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Indirect Procurement - Mr. Ashwani Singh (Watson Pharma)

Indirect procurement is the sourcing of all goods and services for a business that enable its activity. It is a slow, technology intensive process requiring change management across the organization boundaries.

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Indirect Procurement - Mr. Ashwani Singh (Watson Pharma)

  1. 1. Ashwani Singh 25th Sep 2014 Indirect Procurement
  2. 2. What is Indirect Procurement Indirect procurement is the sourcing of all goods and services for a business that enable its activity The indirect procurement is a slow, technology intensive process requiring change management across the organization boundaries
  3. 3. Direct Vs Indirect procurement Direct Indirect Definition Cost of doing business Cost of being in Business Consumer Customer/Client Internal stakeholder Supply Disruption Business stops Business stops # of supplier Low High # of categories Low High Value High Medium Spend High Medium
  4. 4. Indirect Procurement Globally common Indirect Procurement categories include MRO • Consumables • Electrical supplies • Industrial supplies • Capital Equipment • Machine Parts • Uniforms • Safety equipment TRAVEL • Air Travel • Hotels • Rental Cars • Travel card • Meetings • Car fleet IT & TELECOM • Hardware • Software • Services • Voice & Data • Wireless • Property Management • Facilities Services • Capital Projects • Utilities • Office Supplies • Furniture • Repair and maintenance PROPERTIES PROFESSION AL SERVICES • Consultancy • Financial advisory • Engineering services • Legal services • Advertising • Promotions • Trade shows & events • Marketing •Ocean freight • Rail / Intermodal • Airfreight / Expedited • Courier & messenger • Small package • Storage / warehousing TRANSPORTA TION
  5. 5. Challenges – Indirect Procurement  Require significantly more and varied suppliers.  Have a medium average spend.  Require larger numbers of smaller purchases, more frequently.  Consist of more “maverick” (first time) spend.  Be driven by more internal stakeholders.  Require diverse experience.  Be difficult to evaluate.  Be considered less strategic.  Struggle with delivering indirect procurement internally
  6. 6. Indirect Procurement - Opportunities Perceived Opportunity Purchase Cost Quality Costs Specifications Inventory Practices Warranty Terms Disposal/Salvage Practices Demand Drivers Environmental Issues Freight Standardization Procurement Practices Warehousing Costs Operational Practices Actual Opportunity Maintenance Expenses Total Cost Approach
  7. 7. Best Practices – Indirect Procurement Total System Cost Buyer Cost Interaction Cost Profit Supplier Cost Total System Cost Savings Traditional Focus (price only) Buyer Cost Interaction Cost Profit Supplier Cost Strategic Focus StrategicTraditional
  8. 8. Initiative Process - Indirect Procurement 1. Define category 2. Initial data/ information gathering 3. Segment and prioritize 6. Develop Commodity profiles Customer needs/expectations • Current sales • Suppliers 7. Develop indirect sourcing approach 8. Supplier discussions and alternative review 9. Agreement Execution 10. Implement and maintain compliance 4a. “What is needed and how buy?” (key users) 4b. “How established current agreement?” (key buyer) 5a. “What data is available?” (auto/manual) 5b. “How is data stored and retrieved?” (auto/manual)
  9. 9. Concept to reality - Indirect Procurement Immediate plays/best deal leverage1 Price/cost restructuring (Volume leveraging and supply pattern shifts - less complex) Short term buy plans (Volume leveraging, innovation, and supply pattern shifts - more complex) Sourcing effectiveness teams (SETs) (Supplier integration, productivity, standardization, performance base improvements 2 3 4 Shareholder equity economic profit User education and training Process/policy Enforcement Measurement and budget restrictions $ Segmentandprioritize Professional services Information technology Temporary services MRO Facilities Travel Utilities
  10. 10. Key Strategies – Indirect procurement  Choose Preferred Suppliers  Focus on and influence key executives  Manage with Automation and Measurement  Set KPIs
  11. 11. Role of Indirect Procurement  Stronger internal controls  Better visibility into the entire process  Better communication across stakeholders to optimize decisions and strategies  Data analysis (turning raw data into business insights and intelligence)  Reduce procurement process costs
  12. 12. Best Practices – Indirect Procurement Indirect procurement Spend increasing in the categories of IT, marketing and advertising, facilities management, MRO, Logistics and professional services. Indirect spending accounts for  60 percent - Third-party spend in non-manufacturing companies.  90 percent - Financial services industry.  50 percent of spend in manufacturing organizations. COE - Center-led model of procurement, where a procurement center of excellence (COE) focuses on corporate supply chain strategies and strategic commodities, best practices, and knowledge sharing. Central-led organization with collaboration across business units. Users of this model achieved savings greater than 10 percent over the last two years in 47 percent of categories.
  13. 13. Indirect Procurement Summary  To expect different results, we may need updated roadmap.  No two companies operate the same way – But all have guiding principles for success.  Best Practices are a benchmark and guide for Procurement Effectiveness and Improvement.  Company leadership expects Procurement Organizations to be more Transformational vs. Tactically focused.  Good News: Company leadership is expecting more from our Supply Chain Management profession.
  14. 14. . “A creative person is motivated by the desire to achieve, not by the desire to beat others”

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