SHARED SERVICES & BPO IN THE PHILIPPINES 15 Nov 2011 Sustaining Competitive Advantage Through Effective Business Transformation

of Procurement
Sebastian Chua Regional Procurement Director Alcatel-Lucent

Journey to Procurement Excellence

Procurement decisions aligned w/ corp. goals Suppliers see you as best customer At which stage is your Procurement Organization today? Stakeholders acceptance as trusted partner Other companies perceive you as the benchmark procurement organization

Sustainability

Phase 4
Excell ent

Phase 3
Getting Start ed

Phase 2
Central procurement function Spending analyzed Major Spending Negotiated Transaction automation / consolidation

Growth

Phase 1
Procurement function decentralized Significant Maverick Buying Tactical / Reactive Stakeholder Engagement Lack of spend visibility
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Sourcing decisions based on total cost vs pricing Documented sourcing strategies Early engagement with stakeholders

Procurement decisions made by Procurement Limited stakeholder interactions

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Phase 1: Getting started

Stakeholder

Procurement

Phase 2: Growth
Procurement

Stakeholder

Phase 1: Getting started

Stakeholder
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Procurement 4

Phase 3: Excellent

Stakeholder

Procurement

Phase 2: Growth
Stakeholder
Phase 1: Getting started

Procurement

Stakeholder Procurement

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Phase 4: Sustainability
Stakeholder
Procurement

Phase 3: Excellent
Stakeholder Procurement

Phase 2: Growth
Stakeholder

Procurement

Phase 1: Getting started

Stakeholder
Procurement

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Driving the procurement transformation path to sustainabilityKey Considerations

Organization & People

Supplier Partnership

Stakeholder Alignment Strategy

Process & Program Excellence

Control & Compliance

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Driving the procurement transformation path to sustainability Key Considerations

Organizational Excellence Organization & People
Brand Positioning Annual Procurement & Supply Management Awards Skills Assessment & gap analysis People Development & Training (Job enhancement/Job rotation/Coaching/Mentoring/Knowledge Transfer ) Structure Management Framework (Commitment Plan on KPI/Action Plan/Work Review/Category Strategy) Consistent Reporting (Newsletter/Procurement Score Card) Category Sourcing Strategy Experts & Operations Support excellence

Clear Procurement Strategy Stakeholder relationship & Vendor partnership

Category teams to deliver sourcing strategies / action plan (e.g. category handbook) Identify sourcing initiatives & commit to hard savings (i.e. any immediate Quick-wins savings) Improve stakeholder alignment & relationship (be pro-active) create a stakeholder assessment matrix COB Strategy (especially for sole source or direct source) Cost containment / Expense Control Initiative Partnership with CFO Supplier Business Review (key / critical suppliers) Consistent business processes (e.g. threshold for competitive bidding, contract mgmt, vendor performance mgmt) Standardized procurement policy & vendor qualification process to ensure compliance P-Card , e-catalog , category shopping card set-up in P2P to facilitate search of preferred vendors (strategic/tactical) Bi-annual Procurement Summit benchmarking of sourcing structure, strategy, process, best practices Annual Supplier Convention Quarterly New Employee Orientation program (NEO) Competitive Bidding threshold Contract policy & threshold Gift acceptance declaration Vendor declaration in RFP submission no conflict of interest New vendor creation process both employee & new vendor to declare no personal conflict of interests ATF PO enforcement PO exceptions policy Improved Payment terms to standard terms Category Buying Instructions (i.e. Premium, Preferred, Authorized) Supply Base rationalization priority on top 80% spend suppliers and look for oppy to consolidate by spend category Vendor Master File cleanup quarterly clean-up of unused suppliers, 1-time suppliers 8

Globally /Regionally Consistent Process / Program Process & Program Excellence

Standardized Policy/Directive

Control & Compliance

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Organization & People Branding Transformation

Problem Statement - The full value of the procurement discipline is not consistently recognized, and is therefore, not optimally leveraged in achieving business commitments and success for its shareholders. BRAND INSIGHT BRAND PROPOSITION Delivering Value Procurement is a global discipline delivering optimum value through innovative supply chain solutions enabling productivity and strengthening companys competitive advantage. Strengthening Competitive Advantage Transparent Impactful Trusted Strategic Partner Passionate Tireless Pursuit of Operational Excellence Expert Championing Business Integrity Reliable

BRAND PILLARS BRAND PERSONALITY

TAGLINE

Examples: Real Values Real Results

Expected Benefits - Increase understanding of how procurement can help internal clients achieve commitments - Stronger and more strategic partnerships with business leaders - Harness the strength and diversity of the overall procurement discipline to best deliver value to the business 9 - Energize procurement professionals around a mission

Organization & People Roles Transformation

1) Annual Procurement & Supply Mgmt Award (classify award categories into business value, business partner, operational excellence, supplier diversity, sourcing innovation, supplier performance mgt, team impact and CPO leadership award) 2) Skills assessment on different competencies (e.g. Leadership, Functional and Company values) 3) Training & coaching (focus on hard skills like sourcing strategies, project/contract mgmt and soft skills like negotiations, influencing, presentations) 4) Talent development & retention (job enhancement/rotation, mentoring, knowledge transfer)

What is the role of Procurement? (Changing Roles below are some examples)
The change is transitioning slowly from a transactional focus to a strategic focus where early engagement and influencing the stakeholders will lead to better sourcing decisions.

Old Roles
Execute to business requirements Reactive Approach

New Roles
Strategic procurement Pro-active approach

Transaction focused

Analytical & Sourcing focused Long-term business partnerships

Ad-hoc relationship with stakeholders Engage once the supplier selection is complete

Pro-active upfront engagement in sourcing decisions Sourcing strategies based on leading indicators, market data, and anticipated business needs 10

Procurement Indicators Lagging, too procurement focused

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Organization & People Strategy

How do we deliver? 1) We need to fundamentally change the way we interact with the business 2) We need to be seen to be adding value and above what is our base role? e.g. be seen as making a difference 3) Think SOLUTIONS - to issues before they happen - Anticipate by understanding the business and stakeholder requirements 4) Re-market the procurement brand internally within the business to show we are now doing things differently (instead of doing different things) 5) Build a credible position by delivering WINS - These may be small initially, growing as we become more engaged in the business 6) Must prove that procurement can do something rather than to slow down the process

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Stakeholder Relationship Strategy Perform Relationship Management & Assessment

Objective: To improve & expand our stakeholder reach / influence
Stakeholder Assessment Map

Partner Inclusive Consultative Ad hoc

1 = Irrelevant = Do not know our scope / function; we are not relevant 2 = Ad hoc = Contact us only on need basis 3 = Consultative = We may get listened to but not included in the decision 4 = Inclusive = Stakeholder include us in sourcing decisions, procurement activities 5 = Partner = stakeholder engages us fully, provides requirements, empowers us to drive procurement activities and sourcing strategies and decisions 12

Irrelevant

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Stakeholder Relationship Strategy

Objectives of the Stakeholder Assessment Matrix a) positioning of Procurement "branding" as real strategic partner b) alignment of Procurement commitment with key stakeholders c) Understanding stakeholders requirements - Who are the key stakeholders? What relationship does PDC have? What are their exciters? - Are the spending forecasts / pattern changing over the strategy horizon? - Are their expectations changing based on the market conditions? - Where are the procurement / sourcing decisions for this commodity being made?
How to get to the desired level?

- Improve Business Intelligence to stakeholders to enable better sourcing strategies & opportunity realization by categories (e.g. quarterly spend analysis mgmt report) - Strengthen stakeholder relationships through value proposition & Initiatives - Be Pro-active. Do not wait for stakeholders to approach you with a sourcing opportunity. - Regular engagement & check-point meetings (min. quarterly) with key stakeholders to understand their latest procurement needs & requirements and get to know their business & priorities - Define Top 3 Deliverables to get there that address stakeholders priorities/challenges/interest areas - Develop stakeholder satisfaction survey
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Stakeholder Relationship Strategy

Stakeholder Awareness & Acceptance Are we being seen as adding value or as adding overhead? Do stakeholders continue to engage us late in the game? Do stakeholder continue to utilize our help for administrative tasks vs. early engagement for strategic sourcing? Do stakeholders understand the value of the procurement function? Is our relationship customer-supplier or equal stakeholder ? How do you engage stakeholders? 1) Undertake an internal stakeholder analysis stakeholder assessment matrix Identify Key Stakeholders Assess Stakeholder Priorities / Interest Areas what they want what improvements are they looking for Assess Current / Desired Level of Relationship Set the direction, execute and assess the progress 2)Management Become part of the management team with the key Stakeholders Become part of the planning process to understand future needs Influence their decision making process 3)Interaction Instigate Vendor reviews and involve the Stakeholder Provide feedback from industry to Stakeholder QBRs with vendors and involve the Key stakeholder 4) Partnership Be seen by the Stakeholders as being an integral part of the business
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Stakeholder Relationship Strategy - Stakeholder Feedback

Make sure that your strategies and action plans are aligned with stakeholder requirements Decide on a frequency to get feedback from the stakeholders on your execution Get on with your stakeholder and verify the importance of your action plan activities Check with them on your performance Stakeholder Assessment Use the feedback to make any corrections to your High strategy or action plans. Disinterest Delight
Performance
Low

Importance

High

Day-Prison
Low

Disgust

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Stakeholder Relationship Strategy - Winning Over the Stakeholders

Discouraged Working Model I do the procurement I am here to save your money You are required to use this supplier Encouraged Working Model How best can I help you with your purchasing needs? How can I help stretch your $ or add to your bottom line? What if I could get you a supplier that can cut your project lead time by 30%? What if I were to find you a supplier who provides the same level of service at a lower cost? Understand the business needs, priorities, interest areas, challenges, pain points Important: There is no magic trick to winning over stakeholders its going to require passion, persistence and building credibility thru small wins. Different countries will have diverse stakeholder priorities & challenges e.g. compliance focus, vendor performance issues, cost containment, savings, payment terms, etc
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Supplier Relationship Strategy - Assess Relationship & Performance Review What is the outlook of supplier relationship by council? Global, regional, country - try to depict using the graph below
Global

EXAMPLE

Region
Logistics & Transportation Premises Mgmt

Country

HR/Marcom/Consulting

Travel

IT & Telecoms

Fragmented

Rationalized/Consolidated

Controlled

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Supplier Relationship Strategy - Assess Relationship & Performance Review How to improve on supplier relationship & performance review?
1) Supplier Engagement Review Performance (QBRs with key/critical suppliers) 2) Supplier Interaction More results orientated, obtain feedback from suppliers of your company & procurement 3) Partnership Growing the supplier to be more a part of the company business greater buy in to the results 4) No. Of Vendors (Be Focus) Consolidation based on performance leverage size/volume/performance/cost Create a supplier landscape for each spend category & classify suppliers into various sub-categories. Within each sub-category, the vendor is further differentiated between strategic & tactical e.g. within marketing services, suppliers are classified into advertising, media buy, public relations, print, etc. And within Advertising, suppliers are differentiated as Strategic for ATL and Tactical for BTL activities Finally, to identify the SOWs as either Strategic or Tactical works, and negotiate a separate rate card for Strategic & Tactical suppliers. 5) Actions by Category Sourcing Manager a) b) c) d) Develop a sourcing strategy based on Category Sourcing Strategy Handbook (see back-up slides) Group supply base into Commodity, Non-Commodity & Disbursements Classify supply base into sub-category levels (e.g. Marketing services/Advertising) Define supply base into Premier, Preferred, Authorized, One-time & Forbidden 18 Sebastian Chua

Supplier Relationship Strategy

Supplier Engagement Tool 1) Spend analysis
Look for spend consolidation opportunities across BGs and across categories : savings and re-investment opportunities if you partner with Procurement we will be able to deliver more value and service for the same spend Present spend reviews of large categories to the stakeholders management to raise awareness of where spend is going and the breakdowns across sub-categories and suppliers Offer stakeholders opportunities to improve their ROI by identifying improvements in supplier performance

2) Who are the top spend suppliers in the region/country in each category? 3) Which part of the business is spending those dollars?
Focus on return on investment for the stakeholders

4) What is the % of spend touched by procurement? 5) What is the % of spend governed by contract? 6) What is the % of spend covered by SBR? 7) Look at the existing supply base are they scale-able to support cross-boundaries? 8) Research on suppliers any innovations or technological advancement? 9) Are these suppliers also your key customers? 10) Health / history of the relationship

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Supplier Relationship Strategy

Other key questions to ask yourself?
1) Are the top spend suppliers sole / single sourced? Why? 2) Are we using market leader suppliers? 3) What % of their revenue come from us ? 4) Is our competitors using the same sources? 5) What are the current methods to manage this supply-base performance? Regular performance reviews? Ad-hoc escalation based management? Supplier-score cards? Do the current methods need to change capture in strategy / action plan. 6) What has been the performance trend for existing supply-base Quality / service level escalations, any score-card information? 7) Are there new-comers in the horizon? 8) Is there an opportunity to consolidate supply-base or leverage spending? 9) What are the switching costs? 10) What are the limitations for switching existing supply-base? Stakeholder preference, contractual obligations, government policies 11) What negotiations methods are applicable traditional, reverse-auctions.. 12) Is your supplier selection strategy aligned with stakeholder requirements? 13) What is the track record of these suppliers in the market? 14) How innovative is the supplier? are they are market leader or a fast follower - What is the cost to us if they are a market leader i.e. R&D/Operational Risk Sebastian Chua 20

Process & Program Excellence: Key Driving Principles

Early involvement in the process . Work upstream & be embedded with
Business Partners in all categories . Total Cost Ownership (TCO) Systematic use of E-Auctions whenever possible Re-negotiations whenever advisable Upwards alignment of payment terms / Delivery terms

Efficient & tough negotiations

Optimal use of all LCC opportunities

Components (e.g. PCB, Enclosures, Mech. parts) Materials Labour Service suppliers

High-skilled workforce High-skilled workforce

Skills improvement plans including training Enrich Procurement population with multifunctional experienced profiles Worldwide jobs description per category

* DR = Decision Review

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Transformation Journey on Process & Program Excellence

Year 3
Year 2 Year 1 Synergy with CFO/Legal/Compliance Procurement policy Bidding & contract threshold PT enforcement PO exceptions Agility / Simplicity Quality / Risk Management Shared Service Centers Cash One Database / One Process Savings (e-auctions) Cash CSR Savings Supplier Partnership Supplier concentration Internal customer relationship Category Playbook (Buying Instructions)

Core Values Foundation

Business Partners Focus Global accountability for results Tough but fair negotiations with suppliers Development / training of purchasing talents Sense of ethics, social responsibility & supplier quality Creation / Retention of reliable, flexible, innovative and very price competitive supply base
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Strategy on Increasing / Managing Spend Visibility Introduce a Competitive Bid Threshold

Above the bid threshold to be approved by Category Sourcing Managers

80% to 90% of total PO amount

Outside PVL, we control thru new vendor add Creation to be approved by Category sourcing managers PSSC controlled thru Preferred / Authorize Supplier List & catalog pricing

Below the threshold to be managed by Procurement Shared Services Center (PSSC)/Buy Center

10% to 20% of total PO amount

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Process & Program Excellence: Procurement & Support Functions (1/2)

Supplier Quality & CSR Team Preventive and reactive actions to improve the quality performance of our suppliers Risk assessment, supplier audits, supplier performance ratings, and supplier quality issue management Develop and implement Quality Assurance System in line with TL 9000 requirements and in support of Company Quality and customer satisfaction objectives Formalize and maintain harmonized policies and processes, in order to support the business, cost savings and customer satisfaction. Ensure proper implementation across the organization Develop and implement a CSR in purchasing program to support Company CSR program and meet customers expectations Strong support to BDs and sourcing category/commodity managers Procurement Processes & Systems Team Global business process definition and deployment Systems Projects: project management / value management, requirements and acceptance process / deployment planning Business Transformation/ User support/ Training Process descriptions, Change management, monitor process & system performance

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Process & Program Excellence: Procurement & Support Functions (2/2)

Management Control Purchased volumes & savings calculation & consolidation, per category/commodity Procurement fixed costs / headcount follow-up & reporting, per function / country / region Cost reduction program coordination & consolidation Validation of savings and cash & cost avoidance Follow-up of statistical reports, measurements & KPIs, Corporate / Local Part of the Procurement structure while reporting to Finance Human Resources In charge of development & talent retention for Procurement Talent development: identify talents, support career development, implement succession planning, executive staffing Organization development: support management in organization design, organization dynamics and change Skills development: identify key skills, develop programs supporting functional skills Embedded in the procurement leadership team but reporting to HR

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Controls & Compliance Measurements

1) Audit Findings Identify the gap Develop corrective actions Update procurement policy & procedures 2) Controls & Compliance Measurements a) ATF PO - Publish the shame list of ATF PO offenders.
b) PO exceptions policy c) Increase contract coverage & adoption in Contract Repository tool - What is your contract guidelines? d) Non-standard payment terms migration - Publish a list of approved suppliers with exceptional payment terms e) Vendor Master Clean-up (i.e. unused vendors, ONTM vendors, duplicating vendors set-up) f) Supply Base rationalization priority on top 80% spend suppliers and look for oppy to consolidate by spend category g) Forbidden Suppliers - Publish a list of these black-listed suppliers to check against new supplier creation h) New Supplier Registration Process (Split into Part 1 & 2 forms) - Requestors declaration of non-conflicting personal interests - Business justifications - Include definition of preferred, authorize, ONTM vendors - Include classifications of supplier (commodity, non-commodity, disbursement) and definition of spend category - Vendor privacy assurance (e.g. should Procurement be made known of vendor bank account details) i) Competitive Bid Threshold - What is your country bidding threshold? - Standardize the competitive bid form to include reason of selection, sole/single source, savings calculations, conflict of interest declaration, approval/sign-off by Procurement Management. j) Gift Acceptance Policy - Develop a gift acceptance form for declaration by buyers k) Category Buying Instructions (i.e. Premium, Preferred, Authorized and Rate Card)

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Principles of Service Excellence

Stakeholders = customers
Like our external customers, we should not be taking the stakeholders support and relationship for granted. In our day-to-day operations, I would expect that our internal business partners to have high expectations of us. Our commitment to service excellence must therefore be planted in our pledge. The principle of service excellence in our serving in this new era: 1) It is our responsibility to uphold the spirit of service to our stakeholders and work hard on their behalf 2) It is our duty to maintain the high standards of honesty and integrity 3) It is our call to significantly improve our outreach to stakeholders and align our approach with them in formulating strategies & policies. 4) We must never break faith with our stakeholders, but always carry out our duties to them responsibly, address their worries & challenges and advance their interests. In Procurement, we play key roles in all these areas. We have to listen hard to our stakeholders concerns, help them to tackle their pressing needs, reflect their worries and aspirations and finally persuade them to support policies which are in their long-term benefits. Listen to what Mahatma Gandhi got to say on CUSTOMER.
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Closing Remarks

The way ahead, I have no doubt, will continue be built on co-operation with our stakeholders and not on confrontation and for that to happen, every one of us here today must play our part WINNERS DONT DO DIFFERENT THINGS. THEY DO THINGS DIFFERENTLY.
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Sebastian Chua Regional Procurement Director Alcatel-Lucent Tel: (65) 6240-8393 Cell: (65) 9696-2903 Email: sebastian.chua@alcatel-lucent.com

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