Level 5

Question 1

Low supply and demand power: e. g. VW and a Air travel provider

Answer 1

While negotiating discounts, an important question is the travel necessary or can you replace it by Skype.

1. Demand Management1
2. Volume Bundling
3. Commercial Data Mining
4. Co-Sourcing

Question 2

Manage Spend

Answer 2

• First basic stategy to steer demand
• Who buys what of which supplier
• Compense your low demand power with consolidating
• Question the necessity of the corresponding demand

1. Demand Management

a) Demand Reduction
- Establishing cost awareness and corresponding standards
- Improving and streamlining approval processes
- Making increased use of lower-cost substitution products
- Reducing the frequency of use
- Limiting the scope of requirements
- Reducing purchased quantities
- Eliminating demand for certain products

b) Compliance Management

Primary this is about getting the maximum benefits out of frame contracts and your chosen suppliers and compliance with regulations

Non Compliance allowed when (really??)

1. Needs that can not be fulfilled by your chosen suppliers
2. Last-minute needs that your suppliers can not fulfill in the required time

Critical factors:

• Essential user must know which agreements exist and who the prefered suppliers are
• Design your ordering process so that Non-Compliance will be avoided
• Friendly Processes so that you do compliance in your own interest
• Accept positive and negative feedback to

c) Contract Management
Create clarity about all contracts in your company.

• A contract needs to apply to all. It should include a clause making the terms of the contract available to all the group companies
• A contract needs to be easily accessible. The intranet is an optimum solution as it allows contracts to be accessed from all sites of the corporate group.
• The product users/internal users of third-party services need to be informed of the new contract location. This may seem to be stating the obvious, but contract management of this kind is often implemented centrally, and although head office is happy, the whole system fails to work because no one else knows about it. A broadbased information policy fills the gap
• The product users/internal users of third-party services need to be able to work easily with the intranet solution. This can mean having the ability to gain access without a lot of red tape, or being adequately trained to navigate the system.

d) Closed Loop Spend Management

Search and identify the
value destroyer in the supply chain

Three keys for results

• Get Grounded: Develop a baseline of spend analysis that can be leveraged to gain visibility into current purchasing facts and identify potential sourcing opportunities. This baseline enables procurement to provide the critical organizational support necessary to obtain savings programs with new opportunities.
• Toe the Line: Enhance this baseline to support compliance and leading initiatives that support the realization of identified savings targets.
  This framework provides a basis to support cross-functional initiatives such as supplier diversity, social responsibility, or risk management.
  This framework supports the operational excellence necessary to drive sustainable value through procurement operations.
• Adapt, Improvise, Overcome: Incorporating a broad corporate perspective into spend analysis provides procurement with the opportunity to enable the organization to identify, respond, and in some cases even predict changes.
  Strategic advantage is achieved by those organizations that can harness and leverage the information around them into a structure that enables timely, agile, and expansive decision support

Question 3

2. Volume Bundling

Answer 3

Enables savings by using economies of scale
Especially at products with a percentage of fixed cost or high setup-times economies of scales can be considerable
Volume bundling is split into four strategies

a) Bundling across product lines

The idea of putting the some components into different product lines is reasonable

Pros:
EoS
Cheaper prices of components
Easier logistics
More efficient repairs
Lower set-up times

1. Achieving successful bundling across product lines long term plans, where you define platforms, building sets and module strategies, are needed.
2. When you have achieved this all product development projects will apply this guideline
   b) Supplier consolidation

High-selling products come from monopolistic performing suppliers, while standard products can be purchased by lots of different suppliers

Pros of supplier consolidation

• EoS
• Savings by handling supplier master data

Cons of too many suppliers

• Distract from important things (core business)
• Bind resources
• Too many suppliers are not able to offer good prices

So supplier consolidation means obviously eliminating not important, small suppliers and shifting to the strategic important suppliers

APPROACH:

1. Collect data – who buys what of which supplier – for at least 80 % of purchasing volume
2. Tendering to existing and new suppliers
3. Negotiating with contemplable suppliers
4. Selection of future suppliers
5. Strict change to this prefered suppliers

c) Bundling across sites
d) Bundling across generations

Question 4

Commercial Data Mining

Answer 4

In SAP or Oracle systems are many important data with huge potential.
With sorting and smart analyses you create transparency and potential via standardization.
Enables short-term savings.
Commercial Data Mining is split into four strategies.

1. Master data management

For optimizing the master data, there are three categories:
Classification system
Material master data
Orders

2. Cost data mining
3. Spend transparency

To answer the question „Who buys what from which supplier?
An alternative solution is needed that provides exactly this information with the spend cube, according to three dimensions:

Location
Product
Supplier

The cube allows cuts on all levels and allows first fundamental analysis:
Determination of bundling potential between locations
Comparisons of the number of the supplier
The proportion of sourcing in countries with high factor costs

4. Standardization

• Standardization is the process of developing and implementing technical standards
• Standardization can help to maximize compatibility, safety, quality and can help by the reduction of space
• The standardization serves to use standard parts as many
• Savings in material costs, in the production, service and logistics are the result

Question 5

Co-Sourcing

Answer 5

• Co-sourcing is a tool that is applied for companies that can’t show no significant demand power and from it disadvantages results
• Demand is combined on sourcing categories or with other companies

1. Procurement Outsourcing
   In the today’s time services are often outsourced which greater affect the value generation process in an company

Procurement also has found his place in Outsourcing market. Before taking this step two key questions need to be answered:

What services are expected?

ordering materials
comparing invoices with orders
paying suppliers
making optimum use of contracts and spot buying
Managing (consignment) inventories
handling demand management
support standardization and administration of master data
strategic topics like the definition of sourcing strategies and the implementation of cost optimization

Steps:

1. Step: options for outsourcing are evaluated
2. Step: define the outsourcing model
3. Step: Transfer of the procurement process to the external provider
4. Step: the ongoing control of the external provider is established
5. Sourcing community

Characteristics

Size of the companies
Geographic Focus
Sourcing category
Roles and Responsibilities
Interests and business strategies

3. Mega Supplier Strategy

• It making transparent and clear how large the procurement volume transacted with a big, divisonal established suppliers („Mega supplier“) is
• the n:m relationship is turned into a 1:1 relationship
• The essential step in creating a mega supplier strategy is to determine the mutual interests of both sides
• It means the degree of dependence on the mega supplier for each product group and identifying the special concerns associated with the departments

4. Buying Consortia

Buying consortia are business collaborations that occur together in the procurement market. The goals are to achieve better terms and bundling the know-how of partners to fullfil the specific requirements of the project together in the best way.