AberdeenGroup 2012

Transforming the Procurement Function:

What Comes Next?

Eric Germa ANN INC.

SVP & Chief Procurement Officer November 13, 2012

AberdeenGroup 2012

Session Agenda

ANN INC. Overview Our call to action The new Procurement operating model Our journey to sustainable value Your role in elevating the procurement function

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Company Overview

Leading Womens Apparel Retailer

$2.2B In Revenue In 2011

2 Brands, 5 Channels of Distribution

981 Stores Across U.S.

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We Have 2 Leading US Brands

Ann Taylor and LOFT

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With Four Store Channels:

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Our Call To Action Operational Excellence Opportunity

Indirect Spend 1

Store Lifecyle Management

2

Store Operations 3

Store Portfolio Restructuring

4

Organizational Effectiveness

5

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The First Year

Clear Purpose and Commitment

Finding the Right Talent

New Approach

and Process Discipline

New Value $

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Store Occupancy, Design & Construction

Store Supplies

Facilities Management

Information Systems Marketing

Non-Merchandise Spend

Corporate Services

Logistics

Direct Merchandising Directed Buys

eCommerce

Non-Merchandise Spend

Merchandise Spend

Human Resources

Our Sandbox

>70 categories and over 15 stakeholder groups

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Clear Purpose Global Procurement Vision

Partner with all Divisions/Functions to strategically source and proactively manage Ann Taylors non-merchandise spend, and build a best-in-class procurement function for sustained savings and competitive advantage

Mission

Provide the most responsive, expert, efficient and results-oriented support for all Ann Taylors divisions and functions

Ensure strategic cost excellence lowest cost on planet, then year-over-year productivity Act as a change agent in improving processes, compliance, and supplier performance Build superior sourcing, category, and supplier development expertise in key spend

areas - Marketing, Media, Store Development, Logistics, IT, Store Supplies, HR, Professional Services

Optimize supply base, and develop strategic suppliers Develop e-sourcing/SAP eProcurement center of excellence

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The New Procurement Operating Model Spend Management Deployment

Leverage spend analytics and e-Sourcing

Implement process discipline and procurement excellence

Shift balance from tactical to strategic work

Transform Spend Management Capabilities

Re-negotiate key contracts Address new spend areas through

Value Initiative Pipeline (VIP) Lead PMO for all OPEX initiatives

Create/Sustain New Value

Align with Divisions/Functions agendas Lead cross-functional teams on VIP

initiatives Drive spend management discipline

Become a Strategic Partner

Procurement Value Creation

Engine

Recruit and develop the best talent Mentor and coach staff One Team

Develop Procurement Talent

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Becoming a Strategic Partner Strong Governance

Brand/Division Program

Management Office (PMO)

Sourcing Team

Implementation Team

Sourcing Team

Implementation Team

Procurement Council

Sourcing Team

Implementation Team

Process Continuity

Business Unit Sponsorship and

Stakeholder Buy-in

Leadership Support

Governance Structure

Procurement Council Roles and Responsibilities

Provide procurement oversight Review and approve team

recommendations

Remove internal barriers Ensure benefits to company are

optimized and balanced against other business priorities

Ensure procurement guidelines are followed

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Becoming a Strategic Partner - Implementing a new Procurement Policy to drive early involvement and compliance

No PO, No Pay

Procurement Early Involvement

Competitive Bidding

2 Signatures on Every Contract

No Shadow Procurement

Non-Compliance Consequence Model

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Create/Sustain Value - Value Initiative Pipeline (VIP)

Category Spend Addressable ($MM) Target Annual Savings Target FY09

Savings ($MM) ($MM) (%)

Spen

d M

anag

emen

t (Fu

ll Pr

ojec

ts)

Data Center Managed Services 15.0% Telecommunications Internet Platform Temporary Labor Ocean Transportation Air Freight Customs Broker Services Wrap & Pack International Trade Legal Services Merchandise Trim Tags & Labels Merchandise eSourcing Demand Mgmt W&P, Hangers, Store Supplies

Acce

lera

ted

Sour

cing

POS Maintenance Corrugated Hangers Woven Labels Catalog Print Travel Hotels Office Supplies

Wave 2 Indirect Spend Total

Indirect Spend

1

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New Process Discipline In Search of Insights Source and Negotiate

Award And Implement

Implement New Processes

Measure Performance

And Continuously

Improve

Develop Pipeline and Annual Project Plan

Profile Category and

Identify Opportunities

Develop Sourcing Strategy

Benchmark and

Develop Solutions

Final Recommend-

ation and Approvals

Develop Savings/Re-Engineering Hypothesis

1 2

3a 4a 5a

3b 4b 5b

6 7

Value Initiative Pipeline

Category Profile

RF(x) Package

Savings Tracking

Realization

Supplier Scorecards

Baseline Approval

Form

Sourcing Strategy

RF(x) Grading

Contract Summary

Sheet

Quarterly Business

Review Form

Supplier Market

Analysis

Negotiation Strategy

Negotiated Savings

Form

Award Recommen

dation

Strategic Sourcing Deliverables

Risk Management

Form

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Transform Spend Management Capabilities What-if analyses

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Develop Procurement Talent A new Paradigm The New Strategic Sourcing Manager Customer-focused

Fact-driven, analytical

Technology savvy

Strong project management

A change leader

Value-driven

Accountable

Global mindset

Collaborative but assertive, and aggressive

Constantly reinvents

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Talent Development Excellence in Role Competency Senior Analyst Manager Senior Manager Director Senior Director

Problem Solving & Analytics - Process Effectiveness -Problem structuring & resolution - Analysis & synthesis Tools -Market Research -Spend Analytics -eSourcing -Scenario Planning

Identifies issues and independently leverages data sources and market research

Rigorously identifies issues and creatively uses all data sources to develop comprehensive fact-base

Develops new insights into issues, efficiently and creatively directs team to develop powerful fact base, leverages analytical tools, and shares market insights

Stretches team perspective, creates faster, broader, deeper insights into issues Drives team to high-quality deliverables and ensures actionable recommendations

Structures comprehensive approach to validate hypotheses, performs complex analyses, synthesizes and presents findings to stakeholders

Independently develops and directs hypotheses, develops solution and work plan while managing stakeholder relationship and requirements

Directs team to develop powerful fact-base, leverages new analytical tools Coaches team on structuring approaches to complex problems and adjusting strategy as needed Structures approaches to ill-defined problems

Builds Excel models and Powerpoint presentations

Builds and validates advanced Excel models. Develops well-structured and compelling Powerpoint presentations tailored to audience

Organizes and directs work; develops a comprehensive set of sound recommendations

Develops clear recommendations and feasible implementation plans

Challenges conclusions from analyses to ensure best quality. Sets overall messaging for audience, and reviews Powerpoint presentations

Builds RFx and projects on eSourcing platform

Builds and manages complex RFx and projects on eSourcing platform Probes and vets team members conclusions from Excel analyses and PPT presentations. Drives stakeholder decisions based on data and compelling logic/communications

Helps team to leverage Sourcing platform to accelerate value delivery

Leverages additional tools as appropriate (BIQ, TSC, etc.) Strategic Sourcing and Demand Management Knowledge -7Step process - Vendor Mgmt - SME - Sourcing & Outsourcing strategies - Cost models - Negotiations

Is proficient in the 7-step spend management process and the associated deliverables

Demonstrates expertise in the 7-step sourcing process and integrates the process into work activities

Trains cross-functional teams on the 7-step spend management process and clearly articulates all deliverables required

Sells Global Procurement and 7-step spend management process throughout organization. Has proven track record of executing large, complex sourcing programs, delivers sustainable results.

Subject matter expertise in 1-2 basic sourcing categories and strategies

SME in 2-4 basic sourcing categories

SME in 1-2 complex sourcing categories and advanced sourcing strategies across several basic categories. Considers alternatives to sourcing-only methodologies (e.g., specs improvement, joint process improvements).

Broadens SME across teams regarding complex sourcing categories and advanced sourcing strategies (e.g., specs improvement, joint process improvements, relationship restructuring, off shoring, demand management, etc.)

Demonstrates intellectual leadership in spend management

Coaches and leads others regarding strategies for addressing complex sourcing categories

Prepares accurate spend baseline and negotiated savings forms, detailing underlying assumptions

Reviews spend baseline and negotiated savings forms and obtains required signatures from project sponsors Develops advanced cost models and negotiation strategies

Reviews spend baseline and negotiated savings forms as needed Ensures executive alignment with project results Conducts ongoing follow-up with stakeholders and identifies new projects

Key Competencies

Problem Solving and Analytics

Spend Management Knowledge

Communication and Stakeholder Influencing

People Management

Strategic Planning and Sourcing Pipeline Development

Leadership and Commitment

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Storming Performing Ingrained

Spend Analytics

PMO

Complex Sourcing

Talent Development

Stakeholder Partnership

Alignment to Strategic Initiatives

Supplier Development

Excellence in Role

Value Creation

2009 2010 2011 2012 2013

Governance

Pipeline Management

Opportunistic Sourcing

Talent Acquisition

Our Procurement Journey

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What Comes Next? Background

Exceeded cost savings targets for four consecutive years!

Stakeholder satisfaction at all time high!

Procurement viewed as a Strategic Partner to the Business!

Results

Stakeholder Acceptance is a Must

Procurement Leadership must own the result

Must Align with the Business Strategy

Must Provide Career Growth Opportunities

Requirements Actions Interviews and workshops with over 30

Executive Stakeholders

Informal benchmarking and best practice discussions with Procurement Leadership

Tailored HR strategy for our people

Align Procurement Goals with Strategic Business Objectives

Focus on Managing Strategic Categories

Accelerate Strategic Sourcing

Enhance Data Reporting

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Strategic Supplier Relationship Management

Aligns with Ann Inc. corporate objectives (multi-channel growth; international expansion; and new store expansion)

SRM focuses on total relationship value (advanced capabilities, joint processes, innovation, etc.) not transactional issues

SRM positions Ann Inc. for capturing benefits above and beyond traditional Strategic Sourcing

We estimate Strategic SRM will deliver 40-50% of total benefits within the next 24-36 months!

(SRM) Program is a strategic initiative to transform how Ann Inc. manages its non merchandise suppliers

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The Pillars of Strategic SRM at Ann

Prioritize Define expectations at every supplier level.

Engage

Manage supplier engagement to drive collaboration among Ann staff and suppliers.

Measure Automated scorecards to drive improved supplier performance.

Invest Capabilities for planning and executing supplier development

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Create a vision generate excitement develop a team

Secure clear executive support

Stay stakeholder-focused price, quality, service, and innovation

Understand spend, develop fact-base, excel at analytics

Leverage technology

Establish team credibility by demonstrating early results

Find the best talent to support tomorrows vision, dont delay talent decisions

Embrace suppliers' capabilities and collaborate

Pick the battles that matterdont underestimate the time it takes to change behaviors

Communicate, communicate, communicate

Dont wait, create a sense of urgency

Lessons Learned Keys to a successful Procurement Transformation

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How Do You Lead? Procurement Leadership Style

Uneven

Jerk

Avoider

Doer Challenger

Problem Solver Ambassador

Strategist

Politician

Value Creation

Great

Superior

Average

Stakeholder Management

You

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What are your next BIG IDEAS? How do you improve stakeholder collaboration? How will you lead next year?

Closing Thoughts

"If you want to build a ship, don't drum up the men to go to the forest to gather wood, saw it, and nail the planks together. Instead, teach them the desire for the sea." Antoine de Saint-Exupery

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Thank you

Eric Germa, SVP & Chief Procurement Officer

ANN INC. (212) 536-4355

Eric_Germa@anninc.com

AberdeenGroup 2012

Transforming the Procurement Function: What Comes Next?Session AgendaCompany OverviewWe Have 2 Leading US BrandsWith Four Store Channels:Our Call To ActionOperational Excellence OpportunityThe First YearOur SandboxClear Purpose Global ProcurementThe New Procurement Operating ModelBecoming a Strategic Partner Strong GovernanceBecoming a Strategic Partner - Implementing a new Procurement Policy to drive early involvement and complianceSlide Number 13Slide Number 14Transform Spend Management Capabilities What-if analysesDevelop Procurement Talent A new ParadigmSlide Number 17Slide Number 18What Comes Next?Strategic Supplier Relationship ManagementThe Pillars of Strategic SRM at AnnSlide Number 22Slide Number 23Slide Number 24Slide Number 25Thank you Slide Number 27