Leveraging The Power of Procurement – Forum 2014

The Purchasing Chessboard®

John Blascovich
Partner
A.T. Kearney, Inc.

November 17, 2014

Introduction to the Purchasing
Chessboard®

2
 Introduction to the Purchasing Chessboard®

An A.T. Kearney survey shows that CEOs see purchasing gaps

in meeting the challenges of today’s market
200 CEOs survey on their company’s purchasing
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

Adequate Information Systems 3.3

One Voice to the Supplier 3.2

Adequate Representation in S&OP Planning 2.9

Regarded as a Cross-Functional Task 2.9

Differentiated Approaches to Reduce Cost 2.7

Appropriate Staffing 2.6

Adequate Use of Analytics 2.5

1= Fully 4= Fully
disagree agree

3
 Introduction to the Purchasing Chessboard®

We conducted a diligent search for a comprehensive model to

describe the challenges of purchasing
Models to describe the challenges of purchasing
• Post merger integration
Client´s • Turnaround
Situation • Growth
• …

• Cost reduction
Expected • Innovation
Deliverables • Time to market
• …

• Development
Product • Introduction
Life Cycle • Growth
• …

• Industrials
Type of • Consumer goods
Industry • Services
• …
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 Introduction to the Purchasing Chessboard®

We found that an ancient concept works best to describe the

challenges of today’s purchasing
Understanding demand and supply

1,000 years

Key drivers then Key drivers now

• Demand power • Demand power
• Supply power • Supply power
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 Introduction to the Purchasing Chessboard®

From a strategic perspective, the factors driving demand and

supply power determine the interaction with suppliers
Demand and supply power
High
Factors driving supply power
• Number of credible suppliers
• Split of market shares among suppliers
• Merger and acquisition dynamics in the
supplier market
Supply
• Entry barriers for new suppliers
power
• Ease of substituting supplier
• Entry barriers for new products
• Availability of products

Low
Low High
Demand power

Factors driving demand power

• Client‘s share of relevant demand (in the region)
• Growth perspectives offered to suppliers by client
• Opportunities for suppliers to further develop competencies through working with client
• Opportunities for suppliers to further develop image through working with client
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 Introduction to the Purchasing Chessboard®

Being successful in purchasing requires profound

understanding of demand and supply power
The playing field
High

… buying … buying fuel

platinum for injection
catalysts systems

Supply
Power

… buying airline … buying

tickets forgings

Low
Low Demand Power High

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 Introduction to the Purchasing Chessboard®

Standard RFI/RFP sourcing has been deployed effectively at

most companies around the globe

“Standard” situation

RFI/RFP sourcing

High

High demand
High supply power
and supply power

Supply ‘Standard’
power situation

Low demand High demand

and supply power power

Low

Low Demand power High

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 Introduction to the Purchasing Chessboard®

In case of high demand power, target prices are determined

and dictated to the suppliers
High demand power

High

High demand
High supply power
and supply power

Supply ‘Standard’
power situation

Low demand High demand

and supply power power Levers for cost reduction and value generation:
• Leveraged competition
•
Low

Low Demand power High

Globalization
• Supplier pricing review
• Target pricing

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 Introduction to the Purchasing Chessboard®

In case of high demand and supply power, a partnership-based

approach yields the best results for added value
High supply and high demand power

High

High demand
High supply power
and supply power

Supply ‘Standard’
power situation

Low demand High demand

and supply power power Levers for cost reduction and value generation:
• Value chain management
•
Low

Low Demand power High

Integrated operations planning
• Value partnership
• Cost partnership

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 Introduction to the Purchasing Chessboard®

Unilateral dependency on suppliers requires new rules of the

game
High supply power situation

High

High demand
High supply power
and supply power

Supply ‘Standard’
power situation

Low demand High demand

and supply power power Levers for cost reduction and value generation:
• Innovation on demand
•
Low

Low Demand power High

Risk management
• Re-specification
• Technical data mining

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 Introduction to the Purchasing Chessboard®

For pure commodity products and services, demand- and

contract-management are the most effective levers.
Low supply and demand power

High

High demand
High supply power
and supply power

Supply ‘Standard’
power situation

Low demand High demand

and supply power power Levers for cost reduction and value generation:
• Co-sourcing
•
Low

Low Demand power High

Demand management
• Commercial data mining
• Volume bundling

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 Introduction to the Purchasing Chessboard®

To help buyers master the tools of their trade, we developed

The Purchasing Chessboard®
Framework to select sourcing strategies
• 4 basic strategies

• 16 approaches

• 64 methods
• Supported by comprehensive training
material
• Backed up by sanitized benchmarks
from > 500 purchasing projects in the
past 3 years

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The Purchasing Chessboard®

High
Leverage Value chain
Invention on Functionality Specification Revenue Strategic
8 innovation reconfigu- Profit sharing
demand assessment assessment sharing alliance
network ration

Core cost Design for Product Design for Sustainability Project based Value based
7 Supplier tiering
analysis sourcing teardown manufacture management partnership sourcing

Collaborative Virtual
Vertical Intelligent deal Composite Process Total life cycle Collaborative
6 capacity inventory
integration structure benchmark benchmark concept cost reduction
management management

Political Vendor
Bottleneck Product Complexity Visible process Supplier Supplier fitness
5 framework managed
management benchmark reduction organization development program
management inventory
Supply
power

Leverage
Sourcing Buying Cost data Standardi- RFI/RFP Expressive Total cost of
4 market
community consortia mining zation process bidding ownership
imbalances

Supplier
Procurement Mega supplier Master data Spend Reverse Price Unbundled
3 market
outsourcing strategy management transparency auctions benchmark prices
intelligence

Closed loop Bundling Cost

Compliance Supplier Factor cost
2 spend across Make or buy Best shoring regression
management consolidation analysis
management generations analysis

Bundling Linear
Demand Contract Bundling Global Cost based
1 across product LCC sourcing performance
reduction management across sites sourcing price modeling
lines pricing
Low
A B C D E F G H
Low High
Demand power
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 Introduction to the Purchasing Chessboard®

Applying The Purchasing Chessboard® yields highly specific

profiles
Client case examples
Construction equipment
EPC company Automotive supplier
maker
Invention on demand Nutzung von Innovations-netzwer k Bewertung von Funktiona-litäten Spezifika-tionsanalyse Wertketten- rekonfigu-ration Umsatz-teilung Gewinn-teilung Strategische Allianz Invention on demand Nutzung von Innovations-netzwer k Bewertung von Funktiona-litäten Spezifika-tionsanalyse Wertketten- rekonfigu-ration Umsatz-teilung Gewinn-teilung Strategische Allianz Invention on demand Nutzung von Innovations-netzwer k Bewertung von Funktiona-litäten Spezifika-tionsanalyse Wertketten- rekonfigu-ration Umsatz-teilung Gewinn-teilung Strategische Allianz

Stahl
Hydraulik
Spezielle
Komponenten

Motore Rohmaterial

Core cost- Analyse Design for Sourcing Produkt -Teardown Design for Manufacture Lieferanten- Tiering Nachhaltig-keits-management Projektbezo-gene Partner-schaft Value-Based Sourcing Core cost- Analyse Design for Sourcing Produkt -Teardown Design for Manufacture Lieferanten- Tiering Nachhaltig-keits-management Projektbezo-gene Partner-schaft Value-Based Sourcing Core cost- Analyse Design for Sourcing Produkt -Teardown Design for Manufacture Lieferanten- Tiering Nachhaltig-keits-management Projektbezo-gene Partner-schaft Value-Based Sourcing

Rohmaterial

Antriebe Fördertechnik
Energie Getriebe

Kollaboratives Kapazitäts-
Vertikale Integration Intelligente Vertrags-struktur Composite Benchmark Prozess-benchmarks management Virtuelles Bestands- management Lebenszyklus-konzept Vertikale Integration Intelligente Vertrags-struktur Composite Benchmark Prozess-benchmarks Virtuelles Bestands- management Lebenszyklus-konzept Vertikale Integration Intelligente Vertrags-struktur Composite Benchmark Prozess-benchmarks Virtuelles Bestands- management Lebenszyklus-konzept

Lager

Reifen
Achsen Pumpen

Management politischer Rahmen- Management politischer Rahmen- Management politischer Rahmen-

Engpass -Management bedingungen Produkt- benchmark Komplexitäts-reduktion Transparente Prozess-organ Lieferantengesteuerte Bestände Lieferanten-entwicklung Lieferanten-fitness- Programm Engpass -Management bedingungen Produkt- benchmark Komplexitäts-reduktion Lieferantengesteuerte Bestände Lieferanten-entwicklung Lieferanten-fitness- Programm Engpass -Management bedingungen Produkt- benchmark Komplexitäts-reduktion Transpar Lieferantengesteuerte Bestände Lieferanten-entwicklung Lieferanten-fitness- Programm

Bauleistungen
Hydraulik
Kabinen Ventile

Telekommunikation

Einkaufs- Einkaufs- Einkaufs-

gemein- Einkaufs-konsortien Nutzung von Kostendaten Standardi-sierung RFI/RFP-Prozess Expressive Bidding Total Cost of Ownership Nutzung von gemein- Einkaufs-konsortien Nutzung von Kostendaten Standardi-sierung RFI/RFP-Prozess Expressive Bidding Total Cost of Ownership gemein- Einkaufs-konsortien Nutzung von Kostendaten Standardi-sierung RFI/RFP-Prozess Expressive Bidding Total Cost of Ownership Nutzung von
schaft schaft schaft

Verlängerte
Farbe Instrumente W erkbank

Zylinder

Einkaufs-outsourcing Mega Supplier Strategie Master Data Management Ausgaben-transparenz Lieferanten-markt-forschung Reverse Auktionen Preis-benchmarks Entbündelung von Preisen Einkaufs-outsourcing Mega Supplier Strategie Master Data Management Ausgaben-transparenz Lieferanten-markt-forschung Reverse Auktionen Preis-benchmarks Entbündelung von Preisen Einkaufs-outsourcing Mega Supplier Strategie Master Data Management Ausgaben-transparenz Lieferanten-markt-forschung Reverse Auktionen Preis-benchmarks Entbündelung von Preisen

Zeichnungsteile

IT
Guß Stahlbau

Compliance Management Closed Loop Spend Management Lieferanten-konsoli-dierung Bündelung nach Generationen Make or Buy Best Shoring Kosten-regressions-analysis Faktorkosten-anal yse Compliance Management Closed Loop Spend Management Lieferanten-konsoli-dierung Bündelung nach Generationen Make or Buy Best Shoring Kosten-regressions-analysis Faktorkosten-anal yse Compliance Management Closed Loop Spend Management Lieferanten-konsoli-dierung Bündelung nach Generationen Make or Buy Best Shoring Kosten-regressions-analysis Faktorkosten-anal yse

Zellstoff
S
Fracht Tanks
Reisen W erkzeuge
MRO

Fracht

LCC- LCC- LCC-

Nachfrage-reduktion Vertrags-management Bündelung nach Produktlinien Bündelung nach Standorten Global Sourcing Sourcing K Linear Performance Pricing Nachfrage-reduktion Vertrags-management Bündelung nach Produktlinien Bündelung nach Standorten Global Sourcing Sourcing Linear Performance Pricing Nachfrage-reduktion Vertrags-management Bündelung nach Produktlinien Bündelung nach Standorten Global Sourcing Sourcing ierung Linear Performance Pricing

Fiber producer Refractory producer Gear box maker

Invention on demand Nutzung von Innovations-netzwer k Bewertung von Funktiona-litäten Spezifika-tionsanalyse Wertketten- rekonfigu-ration Umsatz-teilung Gewinn-teilung Strategische Allianz Invention on demand Nutzung von Innovations-netzwer k Bewertung von Funktiona-litäten Spezifika-tionsanalyse Wertketten- rekonfigu-ration Umsatz-teilung Gewinn-teil Strategische Allianz Invention on demand Nutzung von Innovations-netzwer k Bewertung von Funktiona-litäten Spezifika-tionsanalyse Wertketten- rekonfigu-ration Umsatz-teilung Gewinn-teilung Strategische Allianz

Holz

Energie Handelsware
Kupplung Hydraulik
Synchronisierung

Core cost- Analyse Design for Sourcing Produkt -Teardown Design for Manufacture Lieferanten- Tiering Nachhaltig-keits-management Projektbezo-gene Partner-schaft Value-Based Sourcing Core cost- Analyse Design for Sourcing Produkt -Teardown Design for Manufacture Lieferanten- Tiering Nachhaltig-keits-management Projektbezo-gene Partner-schaft Sourcing Core cost- Analyse Design for Sourcing Produkt -Teardown Design for Manufacture Lieferanten- Tiering Nachhaltig-keits-management Projektbezo-gene Partner-schaft Value-Based Sourcing

Rohmaterial

Natronlauge
TCU
Zellstoff
Lager

Vertikale Integration Intelligente Vertrags-struktur Composite Benchmark Prozess-benchmarks Virtuelles Bestands- management Lebenszyklus-konzept Partner-schaft Vertikale Integration Intelligente Vertrags-struktur Composite Benchmark Prozess-benchmarks Kollaborativageent Virtuelles Bestands- management Lebenszyklus-konzept Partner-schahe Vertikale Integration Intelligente Vertrags-struktur Composite Benchmark Prozess-benchmarks Kollab Virtuelles Bestands- management Lebenszyklus-konzept

Energie

Kunststoff

Management politischer Rahmen- Management politischer Rahmen- Management politischer Rahmen-

Engpass -Management bedingungen Produkt- benchmark Komplexitäts-reduktion Lieferantengesteuerte Bestände Lieferanten-entwicklung Lieferanten-fitness- Programm Engpass -Management bedingungen Produkt- benchmark Komplexitäts-reduktion Lieferantengesteuerte Bestände Lieferanten-entwicklung Lieferanten-fitness- Programm Engpass -Management bedingungen Produkt- benchmark Komplexitäts-reduktion T Lieferantengesteuerte Bestände Lieferanten-entwicklung Lieferanten-fitness- Programm

Chemikalien

Einkaufs- Einkaufs- Einkaufs-

gemein- Nutzung von Kostendaten gemein- Nutzung von Kostendaten gemein- Nutzung von Kostendaten Nutzung von Marktun-gleich-
Einkaufs-konsortien Standardi-sierung RFI/RFP-Prozess Expressive Bidding Total Cost of Ownership Nutzung von Einkaufs-konsortien Standardi-sierung RFI/RFP-Prozess Expressive Bidding Total Cost of Ownership Nutzung von Einkaufs-konsortien Standardi-sierung RFI/RFP-Prozess
Schaltung Expressive Bidding Total Cost of Ownership gewichten
schaft schaft schaft

Schmiede-
Fracht teile

Einkaufs-outsourcing Mega Supplier Strategie Master Data Management Ausgaben-transparenz Lieferanten-markt-forschung Reverse Auktionen Preis-benchmarks Entbündelung von Preisen Einkaufs-outsourcing Mega Supplier Strategie Master Data Management Ausgaben-transparenz Lieferanten-markt-forschung Reverse Auktionen Preis-benchmarks Entbündelung von Preisen Einkaufs-outsourcing Mega Supplier Strategie Master Data Management Ausgaben-transparenz Lieferanten-markt-forschung Reverse Auktionen Preis-benchmarks Entbündelung von Preisen

Feinschneidteile
Fracht Verpackung

Sinter
Gussteile
Reisen

Compliance Management Closed Loop Spend Management Lieferanten-konsoli-dierung Bündelung nach Generationen Make or Buy Best Shoring Kosten-regressions-analysis Faktorkosten-anal yse Compliance Management Closed Loop Spend Management Lieferanten-konsoli-dierung Bündelung nach Generationen Make or Buy Best Shoring Kosten-regressions-analysis Faktorkosten-anal yse Compliance Management Closed Loop Spend Management Lieferanten-konsoli-dierung Bündelung nach Generationen Make or Buy Best Shoring Kosten-regressions-analysis Faktorkosten-anal yse

Drehteile

Investitionen

LCC- LCC- LCC-

Nachfrage-reduktion Vertrags-management Bündelung nach Produktlinien Bündelung nach Standorten Global Sourcing Sourcing Preismod Linear Performance Pricing Nachfrage-reduktion Vertrags-management Bündelung nach Produktlinien Bündelung nach Standorten Global Sourcing Sourcing Kost Linear Performance Pricing Nachfrage-reduktion Vertrags-management Bündelung nach Produktlinien Bündelung nach Standorten Global Sourcing Sourcing rung Linear Performance Pricing

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The Purchasing Chessboard® for a construction equipment
maker
High
Leverage Value chain
Invention on Functionality Specification Revenue Strategic
8 innovation reconfigu- Profit sharing
demand assessment assessment sharing alliance
network ration
Steel Hydraulics
Engines
Core cost Design for Product Design for Sustainability Project based Value based
7 Supplier tiering
analysis sourcing teardown manufacture management partnership sourcing

Energy Gearboxes Virtual

Collaborative
Vertical Intelligent deal Composite Process Total life cycle Collaborative
6 capacity inventory
integration structure benchmark benchmark concept cost reduction
management management
Bearings
Tires Axles
Political Vendor
Bottleneck Product Complexity Visible process Supplier Supplier fitness
5 framework managed
management benchmark reduction organization development program
management inventory
Supply
power

Cabs
Leverage
Sourcing Buying Cost data Standardi- RFI/RFP Expressive Total cost of
4 market
community consortia mining zation process bidding ownership
imbalances

Paint Supplier
Procurement Mega supplier Master data Spend Reverse Price
Cylinders Unbundled
3 market
outsourcing strategy management transparency auctions benchmark prices
intelligence

Office material
Closed loop Bundling Castings Cost
Compliance Supplier Factor cost
2 spend across Make or buy Best shoring regression
management consolidation analysis
management generations Steel fabrications analysis

Freight
Contract MRO
Travel Bundling Linear
Demand Bundling Global Cost based
1 across product LCC sourcing performance
reduction management across sites sourcing price modeling
lines pricing
Low
A B C D E F G H
Low High
Demand power
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 Introduction to the Purchasing Chessboard®

The Purchasing Chessboard® has proven highly useful to

manage the skill profiles of buyers
Command of methods Illustrative

Experts from other

Individual buyers Desired profile of buyers
functions who are buying
Leverage Value chain
Invention on Functionality Specification Revenue Strategic
innovation reconfigu- Profit sharing
demand assessment assessment sharing alliance
network ration

Project
Core cost Design for Product Design for Supplier Sustainability Value based
based
analysis sourcing teardown manufacture tiering management sourcing
partnership

Intelligent Intelligent Collaborative Virtual Total life Collaborative

Vertical Vertical Composite Process
deal deal capacity inventory cycle cost
integration integration benchmark benchmark
structure structure management management concept reduction

Political Visible Vendor Supplier

Bottleneck Product Bottleneck Product Complexity Supplier
framework process managed fitness
management benchmark management benchmark reduction development
management organization inventory program

Leverage
RFI/RFP Sourcing Buying Cost data Standardi- RFI/RFP Expressive Total cost of
market
process community consortia mining zation process bidding ownership
imbalances

Supplier Supplier
Reverse Price Procurement Mega Master data Spend Reverse Price Unbundled
market market
auctions benchmark outsourcing supplier management transparency auctions benchmark prices
intelligence strategy intelligence

Closed loop Bundling Cost

Supplier Compliance Supplier Factor cost
Make or buy spend across Make or buy Best shoring regression
consolidation management consolidation analysis
management generations analysis

Bundling Bundling Cost based Linear

Contract Bundling Global LCC Demand Contract Bundling Global LCC
across across price performance
management across sites sourcing sourcing reduction management across sites sourcing sourcing
product lines product lines modeling pricing

• Typically 3-5 methods used
• Usually focused on the specifics of
the commodity in focus
• Typically 8-15 methods used • Full command of 64 methods
• Usually covering several • Responsible for narrow scope of
commodities sub-commodities
• Accumulates depth of commodity
knowledge

17
 Introduction to the Purchasing Chessboard®

Buyers in full command of The Purchasing Chessboard® by far

exceed the traditional perimeter of purchasing.
Cross-functional competencies needed

Entrepre- Manufact.
neurship

Controlling Statistics

18
 Introduction to the Purchasing Chessboard®

Based on the positioning in the Purchasing Chessboard® the

timing of savings realization can be derived
Timing aspect of the Purchasing Chessboard®

Benefits within Benefits within

12 months 6 months

Benefits today Benefits tomorrow

19
 Introduction to the Purchasing Chessboard®

Summary

“The Purchasing Chessboard ...”

■ ... responds to every possible challenge in the supply market
■ ... assigns the right method to optimize material costs in every possible supply market
situation
■ ... can be used for development of purchasing strategy as well for operational optimization of
material and services costs
■ ... is a compilation of insights and experience from more than 500 purchasing projects
performed worldwide over the past three years
■ ... has been used successfully in a wide range of industries and countries

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