S&PCon_ME_final
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Peter Woon, the Director of Global Sourcing at Agilent Technologies, presented at the 2nd Annual Sourcing & Procurement Conference in Shanghai on managing services spend. He discussed how services spend makes up a large portion of company budgets and outlined Agilent's three step approach to managing it: finding savings through spend analysis, getting savings through strategic sourcing and e-solutions, and keeping savings through ongoing management. Agilent achieved improvements of 10-15% in indirect spend and SG&A costs as a percentage of revenue through their indirect spend reduction program that followed this approach. Woon concluded by emphasizing critical success factors like executive support, clear accountability, and strategic supplier partnerships.
S&PCon_ME_final
- 1. 2nd Annual Sourcing & Procurement Conference Shanghai, 13-14 June 2005 Peter Woon Director, Global Sourcing Agilent Technologies 2nd Annual Sourcing & Procurement Conference Increasing profitability, streamlining processes and reducing costs trough optimizing sourcing and procurement strategies Managing “Services” Spend in Today’s economy
- 2. Winning Through Innovation Presentation • Part I : “Services” Spend Management – What is “Services” Spend Mgt ? – Types of “services” – Spend Management Strategy • Part II : Agilent Experience – Introduction : Agilent the company – Indirect Spend Reduction Program at Agilent • Concluding comments – Critical Success Factors – Challenges of “Service” Spend Management • Q&A Session
- 3. Winning Through Innovation What is “Services” Spend Management ? • Key Buzzwords in Today’s competitive environment : – Improve , PRODUCTIVITY, PROFITABILITY, EFFICIENCY etc • Cost Savings vs Spend Management ($$$) – Cost Savings : … to spend LESS … • typically price per unit focused • Typically a “one off effort” in the form of a program / project – Spend Management : • Is a rigorous, discipline that is utilises a on-going approach to re-look at People, Process and Technology around Procurement Activities in an organisation • Focussed on Cost savings + Cost avoidance • Also factor in Demand Management • Getting more “value” from the same Spend $$$ – Spend Management : • Optimise spend $$$ to deliver same utility / consumption value
- 4. Winning Through Innovation Why Services Spend Management ? • Total Purchasing Spend $$$ at typical company averages – 30%-60% of revenue ** For Contract Mfg and turnkey companies : 60-80% • Direct vs (Indirect & Services) : – Average is 50% / 50 % – Depend on Industry type • Gen Mfg : 70 / 30 • Consumer Products : 45 / 55 • Chemical / Pet. : 60 / 40 ** exclude services companies • “Services” Indirect Goods & Services Source : CAPS Critical Issues report : Indirect Spend 09/2003
- 5. Winning Through Innovation Direct vs Indirect or Services Procurement Professional & Financial services Telecommnications, IT & Networking Human Resources BPO Marketing & Advertising Transportation & Logistics Travel, & Hotels Real Estate. Facility Mgt , Enrgy & Utilities Mfg and BPO Offshore services Direct procurement : - Part of BOM - goes into the PRODUCT build - Product or Commodity groups Electronics Components PCB and PCBA Mechanicals - metals Electrical components Mechanicals - Machined Mechanicals - Plastics Mechanicals – Sub Assy Mechanical Components Indirect / Services Procurement - Category groups
- 6. Winning Through Innovation Typical “Services” Spend distribution 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% MRO OutsourcedServices FreightandLogisticsRent IT OtherUtilities TemporaryLabor Marketing ProfessionalServicesTravel Furniture/OfficeEquipment OfficeSupplies HRAdmin Education Donations Source : CAPS Critical Issues report : Indirect Spend 09/2003 Indirect / “Services” Spend has great potential !!! (mostly untapped)
- 7. Winning Through Innovation Find Savings: -gaining an understanding of current expenditures. -gather data from internal business systems, -classifying into categories. Spend Management Strategy : 3-step Find-Get-Keep The spend management discipline can be described as an iterative three-step Find-Get-Keep savings process.. . Get Savings: -Identifying top spending categories, for highest potential for savings, and how they can best leverage sourcing. -Target efforts / activities such as rationalizing their supplier base and negotiating into formal contract agreements with more favorable terms—resulting in savings per category of 10-to-30%. Keep Savings: -Maintain and manage formal contracts. -Establish and Build formal strategic supplier relationships for long term win win benefits
- 8. Winning Through Innovation Strategies for Spend Management • Internal Strategies : – Establish and develop effective spend analyses reporting – Organisation for procurement accountability – Streamline Source to Pay processes – Standardization of purchases • Brands / Models thru’ purchasing catalogs • Volume Purchase agreements (VPAs ) / Master Service Agreements (MSAs) • External Strategies: – Utilise e-Procurement tools : Procuremeny portals, Online reverse auctions – Leverage Industry volume or consolidated buys through “consortium purchases” – Outsource non critical purchases • Other Innovative Strategies : – Pay per use models / utilisation models – On-demand models, “On-tap” models – Vendor managed models – Asset ownership vs Leasing – Business Process Outsourcing (BPO) and Offshoring
- 9. Winning Through Innovation Presentation • Part I : “Services” Spend Management – What is “Services” Spend Mgt ? – Types of “services” – Spend Management Strategy • Part II : Agilent Experience – Introduction : Agilent the company – Indirect Spend Reduction Program at Agilent • Concluding comments – Critical Success Factors
- 10. Winning Through Innovation Agilent Around the World • Customers in more than 110 countries • More than half of revenue generated outside U.S. • Global manufacturing and R&D Agilent Facts $ 6.1 billionNet revenue (FY03) Employees 28,000 employees Headquarters Palo Alto, California
- 11. Winning Through Innovation Semiconductor Products Life Sciences and Chemical Analysis Test and Measurement Automated Test Shared Infrastructure (Global Infrastructure Organization, GIO) Agilent Laboratories Technology Synergy Agilent Businesses A diversified company with synergy Global Infrastructural Organization Global functional support teams Sourcing, Finance, Information Technology, Human Resources, Workplace Services, Legal, Trade and Tax etc
- 12. Winning Through Innovation Agilent’s Industry-Leading Customers Astra Zeneca Aventis BASF AG Bayer AG Boehringer Ingelheim DuPont Dow Chemical Exxon-Mobil Eli Lilly GlaxoSmithKline Merck Nestle Novartis Pfizer U.S. Army, FDA, EPA, NIH Alcatel Ericsson Fujitsu IBM LG Lockheed Lucent Motorola NEC Nokia Samsung Sprint Verizon Celestica Cisco EMC Hitachi HP Huawei IBM LG Logitech Motorola Nokia Nortel Samsung Siemens Solectron Sony Ericsson Cisco Ericsson Flextronics IBM Motorola Siemens Nokia NVIDIA Philips Qualcomm Solectron Samsung STMicroelectronics Toshiba TSMC Life Sciences and Chemical Analysis Test and Measurement Semiconductor Products Automated Test
- 13. Winning Through Innovation The Agilent Journey … Winning through Innovation … Breakeven Phase 2: FY01-03 Survival Phase 3: FY04-05 Restore Core Businesses Phase 4: Invest In Growth WE ARE HERE Phase 1: FY99-00 Company Launch Growth Company Value Company Growth Company
- 14. Winning Through Innovation Agilent’s Experience … Indirect Spend Reduction (ISR) Program to Manage “Services” Spend
- 15. Winning Through Innovation Step1 : Find Savings … Spend Analysis and Compliance reports Inbound Freight and dutyas a percentage of revenue 0.3% 0.4% 0.5% 0.6% 0.7% 0.8% 0.9% 1.0% Freight & Logistics 3 per. Mov. Avg. (Freight & Logistics) Freight & Logistics 0.83% 0.53% 0.76% 0.91% 0.65% 0.96% 0.82% 0.64% 0.41% 0.71% 0.39% 0.60% 0.70% 0.78% 0.72% 0.83% 0.83% 0.46% 0.80% 0.78% 0.95% 0.72% 0.65% 0.47% Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Q1-03 Q2-03 Q3-03 Q4-03 Q1-04 Q2-04 Q3-04 Q4-04 Control Limit Spike in July due to $3.5M accrual made for all outstanding freight expenses. Without this accrual the index would be at 0.48% I.e. below the control limit. Step 1 : Find Savings … Indexed spend reports
- 16. Winning Through Innovation Step 1 : Find Savings thru’ Spend Analysis Step 1 : Find Savings … Spend Targets by Categories PSA 1. Rationalize / Restructure PSA Contracts (PSA 1) 2. Establish PSA Control Gate Process (PSA 2) 3. Reduce ETW Usage (PSA 3) Initiatives FY04 Savings Target Agilent Total = $150 - 200MM Technology Services $XX-YYMM $1XX-YYMM 1. Infrastructure (Company X / Y) (TS 3) 2. Rationalize Managed Service Contracts (TS 2) $XXMM3. Rationalize Software / Hardware Spend (TS 1) 4. Reduce Telecom Spending (TS 4) $YYM 4. Audit Billing of ETW Invoices (PSA 4) $XXMM $YYM $YYMM $Y MM Other 1. Drive compliance with Preferred Travel Vendors (OT 1) 2. Negotiate New Travel Agreements (OT 2) 3. Track and Monitor Marketing Spend (OT 3) $XXMM $XXMM $YY-ZZMM 4. Track and Control Office-related spend (Equipment, Furniture, Express Mail) (OT 4) 5. Transition Facilities Maintenance to a Single Global Provider (OT 5) $XX-YM $YYM 6. Rapid Source Chemicals & Gases (OT 6) $XXMM Tech Svcs FY 02 Managed Services TelecomInfrastructure (X, Y) HW / SW Rationalization
- 17. Winning Through Innovation Find Savings thru’ Spend Analysis
- 18. Winning Through Innovation Step 2 : “Get Savings” Phase • Strategic Sourcing – Consolidated Volume purchases – Sourcing from Low Cost countries – BPO and Offshoring • E-Solutions – e-Bidding / Close Reverse auction – e-Catalog Purchases – e-Invoicing • Supply Base rationalisation – Supply Base Cleanup – P-Card for small one-offs purchases • Contract Negotiation and management • Lease instead of BUY Step 2 : Get Savings … Spend Management Strategies
- 19. Winning Through Innovation Case 1: “40/20/40” strategy for Manufacturing S trategy U pgrade 20 03 Novem ber 2 002 Agilent R estricted P age 10 Americas E urope Asia Maintaining geo grap hic b alance help s m anage b usiness risk in term s o f assurance o f sup p ly, currency effects, etc. T his m ap s well to the distributio n of o ur custo m ers worldwid e. No ne o f o ur co m p etitors have this glo b al cap ab ility 20 % (<15% in ‘00) 40 % (<10% in ‘00) 40 % (>75% in ‘00) Manu facturing G lo b aliz atio n - T arget is G eo grap hic B alance
- 20. Winning Through Innovation Step 3 : Keep savings • Reduce “Everyone is a Buyer” – Appoint “Authroised” purchasing ownership – Prevent “rogue” buying • Implement Discretionary Spend Management – Coy wide Top Driven Spend Guidelines & Policies – Compliance to use Preferred Suppliers • Contract Review and Management • Supplier Relationship Management (SRM) Step 3 : Keep Savings … Discretionary Spend Management
- 21. Winning Through Innovation Proven Results : Achieved Improvement trends: Indirect spend and SGA as a %tage of Revenue Overall improvements approx 10-15 % as compared to 2001. Indirect Costs - Index 0% 5% 10% 15% 20% 25% 30% 35% 40% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY 2001 FY 2002 FY 2003 FY 2004 Inmillions Indirect Spend as a % of Revenue SG&A as a % of Revenue FY04 Goal= 23.4%
- 22. Winning Through Innovation Presentation • Part I : “Services” Spend Management – What is “Services” Spend Mgt ? – Types of “services” – Spend Management Strategy • Part II : Agilent Experience – Introduction : Agilent the company – Indirect Spend Reduction Program at Agilent • Concluding comments – Challenges of “Service” Spend Management – Critical Success Factors • Q&A Session
- 23. Winning Through Innovation Challenges of “Services” Spend Management • Lack of understanding of spending. • High cost of spend management integrating software . • Lack of proper formulation of corporate agreements • Lack of skilled professional procurement resources • Existence of “preferred” supply base • Lack of available base Supplier enablement for standardization
- 24. Winning Through Innovation Critical Success Factors – Executive leadership, support, ownership, and accountability – Goal and objective alignment (within procurement and across business partners) – Clear accountability measurements application • Understanding Spend Analysis and Trends • Ownership of these Spend Management – Strategically focused Enterprise Commodity Management roles and responsibilities (within procurement and across business partners) – Strategic Supplier partnership program • Improved supplier communications • Supplier Relationship Management training
- 25. 2nd Annual Sourcing & Procurement Conference Shanghai, 13-14 June 2005 Q&A Session Peter Woon Asia Pacific Procurement Director, Global Sourcing Agilent Technologies Peter_woon@agilent.com Tel : +65 6215 8323