April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 2 Breakout Session 1808 Anne R. Morton Principal Acquisition Solutions, Inc. April 12, :45 AM Key Elements for Successful Strategic Sourcing

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 3 Topics Covered Strategic Sourcing Overview Focus Topics –Governance –Spend Analysis –Supplier Relationship Management –Communications Summary Discussion

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 4 What Is Strategic Sourcing?... A comprehensive approach to analyzing the entire procurement function’s people, processes and tools that will enable the development of acquisition strategies that will drive performance improvements, cost savings, achieve overall results and meet the strategic goals of the organization...

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 5 Strategic Sourcing Is Transformational It shifts the organizational focus...

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 6 Strategic Sourcing is Multi-dimensional Implementing Strategic sourcing is not a linear progression but rather a comprehensive re-engineering of a business process

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 7 Strategic Sourcing is a Collaborative, Structured Process  Capture validate agency-wide spend & suppliers  Segment data  Understand data (who, what, when, where, how, why)  Analyze market  Identify opportunities  Create governance framework  Align with mission and objectives  Assess risk  Support customer needs  Leverage opportunities  Identify metrics  Determine quality of competition  Implement process, policy & cultural transformation  Develop communication plan & training requirements  Measure & report performance  Leverage supplier relationships  Refine demand planning  Communicate results  Adjust & Re-initiate

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 8 Why Strategic Sourcing? Improves performance and response Increases value End User Improves socio-economic achievements Small Business Representative Reduces workload Transforms role to business advisor Contracting Manager Optimizes resources Supports compliance Chief Acquisition Officer/Executive Drives standardization Optimizes resources Chief Information Officer Reduces costs Optimizes resources Chief Financial Officer... Because it benefits the entire organization...

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 9 Traditional Acquisition PALT 8% > $25,000 94% of Dollars 92% < $25,000 6% of Dollars Delivery Receipt Inventory Payment Lots of Paper Transaction-based, compliance-oriented, overhead function

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 10 Strategic Sourcing Supports A Balanced Scorecard Approach Human Capital  Valuing and investing in the ….acquisition workforce  Planning for human capital Organizational Alignment & Leadership  Align acquisition with agency ….missions and needs  Commitment from leadership Knowledge & Information Management  Identifying data and technology  Safe guarding operations and ….data integrity Human Capital  Valuing and investing in the ….acquisition workforce  Planning for human capital Policies & Processes  Planning strategically  Effectively managing the ….acquisition process Organizational Alignment & Leadership  Align acquisition with agency ….missions and needs  Commitment from leadership Knowledge & Information Management  Identifying data and technology  Safe guarding operations and ….data integrity Human Capital  Valuing and investing in the ….acquisition workforce  Planning for human capital Policies & Processes  Planning strategically  Effectively managing the ….acquisition process Organizational Alignment & Leadership  Align acquisition with agency ….missions and needs  Commitment from leadership

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 11 Produces real savings, compliance, and continuous improvement Source: Hackett Survey 2000 MetricAverage Organization World Class Organization FTE/Billion Spend11536 Cost/Order$10.35$1.52 Time/Req-to-Order50.2 hours1.4 hours Electronic Orders17%80% Ratio/Supervisors-Staff714 Cost/Percentage of Spend.96%.30% Strategic Sourcing Delivers Results

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 12 Strategic Sourcing – Key Elements Governance Structure Spend Analysis Linkage to Strategic Plans Communications Strategy Supplier Relationship Management Collaboration Performance Management/Monitoring Training Cultural Transformation TODAY’S FOCUS Governance Communications Spend Analysis Supplier Relationships

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 13 Governance – The Challenges Develop a customer-centric strategy to drive efficiency and effectiveness Streamline sourcing processes that strategically link to agency’s mission and goals Improve forecast and response accuracy to reduce risk Align demand and supply to improve cost effectiveness Compress cycle-times to improve delivery response Predict supply chain disturbances and react with greater speed Leverage human capital Improve process capabilities with cost effective initiatives generating direct results

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 14 Governance – A Model A governance structure provides strategic direction, verifies resources, and validates risks are managed

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 15 Strategic Goals and Objectives Aligned with mission Illustrative characteristics – goal setting –% Spend under Control –Spend segmentation –Socio-economic achievements –Enhanced supplier responsiveness –Improved performance Leadership frames the business strategy formulation

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 16 Spend Analysis – What Is It? “... the collaborative and structured process of critically analyzing an organization’s spending and using this information to make business decisions about acquiring commodities and services more effectively and efficiently...optimize performance, minimize price, increase achievement of socio-economic acquisition goals... How much, how and what is being bought, who is buying from whom Execute Strategy Identify Strategic Relations hips Develop Strategy Analyze Data

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 17 Spend Analysis – 10 Best Practices Classify spending at a detailed level Enhance core spend data with vital business intelligence Increase frequency and coverage of spending analysis Utilize advanced reporting and decision support tools Continuously expand uses and scope of a spend data management program Access all spend data sources from within and without the enterprise Adopt a common classification schema enterprise-wide Establish efficient and repeatable data cleansing and classification capabilities through the use of software or services Audit existing spend capabilities Augment category expertise to ensure data and classification accuracy and validation Best Practices in Spending Analysis, Aberdeen Group, 2004.

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 18 Spend Segmentation Segmentation of spend by: –Segment –Family Socio-economic segmentation

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 19 Spend CategoryAnnual SpendIndustry Benchmark Savings Technology $95.2M5%-25% Laboratory Equipment $14.5M2%-5% Office Equipment $3.3M20%-30% Security Guards $2.9M5%-10% Training $4.3M5%-30% Spend Opportunities

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 20 Spend Prioritization DimensionImpactRatings Business Impact Low Impact High Impact 0404 Supply Industry Competitiveness Hard to Obtain Easy to Obtain 0404

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 21 Market Segmentation Complexity Strategy The elements of the spend are analyzed Ranked by strategic importance and By the complexity of the purchasing process that is often a surrogate for risk Strategic Computer Hardware Integrated Telecom Office Equipment Ground Transportation Telecom Equipment Leverage Computer Hardware Software BottleneckCommodity Strategic Integrated Telecom Office Equipment Ground Transportation Telecom Equipment Leverage Computer Hardware Source: ATKearney

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 22 Supplier Relationship Management (SRM) – What’s It All About? Creates a common framework for effective communications Fosters partnering to improve service and costs Integrates supplier intelligence into the process –Market research and analysis... SRM is a collaborative and comprehensive approach to understanding the supply market and managing performance and contract compliance...

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 23 SRM Value and Benefits  Streamlines and effectively manages the processes between an organization and its suppliers Agency Contract Supplier Contract Supplier

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 24 SRM – A Model For Partnership Feedback Components Drivers Facilitators Decision Create or adjust relationshi p Drivers Compelling reasons to partner Facilitators Supportive environmental factors that enhance partnership growth Components Joint activities and processes that build and sustain the partnership Outcomes The extent to which performance meets expectations Drivers Set expectations of outcomes © The Global Supply Chain Forum, 2000

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 25 Customers Suppliers Supp Svc Supp Svc Cust Svc Cust Svc Prod LC Services Prod LC Services Acquisition Professional Acquisition Professional Fullmnt Services Fullmnt Services Logistics Providers Retailers Distributors & Resellers Consumers Business Customers Contract Manufacturers Part & Ass’y Suppliers Design Partners E-Service Providers Design Services Field Services Niche Services Collaboration Performance Improvement SRM Fulfillment

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 26 Communications – Why Bother? Fosters Partnerships and Teamwork Obtains stakeholder commitment and ownership Provides tailored messages and materials Solicits and incorporates feedback for continuous improvement Supports forward momentum Craft & Execute Plan Strategy Report & Update Obtain & Analyze Communications promote understanding and strengthen relationships

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 27 Summary – Success Factors Leadership Discipline, Collaboration Willingness to look at things differently – design business strategies Behavior shifting, change management Capture knowledge/share knowledge Baseline then measure performance achievements Train everyone Communicate, communicate, communicate

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 28 Summary - Benefits Improves performance Produces efficiency Reduces costs Instills teamwork Increases knowledge and understanding Shares knowledge Mitigates risks Optimizes the value of tax dollar spending

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 29 Thank You