased spend (indirect spend) Total vol.[Mill. €]


Savingsp.a. [%]

Ø duration[months]Sub category, products, services (excerpt)Category

66,0 7,7 12% 3Carrying systems, ducts, cleaning machines, construction works, coolingsystems, electrical systems, forwarding systems, packaging machines etc.

Technical equipment,machinery

219,1 35,2 16% 5Advertising material, flyers, labels, mailings, marketing services, package inserts,print media etc.

Marketing products,services

37,7 6,3 17% 5Cleaning services, production services, office services, green area services,catering, pest control, security services, waste disposal, working clothesFacility Management

9,0 1,8 20% 5Copying paper, office supplies, sales slip rolls, printers, copiers, toner cartridgesOffice supplies

16,1 3,0 19% 4IT hardware, WAN services, mobile phone services, software licenses, network operating/servicesIT/Telco

139,8 11,9 9% 5Bags, cases, cardboards, containers, IBCs, folded boxes, labels, packaging ser-vices, pallets, paper, plastic boxes/foils/trays, profiles, tapes, tins, wire, wood, etc.Packaging

241,0 23,0 10% 6CEP services, road freight (FTL, LTFT, bulk, silo, containers, tanks), sea freight(forwarders, carriers), warehousing, inbound logisticsLogistics services

8,5 1,2 14% 3Credit insurance, interest rates, derivates, leasing, payment terms, insuranceFinancial services

64,3 5,5 ´9% 5Skilled labour, unskilled labour, On-Site management, contract for servicesand labour Temporary labour

10,3 0,7 7% 2Electricity, gas, waterEnergy

42,9 3,1 7% 5Fuel, industrial trucks, prepaid gas cards, tires, travel management, vehicle leasing, car rentalFleet

911,7Total 108,4 12% 5

44,4 5,7 13% 9Processing machines, handling equipmentMaintenance, repair

4,8 1,9 40% 7HR services, IT services, logistic servicesBusiness processoutsourcing

7,8 1,4 18% 4Tax consulting, certification services, auditing, engineering consulting, in-house trainings, professional trainings, legal servicesConsulting services

Examples

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