The 10th EIPM Annual Conference "Supplier Relationship Management" Supplier Innovation Leverage "From concepts to the real experience"

Transcription

1 December 2 nd, 2005 The 10th EIPM Annual Conference "Supplier Relationship Management" Supplier Innovation Leverage "From concepts to the real experience" Prepared for: EIPM C O N F I D E N T I A L

2 Supplier innovation leverage Ideas are on the paper, but it is harder to get things done, that is why we will propose simple ideas to make things happen SRM concepts and DOs are well known Supplier Innovation leverage Innovation roadmap sharing but only a few industries have made things happen "I agree with what can be read or heard, yet here, to be realistic, we still have 80% of the way to go" CPO, Industry Cross functional buying teams Team cooperation on Total Cost of Ownership "We hear about innovation partnerships with suppliers, but it is still a both a challenge and an opportunity for the CPO to position his organization as business partner" CEO, White Goods Source: Mercer EIPM 2005 Firm research 2005 Mercer Management Consulting , Dec. 2nd EIPM Presentation 1

3 Supplier innovation leverage 3 main messages 1. Sourcing organizations should work to create value beyond cost CEO expectations are changing Cost cutting has limits Purchasing missions are changing 2. Leaders' best practices can be emulated in all businesses Key best practices to be implemented A four-dimensional toolkit to launch the momentum Examples and results 3. Cultural changes are needed and will require support from senior management 2005 Mercer Management Consulting , Dec. 2nd EIPM Presentation 2

4 Supplier innovation leverage Roadmap Create value beyond costs Leaders' best practices to be emulated Some cultural changes are still needed 2005 Mercer Management Consulting , Dec. 2nd EIPM Presentation 3

5 Create value beyond costs CEOs now expect buyers to become business partners Value creation is becoming increasingly critical Higher quality at lower costs Shorter innovation cycles and time to market driving new expectations from CEOs "We want sourcing to bring in innovation and value from the supplier market upstream in our product design." CEO, Industry Increasing need for product differentiation Growing power of clients "Contribution to the bottom line is a must, now we expect purchasing to increase value creation for the business." CEO, Consumer Goods Source: Mercer EIPM 2005 Firm research 2005 Mercer Management Consulting , Dec. 2nd EIPM Presentation 4

6 Create value beyond costs Although costs must be optimized, the importance of growth must not be neglected Growth and value creation for stakeholders 40% 36% 30% 22% 24% S&P % For over 15 years, we have known that pure cost-cutting strategies are surpassed by profitable growth strategies 20% Market capitalization CAGR % 14% The gap between cost-cutters and profitable growth companies is growing: 7% ( ), 12% ( ). This trend is confirmed by current studies. 0% Declining companies Companies without profitable growth Costcutters Companies with profitable growth Source: Mercer research, 800 companies i& 36 industry, North America 2005 Mercer Management Consulting , Dec. 2nd EIPM Presentation 5

7 Create value beyond costs Yet purchasing organizations are still under pressure to reduce costs Q: Among the following topics, select the most important for your company in the past two years and the coming two years: (% of total responses) 30% +5% -41% +25% +30% +33% 22% 23% 22% 25% 24% 20% % of total responses 10% 13% 12% 15% 10% 13% 9% 12% 0% Realize savings on purchasing Establish an efficient purchasing organization Optimize interfaces between purchasing and other functions Track and measure purchasing performance Overhaul processes for working with suppliers Improving overall profitability by realizing savings on purchasing is and will remain a top priority for Purchasing Directors Source: Mercer research, Main French CPOs questioned in 2003 on "Sourcing 2005 Challenges" Other (Implement electronic systems, reinforce buyer skills, etc.) Mercer Management Consulting , Dec. 2nd EIPM Presentation 6

8 Create value beyond costs The challenge for CPOs is to contribute to both the top and the bottom line Key Objectives Help bring innovation into the company and leverage suppliers' ability to innovate Growth + Risks + Costs Help create differentiation with competitors Generate new behaviors and new operating practices Actively contribute to risk management: Creeping cost risks Operational risks (quality, cycle time, safe supply) Technological, strategic, environmental risks, etc. Realize savings on purchasing expenses Reconcile the purchasing vision and the operational vision: Impact of purchasing initiatives on the company P&L 2005 Mercer Management Consulting , Dec. 2nd EIPM Presentation 7

9 Supplier innovation leverage Roadmap Create value beyond costs Leaders' best practices to be emulated Some cultural changes are still needed 2005 Mercer Management Consulting , Dec. 2nd EIPM Presentation 8

10 Leaders' best practices to be emulated Best practice toolbox to leverage supplier innovation with all stakeholders Share Business Vision Leverage Supplier Innovation External Internal 2005 Mercer Management Consulting , Dec. 2nd EIPM Presentation 9

11 Leaders' best practices to be emulated Share Business Vision Share Business Vision External Leverage Supplier Innovation Internal Key Action Items Share business, brand strategies and innovation & product roadmaps Discuss strategic "make" or "buy" options Ensure alignment of the purchasing strategy with the business strategy Practical Initiatives Invite senior management to present the strategy and business context to purchasing teams Discuss core business competencies versus competencies that can be sourced from the outside Formalize the purchasing strategy, show links with the business and share the strategy 2005 Mercer Management Consulting , Dec. 2nd EIPM Presentation 10

12 Leaders' best practices to be emulated Leverage Supplier Innovation Share Business Vision External Leverage Supplier Innovation Internal Key Action Items Evaluate key supplier capabilities Leverage supplier capabilities, technologies, initiatives Think outside of the box, beyond usual business boundaries!!! Practical Initiatives Develop and implement simple evaluation tools! Organize innovation days where suppliers can proactively suggest innovations, changes, etc. Get purchasing teams to work on alternatives based on best practices and success stories of other companies 2005 Mercer Management Consulting , Dec. 2nd EIPM Presentation 11

13 Leaders' best practices to be emulated External Share Business Vision External Leverage Supplier Innovation Internal Key Action Items Collaborate on shared innovation roadmaps Involve suppliers in upstream development Recognize success and performance Practical Initiatives Choose visible projects to demonstrate return and benefits Include real benefits in deals and contracts Formalize rules and basis for discussion and collaboration 2005 Mercer Management Consulting , Dec. 2nd EIPM Presentation 12

14 Leaders' best practices to be emulated Internal Share Business Vision External Leverage Supplier Innovation Internal Key Action Items Include buyers in development teams Involve suppliers in key technical training, assessment collaboration, recognition Set common targets and objectives with key functions Supplier Key teams Practical Initiatives Build global teams to address supplier issues Promote total cost of ownership methodologies to illustrate the link with stakeholders Align internal incentives and reward systems 2005 Mercer Management Consulting , Dec. 2nd EIPM Presentation 13

15 Supplier innovation leverage Roadmap Create value beyond costs Leaders' best practices to be emulated Some cultural changes are still needed 2005 Mercer Management Consulting , Dec. 2nd EIPM Presentation 14

16 Some cultural change are still needed Yet, some people issues must be resolved in order to move forward! Value creation is becoming increasingly critical Mismatch between cost-cutting background and current need for business developers Mismatch between the strategic impact of the purchasing function and current average staff quality Mismatch between task balance, too much time spent on administrative and cost-cutting tasks versus external leverage driving new expectations in terms of the balance of activities and skills "Buyers add value to other functions with their understanding of supplier markets but since they spend only 5% of their time on the supplier market, it is no surprise that they create little value." CEO, White Goods "We hired and trained people to put pressure on suppliers and costs and now we need people able to develop collaborative practices with these suppliers." CPO, Chemical Industry 2005 Mercer Management Consulting , Dec. 2nd EIPM Presentation 15

17 Supplier innovation leverage Conclusion Need for change and balance between top-line and bottom-line performance Simple ideas and best practices are within reach Start with simple an realistic intiatives but start For most businesses, it's more a people issue than a structural issue Shared vision between CEO and CPO Put the right people in the right place to be sufficiently connected to key functions within the organization and to suppliers outside the organization 2005 Mercer Management Consulting , Dec. 2nd EIPM Presentation 16