Oriflame Purchasing Management Workshop Module 6 – Sourcing Strategy Marketing & Sourcing Strategy Leverage Opportunities IP Management Standardisation e Commerce / e Auction

Negotiate / Select the Suppliers Develop Negotiation Goals Develop Negotiation Strategy Plan the Channels & new Oriflame Agreement Post Negotiation Actions Analyse & evaluate completed RFQ’s Use/modify evaluation criteria Get key stakeholder input Discuss and develop Oriflame needs and wants. Discuss and agree the different Oriflame Negotiation roles & styles. Create the Oriflame negotiation team (never alone!! and typically 3-4 people) Decide on negotiation team roles. Put together negotiation plans & channels. Ensure that the channel plans have been thoroughly prepared. Ensure a CDA is in place so that there is no market leakage of information. Supplier Selection Legal Supply and Service level agreement and Total value plan, Performance Measures Supplier and Oriflame relationship management Communicate of results on a need to know basis. Negotiation skills and practice for the team interfacing with the suppliers is important. Also Negotiation needs to follow the PDCA negotiation process. It is important to take the two way view – what does the business want, what is non negotiable and what are essential goals to achieve? etc. Similarly, for the suppliers it’s essential to understand their needs/wants and options. Regarding confidentiality, it is essential to keep all negotiation secret from competition, the market and each participating supplier. Prior to the negotiation, a new Supply and Service level agreement needs to be created containing essential clauses, service level requirements, performance measures, penalties and the total value plan. Communication is on a need to know basis. 2005-10-11 Oriflame Purchasing Management Workshop

Supplier Relationship Oriflame Sourcing Oriflame Customer Needs Oriflame Sourcing Supplier Relationship Management Order Negotiation Order Placing Oriflame Supply Side Value Oriflame Transactions

The Bow-Tie Relationship Supplier Management Sales Marketing Operations R&D Supply Chain Procurement Oriflame Management Sales Marketing Operations R&D Supply Chain Procurement Oriflame Supplier Sales Person Oriflame Buyer

The Diamond Relationship Management Sales Marketing Operations R&D Supply Chain Procurement Management Sales Marketing Operations R&D Supply Chain Procurement Oriflame Key Account Management

Strategic Focus Oriflame Relationship Management Joint Ventures Joint Development Supply Chain Integration Senior Relationships Global Account Management Joint Marketing Customer Service

Porter’s Five Competitive Forces Leverage power of Oriflame suppliers Market Threat of New Suppliers Substitute products or services Business & Competitive Environment 2005-10-11 Oriflame Purchasing Management Workshop

"Price is a function of perceived value and emotion". Brand Management Marketing champion the brand, and determine product and price strategy. Innovation pricing Market skimming pricing strategy Price elasticity [revenue versus volume] Differentiated brands are premium priced – some relates to innovation cost. Marketing preserve “brand equity” Create Market segments – same product: different price "Price is a function of perceived value and emotion". The heart is 50x more electrical and 1000x more electromagnetic than the brain. (e.g. Coca Cola, Virgin) If Marketing are that important - how many Marketing Managers do you meet a year? 2005-10-11 Oriflame Purchasing Management Workshop

Sales Penetration & Exploitation Look to exploit the lack of internal communication and integrated supplier strategies Gain knowledge through telesales and engaging the over-communicators. Penetrate poor security and easy site access Use switchboard, networks, direct calls to locate key influencers & decision makers Try to avoid Procurement involvement until as late as possible It is the responsibility of procurement to ensure there are adequate processes and publicity covering supplier access & security, the business procurement policy & processes and a new supplier set up process. (Finance, Facilities, Legal, HR all need to be involved and Customers advised) 2005-10-11 Oriflame Purchasing Management Workshop

Oriflame Penetration & Access Top Down leverage given widespread penetration and access? How can Purchasing maintain Direct into functional head or team members There are many ways to access the business... Bottom Up 2005-10-11 Oriflame Purchasing Management Workshop

Commoditisation & Leverage Leverage or Alignment? Perfect Alignment Conflict Supplier tries to extract premium pricing and controls Oriflame Strategic Critical (Risk & Value) Conflict Oriflame exploits relationship and tries to commoditise a specialty Commoditisation & Leverage 2005-10-11 Oriflame Purchasing Management Workshop

Leveraging Product Types CASH COWS STARS Key Leverage Type Key Leverage Type PRODUCT VOLUME Dogs and Problem Children are great leverage opportunities - cash cows may be - if you have the volume and stars - if you are the chosen customer in the segment DOGS PROBLEM CHILDREN PRODUCT PROFIT 2005-10-11 Oriflame Purchasing Management Workshop

Leveraging Product Life Cycles 50% INNOVATION LAUNCH GROWTH STAGNATION DECAY 2000’s Key Leverage Time PRODUCT MARKET SHARE Key Leverage Time What is the lifecycle for your top 10 product spends? 0% TIME (CAN BE MONTHS) 2005-10-11 Oriflame Purchasing Management Workshop

Leveraging the Supply Side Standard Costing Pricing, Market Structures & Agreements Managing Supplier Procurement Costs Collaborative vs. Confrontational Leverage Supplier Development – Value Stream & Lean Managing Supplier Development Plans Supplier Performance Assessment Supply Side Value delivery (£) Here are some key supply side levers. Take the standard costing process - normally a one year event, where blanket overheads are applied across 80% of the product volume. Make sure you challenge costs ... How Lean are your suppliers? Do you have a Supplier Management system and assessment scheme? Bargaining Power & Leverage 2005-10-11 Oriflame Purchasing Management Workshop

Three Choices for Oriflame The Competitive Box Known / Unknown suppliers operating in traditional value add ways with the cosmetics customer base and competing for market share New Supplier New Business Model Superior value Conventional value propositions Superior value Oriflame & Oriflame Customers

Intellectual Property Management Adequate protection for Customer and Internal I.P. Controlled supplier access to sensitive projects, parts of the plant etc CDA from the beginning Joint Development Agreement with specifically named project members Joint Exploitation Agreement Potential licence fees and royalty income from all joint supplier inventions There is a great chance to own or jointly own intellectual property when companies do business together 2005-10-11 Oriflame Purchasing Management Workshop

Intellectual Property Management This is the second customer who has talked to me about this great new product opportunity and shared their expert knowledge. I'll even try to get a photo of the product from them.., I have a problem here in Oriflame. Let me talk to you all about it, and what I am doing with other suppliers. 2005-10-11 Oriflame Purchasing Management Workshop

Intellectual Property Management That’s really good; it is just like we wanted. I did not realise that you had got a patent on it though ! Could I have a sample and price? " I think I've got something that could really help Oriflame. We've just invented it and filed for a patent... Patent in the name of the supplier 2005-10-11 Oriflame Purchasing Management Workshop

Intellectual Property Management Oriflame will pay top dollar for my product but I'll give a discount which they will value. There are other development projects I want to exploit 2005-10-11 Oriflame Purchasing Management Workshop

Standardisation and Rationalisation Many companies suffer from the "cost of complexity" historic specifications obsolescent specifications. This in turn can lead to expensive set-up costs Who owns the specifications in your business? Who is responsible for challenging these specs As a percentage - how many are less than one year? What is the change process? 2005-10-11 Oriflame Purchasing Management Workshop

Standardisation 80 % of the cost is built into the product at the design stage If designers do not build in commonality and standard products/components then costs increase Demand design flexibility and generic specifications. Challenge the specifier and customer... 2005-10-11 Oriflame Purchasing Management Workshop

Specials vs. Commodity What you think is special may not be special Suppliers will try and create “special” to extract value Suppliers will try and sell to your people and force you to specify “special” You try and create “commodities” but they will want “specials” Global market knowledge is essential to understand whether you really are buying a special.. 2005-10-11 Oriflame Purchasing Management Workshop

Current Supplier Strategy 2005-10-11 Oriflame Purchasing Management Workshop

“Negotiation” Choices Indirect Channel Over the phone Email Buy “On Line” – Sellers Catalogue Buy “On Line” – Buyers Catalogue E Commerce – Auctions, e Tenders, Portals Direct Channel OR Face to Face – Negotiation 2005-10-11 Oriflame Purchasing Management Workshop

Negotiation – e Commerce e Commerce Definition e – Tools Tool Comparison table Reverse Auction - Positives and Negatives Logistics and Freight example 2005-10-11 Oriflame Purchasing Management Workshop

e–Commerce Definitions Use of the Internet, ERP or online tools in order to source products and services across global markets. market A Sourcing tactic, technique and tool and not a strategy Covers applications such as reverse auctions, electronic tenders and purchasing portals 2005-10-11 Oriflame Purchasing Management Workshop

e-Tools Reverse Auctions Live and interactive bidding online that makes use of ceiling prices & bid increments so that business finally goes to the lowest bidder Electronic Sourcing & Tenders Uses the traditional tender process against an RFQ but makes use of the Internet to manage projects and obtain quotations. Far more effective than traditional paper methods. Portals Internet / Intranet / Extranet site (portal) where user needs are positioned and supplier bids & information is electronically managed as part of the Business Sourcing process. 2005-10-11 Oriflame Purchasing Management Workshop

e Tool Applications Market Factor Reverse Auction Tender Negotiation Supplier Relationship Leverage Strategic/Critical Critical Supply Demand Balance Long Balanced Short Type Commodity Speciality Special Approvals Many Few One or Two Globality Global Site to Global Regional Large Business Turnover Widely Used Common Increasingly rare Product Approval Easy Difficult Hard Pricing Control Buyers Favour Neutral Sellers 2005-10-11 Oriflame Purchasing Management Workshop

e Auction – Positives Efficient (no lunch & lingo) Global Reach Aggressive bidding Transparent Transactionally efficient 2005-10-11 Oriflame Purchasing Management Workshop

e Auction Negatives Requires Preparation Can be Costly (ROI) Need to integrate / involve IT and ERP Education and training (Buyers and Suppliers) Set Up time (people, ceiling prices & communication timings, bid size decreases, lot sizes, auction duration & overtime periods, single or nested, visibility & transparency) Final Allocation of business (Goes to the lowest price bidder you may not like) 2005-10-11 Oriflame Purchasing Management Workshop

e Auction Providers Procuri Big 5 Consultants – eg PwC SAP / Oracle E Bay Achilles Surestock etc etc... 2005-10-11 Oriflame Purchasing Management Workshop

Logistics Example Logistics and Freight (Sea, Road, Couriers) is a good category for reverse auctions. Overcapacity leading to constant downward price pressure Significant options to destinations Many well qualified suppliers Non Strategic Supplier relationships Easy to assemble specifications and benchmarks 2005-10-11 Oriflame Purchasing Management Workshop

Questions ? 2005-10-11 Oriflame Purchasing Management Workshop