Emerging Procurement Trends in Steel Industry. Indian Steel 2008, Mumbai

Transcription

1 Emerging Procurement Trends in Steel Industry

2 What are the most critical issues facing your industry? CHEMICALS Raw Material Availability 78% Infrastructural Issues 76% Cost Competitiveness 63% Customer Relations 55% Source: AT Kearney

3 Purchased products and services account for more than 60% of the average company s total costs. For steel companies, that number goes up to 75%; it s 90% in the petrochemical industry. Even at service companies, the figure is typically a hefty 35%. A 5% cut [in these costs] can translate into a 30% jump in profits. A Smarter Way to Buy Harvard Business Review, June 2005

4 The Value aspects of procurement are in Strategic Buys Non Strategic Buys Service Contracts

5 The Value aspects of procurement are in Strategic Buys Iron Ore Coal Ferro Alloys Refractories Technology Machinery

6 The Value aspects of procurement are in Strategic Buys Non Strategic Buys Maintenance Consumables Repair Items Operations Spares Admin Buys

7 The Value aspects of procurement are in Strategic Buys Non Strategic Buys Maintenance Service Contracts Service Contracts Admin Service Contracts Logistics Contracts

8 The Value aspects of procurement are in 80 % of the Spend Value Strategic Buys 20 % of the No. of Transactions In house expertise Involved Buy Non Strategic Buys Service Contracts 20 % of the Spend Value 80 % of the No. of Transactions Low involvement Buy Maverick Buying

9 And the Value aspects of procurement are also in Contract formation Sourcing Transacting What do we need to buy? (specifications) Who should we buy it from? (supplier outreach) What should we pay? ( negotiations) Purchase against the contract (raise requisition, approval, etc) Logistics (getting the product to site) Settlement (payment) Ever considered outsourcing some of these to a Specialist?

10 The Value aspects of procurement are in 80 % of the Spend Value Strategic Buys 20 % of the No. of Transactions In house expertise Involved Buy Non Strategic Buys Service Contracts 20 % of the Spend Value 80 % of the No. of Transactions Low involvement Buy Maverick Buying

11 Can we address this part of the Value? Non Strategic Buys 20 % of the Spend Value Service Contracts 80 % of the No. of Transactions Low involvement Buy Maverick Buying Can this be outsourced to a Specialist in Procurement?

12 Procurement KPO : Outsourcing of Procurement activities of selected categories to a specialist. Procurement KPO deals with: Total Spend Management Sourcing Transaction Processing Total Procure to Pay, including sourcing strategy Selected category management Transactional requisition to pay processes

13 Choice of Model of Procurement Outsourcing 50% 45% 45% 40% 35% 30% 25% 23% 22% 20% 15% 10% 10% 5% 0% Full Procurement outsourcing Incremental-By procurement process Incremental-By category Incremental-By category & procurement Process Source: Aberdeen Group, Nov 07

14 Procurement KPO Spans a spectrum of procurement related sub processes: Sub processes such as: requisitioning, vendor management, invoice processing etc. Are typically spread out across multiple spend categories such as: MRO, IT Hardware, Administrative supplies etc. Most procurement outsourcing initiatives are multiyear arrangements and are driven by the objectives of improved service levels, cost savings etc.

15 Where s the Money? Source: Nasscom - McKinsey

16 Where s the Money? Source: Nasscom - McKinsey

17 Where s the Money? Source: Nasscom - McKinsey

18 It s not about Procurement Costs Alone!! Chief Reasons for Outsourcing Procurement 1. Reduced transaction costs and burdens 2. Re-focus personnel on more strategic activities 3. Access to supplier intelligence 4. Access to spend category expertise 5. Increased global competition 6. Need to standardize procurement procedures

19 o, the Prime Drivers of this movement are: Companies need to focus on core competencies Products bought non strategic in nature Processes not central to the core business Need for greater spend control Companies need for relief from the challenges of maintaining staff. Ability to gain from aggregation of buys & consolidation of processes and resources

20 Who s doing it? Buyer Procurement Specialist Outsources to STEEL Outsources to

21 What has been done Spend Under Management (INR million) No. of PRs Fy 07 (Tata Steel) Fy 08 *(Tata Steel + Corus) Fy 09 **(Tata Steel + Corus + + ) Procurement Center Noamundi JSR * Estimates ** Plan Kolkata

22 What has been achieved Reduction in PR to PO time from 25 days to 14 days Reduction in head count in Procurement Savings of over 20% in cost of Procurement Fewer transactions Automation of transactions Savings of 7.4% in material cost Rationalization of Suppliers & Specs Aggregation Focus on time & cost There is a lot of Value to be unlocked

23 Come, join the movement The Procurement KPO movement Contact us : binny.mathews@mjunction.in