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

2. 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.
Oriflame Purchasing Management Workshop

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

4. 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

5. 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

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

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

8. "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?
Oriflame Purchasing Management Workshop

9. 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)
Oriflame Purchasing Management Workshop

10. 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
Oriflame Purchasing Management Workshop

11. 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
Oriflame Purchasing Management Workshop

12. 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
Oriflame Purchasing Management Workshop

13. 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)
Oriflame Purchasing Management Workshop

14. 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
Oriflame Purchasing Management Workshop

15. 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

16. 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
Oriflame Purchasing Management Workshop

17. 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.
Oriflame Purchasing Management Workshop

18. 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
Oriflame Purchasing Management Workshop

19. 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
Oriflame Purchasing Management Workshop

20. 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?
Oriflame Purchasing Management Workshop

21. 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...
Oriflame Purchasing Management Workshop

22. 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..
Oriflame Purchasing Management Workshop

23. Current Supplier Strategy
Oriflame Purchasing Management Workshop

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

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

26. 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
Oriflame Purchasing Management Workshop

27. 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.
Oriflame Purchasing Management Workshop

28. 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
Oriflame Purchasing Management Workshop

29. e Auction – Positives Efficient (no lunch & lingo) Global Reach
Aggressive bidding
Transparent
Transactionally efficient
Oriflame Purchasing Management Workshop

30. 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)
Oriflame Purchasing Management Workshop

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

32. 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
Oriflame Purchasing Management Workshop

33. Questions ?
Oriflame Purchasing Management Workshop