Working with Procurement to Secure the Engagement

April 2010

Introduction

► Joe Yacura► Supply Chain Management, LLC► Founder and Chief Strategist► www.scmllc.biz► e-mail: jyacura@scmllc.biz► (201) 923-1776

Objectives

► Define the evolving role of procurement, what drives the profession and how procurement professionals are evaluated

► Identify how to differentiate your company from the competition in a procurement run situation

► Explain how to influence and align with procurement► Describe what procurement professionals value beyond

price and how big a role they have in the decision process when it comes to selecting professional service providers

Agenda

► How can a supplier best distinguish themselves from the competition in a procurement-run RFQ?

► How are alternative proposal and pricing models received? ► What do procurement people value other than price?► What are the decision criteria when purchasing professional

services?► Who establishes these criteria?► How big a role does procurement really have in the decision

process of selecting professional service providers?► How are procurement professionals evaluated?

Question

► Who has been involved in a pricing negotiation greater than $100,000 in the previous six months?

► What has changed in that process?► Has procurement been involved?

The profession

The profession has evolved significantly over the last 30 years.

Decade Title Involvement

1970s Buyers Tactical

1980s Purchasing Tactical

1990s Contract Administrators

Tactical & Strategic

2000 Supply Chain

Management

Strategic

The profession

► Most companies have started to realize that over 60% of their total costs are payments to suppliers.

► Most companies now have their chief procurement officer (CPO) reporting to the president, CFO or COO of the company.

► Supply Chain Management is no longer a staff or administrative function.

► Supply Chain Management (SCM) now has end-to-end responsibility and accountability for the total supply chain.

► Qualified SCM talent is in very short supply.

Question

► Which of these sets of services are considered professional services to a procurement department?

A. Audit, Tax, Legal, Risk Management, Advertising

B. Audit, Contracted Programmers, Consulting, Data Centers

C. Audit, Data Center Ops, Legal, Call Centers

D. None of the above

Sourcing: products vs. services vs. professional services► The sourcing of “professional services” is much different from

“products” or “services”► Products are tangible goods

_______________________► Services include:

1. Contracted Programmers

2. Call Centers

3. Data Center Operations

4. Security

5. Etc.

________________________► Professional services include:

1. Tax

2. Auditing

3. Legal

4. Risk management

5. Consulting

6. Advertising

7. Health care and benefits

8. Etc.

The profession has an expanded role

► Sourcing (identifying and qualifying suppliers)► Statement of work (SOW) development► Competitive bidding► Contract negotiation► Contract administration► Service level agreements (SLAs)► Project management

Profession drivers

► Increased need to contain cost (either reduce or shift)► Companies are less vertically integrated today and

therefore outsource more► Logistics► Risk mitigation (increasing rapidly in importance)► Inability to find qualified people► Speed of change► Globalization► SOX Section 404 (increased documentation of sourcing

processes and decisions)

Question

► In the last 10 years, procurement departments have become:

A. Tactical

B. Strategic

C. Tactical and strategic

D. None of the above

The measurement (how SCM personnel are evaluated and compensated)

► Cost reduction► Methods of calculating (not more than 50% of a person’s

appraisal):► Cost reduction► Cost avoidance

► Internal client satisfaction► Usually composes 20%–30% of a person’s appraisal

► Risk mitigation► Gaining in significance but usually hard to quantify in an appraisal

► Innovation► Often discussed in performance plans but usually not quantified

The measurement (how SCM personnel are evaluated and compensated) (cont.)

► Process compliance► Often measured by how many products/services have been

moved to an electronic auction; less so when buying services

► Contract cycle time► Measured but hard to quantify in an appraisal due to many

influencing factors beyond the control of SCM

► Supplier performance► the existence of service level agreements (SLAs) and their

effectiveness is heavily measured

Sourcing challenges

► SCM organizations struggle with sourcing of “professional services” given its intangible and subjective nature

► SCM organizations feel more comfortable with measurable things (products or services)

► SCM organizations currently do not have good metrics for “professional services”

► You can help SCM organizations develop these metrics to your favor

The process

► SCM approach with its internal clients:► Historical – definitive/directive

► Lowest price

► Current – collaborative► How do we help you make your budget go further?► How do we make your job easier?► What are your business priorities/drivers?

The process (cont.)

► The supply chain management process is structured► This does not mean that it is rigid and inflexible► It relies heavily on quantitative data (not a strength of

professional services)► The supply chain management process relative to

professional services is evolving► The process is well-defined for products and services, but

not for professional services

Process compliance

► As a supplier, you must comply with the process or risk disqualification

► This does not mean that you can’t influence the process► You have more ability to influence the process and the

decision matrix than you think

Process – how to influence

► Be aggressive but respectful when responding to RFIs/RFQs► Schedule pre-RFI/RFQ discussions with your existing or potential clients► Assess which process they will be using in sourcing their tax/auditing

needs► Make constructive suggestions on ways to enhance the sourcing process,

score card and service level agreements► Focus on ways of making the SCM person more successful while also

making his or her job easier► Ask lots of questions► Attend, in person if possible, every pre-bid meeting open to the suppliers► Listen, listen, listen – In many cases the SCM person will give you the

answers they need in the RFI/RFQ responses

Process – how to influence (cont.)

► Create a simple model or spreadsheet that attempts to quantify the differentiating “value” you bring (SCM staff love analytical decision-making)

► The model can utilize any numerical calculations as long as you state the basis of your assigned values and your model assumptions

► Remember, the SCM person wants to minimize the subjectivity of his or her decision and would like to have the benefit of some form of quantitative analysis/decision

► Establish values for knowledge, efficiencies, technology utilization, etc.

► Follow the “stress”► Align with the client’s business objectives

Alignment

► It is absolutely critical that you align your interaction with the client’s four key areas:

1. Strategy

2. Customers

3. People

4. Processes

► Any form of professional services must be aligned to these four areas of client focus to be viewed as having high value by the client.

► What many service providers don’t realize is that this alignment takes different forms at different levels within the client organization.

Alignment (cont.)

► You should create and utilize an alignment diagnostic tool at the beginning of each engagement.

► The diagnostic tool usually takes the form of a survey focusing on the four areas of:

1. Strategy2. Customers3. People4. Processes

► Once the diagnostic is performed, you can create the goals, targets and measurements to ensure alignment.

► This will eliminate the “one size fits all” approach.

Alignment

► What is a client looking for from you?

Wisdom

Expertise

Knowledge

Information

Data

Don’t assume anything. Always align using an alignment diagnostic tool.

Intelligence hierarchy

Question

► What are some of the ways you can create value in a procurement discussion?

A. Product, alignment and price

B. Product, access, and service

C. Product, access, price, experience, alignment

D. All of the above

Value attributes

► Product► Price► Access► Service► Experience► Alignment

Another way to look at value

Value = Quality* and functionality

Price

*Quality is a given in today’s world

Value stream mapping

► This technique is often critical in helping the client visualize their processes, identifying their stresses and establishing metrics to help create an overall value proposition.

► The key to “value stream mapping” is to do it with the client so they are part of the process.

► The following areas are often areas of high organizational stress:

1. Financial controls

2. Information processing

3. Risk management

Ways of creating value/differentiation

► Your major differentiator in the equation, other than price, has to be in “functionality.”

► What are attributes of functionality?1. Access

2. Experience

3. Flexibility

4. Service

5. Product variation

6. Communications

7. Creativity

8. Speed

9. Understanding of client requirements (minimizing number of change orders)

10. Education/certifications

11. Process

12. Use of technology – Electronic accessibility

Critical success factors

► Create differentiating value in your response► Drive “value,” not “price”► Align with the client’s priorities and stresses► Gain insight into the client’s SCM metrics► Respond exactly as requested to RFIs/RFQs► Establish contact with the SCM and SME as soon as possible and open

channels of communications► Help educate the SCM person on the sourcing of “professional services”► Try to influence the creation of the sourcing decision matrix► Ask permission to submit an alternative proposal in addition to the

required response► Meet all deadlines and deliverables

Additional traits SCM is looking for from a supplier► Easy to interact with► Responsive to all requests (achieve clarity on each request)► Shows interest in understanding my business► Views my business as important► Shows interest in helping me get this RFQ sourced and completed► Asks how they can help► Is prepared to assist in resolving any issues/conflicts► Has the authority within their company to resolve issues/conflicts► Is truthful and tells it like it is► Instantaneous access to information► Internet identifiable and accessible

The value of an electronic Merchant Exchange in creating new business

Example – Alibaba

Benefit – 1) Provides efficient identification and sourcing tool 2) Easy access to supplier capabilities worldwide 3) Facilitates efficient communications

Summary

► You should now be able to:► Define the evolving role of procurement, what drives the

profession and how procurement professionals are evaluated► Identify how to differentiate your self from the competition in a

procurement run situation► Explain how to influence and align with procurement► Describe what procurement professionals value beyond price and

how big a role they have in the decision process when it comes to selecting professional service providers

Questions

Thank you

for your participation and feedback!