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Task Force and European Procurement Council

Task Force and European Procurement Council. Ken J. Poczekaj, VP Global Supply Chain December 8, 2008. Agenda. Task Force Update European Council Discussion European Council Requirements Tools / Metrics Organization. Bill Bosway Mark Bulanda Ed Feeney Tim Ferry Jack Frazier.

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Task Force and European Procurement Council

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  1. Task Force and European Procurement Council Ken J. Poczekaj, VP Global Supply Chain December 8, 2008

  2. Agenda • Task Force Update • European Council Discussion • European Council Requirements • Tools / Metrics • Organization

  3. Bill Bosway Mark Bulanda Ed Feeney Tim Ferry Jack Frazier Jean-Paul Montupet Tom Moser Tom O’Cull Steve Pelch Task Force Formed to Focus on Critical Issues Impacting Emerson Phase 1 Focus Phase 2 Focus • Legal • IT • Procurement • Logistics • Major Shared Services Facilities – Cluj, Xian, Mexico City, Manila • Corporate Technology • Corporate Management Fee Task Force Members, Led by Ed Monser Steve Hassell Ed Monser Tom Rosenast Chuck Spears Third Task Force in 15 Years

  4. Task Force ObjectivesEvaluation of Corporate Shared Services and Initiatives • Focus on Critical Issues Impacting Our Ability to Execute the Management Process Effectively and Efficiently • Have We Expanded Our Corporate Shared Services and Initiatives Too Broadly and Too Rapidly? • Are We Getting the Proper Returns, Leverage, Cost Reductions and Growth? • Identify Plan with Necessary Management Processes, Measurements and Tradeoffs to Realize Adequate Returns and Benefits • Do We Need An Approach To Allow Businesses To Opt In Or Out Due To The Type of Business Platform We Currently Have? We Need To Keep Evolving As We Target $35B

  5. Task Force RecommendationsFocus 4 Procurement Strategies BCCS Alignment Leverage Savings eSourcing Velocity Material Information Network (MIN) Procurement Update

  6. Systems Recommendations • Continue to Manage Systems at Corporate • MIN • Inflation Model • Parts Analysis • Sourcing Decisions Tools • Mandatory Conformance for Divisions • Provide Required Data • Use Tools • NPD 2.0 Procurement Update 6

  7. Task Force RecommendationsFocus 4 Procurement Strategies BCCS Alignment Leverage Savings eSourcing Velocity Material Information Network (MIN) Procurement Update 7

  8. Task Force Commodity Team Recommendations Find Where the Best Leverage Points Exist • Restructure Commodity Management Into Appropriate Areas • Teams, Business Groups, Divisions • Establish Strategic Procurement Council to Oversee Commodity Management Process • Strengthen Procurement Business Leader Role • Continue to Define Common Commodity Management Processes and Drive to Preferred Suppliers Procurement Update 8

  9. Commodity Management Will Be Divided Into Three Leverage Groups Corporate Team Managed Business Group Managed Division Managed Leverage Procurement at the Appropriate Level $0B  ~$2.2B ~$5.5B  ~$3.2B ~$3.7B  ~$3.8B • Multiple Business Group Needs • No Business Group Dominates Spends • Global Entities • Spend >70-85% in a Business Group • Multiple Division Needs within a Business Group • Division Dominates Spend • Not Leveragable Across Other Divisions Supported By Common Tools, Processes and Metrics Procurement Update

  10. Commodity Management Organization Structure Moving Forward Establish Corporate Procurement Strategy Council Corporate Procurement Leader Procurement Business Leaders (PBLs) Regional Procurement Councils Oversight • Central Teams • $3.2B • Steel • EMS • Distribution • Castings • Business Led Teams • $2.2B • Electronics • Batteries • Circuit Breakers • Division Managed • $3.8B • Corrugated • Contact Points • Motor Protectors Management Common Data and Systems MIN, Inflation Model, eSourcing, NPD 2.0, Parts Analysis Tools Common Metrics – NMI, DPO, DOH, Supplier Leverage, P&L Impact Spend Will Migrate to Business and Division Level Along With Responsibility To Meet Strategic Objectives Outcome Procurement Update 10

  11. New Structure Expands Leverage Opportunities and Increases Expectations • Centrally Led Teams • Rifle Shot Focus on Key Commodities • Develop True World Class Expertise in These Areas • Examples • Global Steel Mill Cost Analysis • EMS Component Pricing Flow Through • Business Groups • Business Leader and PBL Actively Engaged in Decision Making on Key Commodities • Critical Mass to Leverage • Examples • Batteries, Business Group Expertise • Circuit Breakers, Eng. Commitment to Multiple Approvals • Division Managed • Tighter Links to P&L Objectives • Higher Expectations • Integrate Best Cost Sourcing Tool • Examples • Asia Corrugated, Localize Supply • Manifolds, Best Cost Supplier Development Common Tools & Processes Final Recommendations Will Be Presented to COO and Task Force in November Follow Up Meetings

  12. Task Force RecommendationsFocus 4 Procurement Strategies BCCS Alignment Leverage Savings eSourcing Velocity Material Information Network (MIN) Procurement Update

  13. The Drive to Regional Sourcing ContinuesEach Region Must Be Evaluated Independently Europe – $2.2B Move $400M from W. Europe to E. Europe Asia – $2.2B North America – $5.0B Move $750M from NA to Mexico • Minimize Corporate Responsibility • Maximize Division Engagement • Establish Regional Council Keep Focused Migrate to Shared Service Structure Get Focused and Align Organization to Get It Done Other Best Cost High Cost Local Best Cost This Continues to Be A Key Area of Focus and Must Support Our Growth in Emerging Markets Procurement Update 13

  14. Best Cost Country Sourcing Recommendations • APSCO – Keep Strategic Focus, Continue Transition to Shared Service Structure • CEESCO – Restructure around European Regional Procurement Council in 2009 • LASCO –Define Aggressive 2009/2010 Goals, Deliver on Spend Migration Plans • GMDC – Operate as Shared Services • Establish Regional Procurement Councils Procurement Update

  15. Prague Budapest 2007 68% 21% 11% Cluj 2012 46% 39% 15% Istanbul Reasons for change in Europe CEESCO Update • Supported Divisions in identifying and awarding $300M in spend to 338 suppliers in 2 years • Challenge Going Forward • Move an additional $400M to get to $900M sourced from Eastern Europe Action • Form European Procurement Council consisting of the necessary participants to make decisions to move spend to Eastern Europe faster due to increased Divisional responsibility • The GM Council has proven to be a successful means to gain consensus in Europe and move initiatives forward quickly • Divisions drive needs based on P&L impact $400M We will transition $400M in the next 5 years – mainly in the areas of Electrical, Stampings & Machined Parts, Plastics, Wire and Panel Boards. A Strong and Active Eastern European Supply Base is Critical to Emerson’s Success 15 Emerson Confidential

  16. Restructuring for Success In Europe • Minimize Corporate Responsibility and Maximize Division Engagement • Team Leveraged Spend Managed By Central Global Teams • Business Led Teams Manage Spend Concentrated at >70-85% • Division Teams Manage Sourcing With Minimal Leverage Across Divisions • Establish Regional Council • Drive Communication and Leverage Across Region • Ensure Regional Strategic Objectives Are Met Corporate Procurement Leader Procurement Business Leaders (PBLs) Regional Procurement Councils Business Led Teams Division Managed Central Teams Spend Will Migrate to Business and Division Level Along With Responsibility To Meet Strategic Objectives 16 Emerson Confidential

  17. Task Force RecommendationsFocus 4 Procurement Strategies BCCS Alignment Leverage Savings eSourcing Velocity Material Information Network (MIN) Procurement Update 17 Emerson Confidential

  18. eSourcing and Velocity Recommendations • eSourcing is a Mandatory Tool Across Emerson • Manage Tools at Corporate • Manage Quick Source at Divisions • Develop In-House eSource Group in Manila • Phase Out Ariba • Redefine Velocity Metrics to Manage Procurement • Velocity • Speed of Implementation Procurement Update 18

  19. Sourcing Operations - ManilaFull Transition in 2009,Leveraging Process Improvements • Metrics / Process Improvements • Pilot Phase Complete (4 Projects; ~$700K Identified Savings) • Broader Impact Through Use of ALL Emerson Systems: MIN, Inflation Model • Utilized Logistics’ Landed Cost Calculator For Improved Total Cost Strategies • More Comprehensive Event Planning Process Expedites Award Decisions and Speed to Implement for Divisions • 2009 Objectives: Continuous Improvement of Speed, Savings, Commodity Expertise • Transition Summary • ALL Projects Transition to ESO by Q4 • Leveraging Ariba Contract Provisions (35 Projects in 2009) • 30 Resources by 2010 • Enough Capacity to Manage 25 Projects per Quarter 2009-2010 Projects Capacity By Quarter Ariba ESO Trained Resources “I Have Already Told My Team, All Future Events Must Go Through ESO and Not Ariba… I Do Not Want To Go Back.” – Division Mgr. Response

  20. New Structure Will Challenge All Areas to Improve Historically Division Led Commodities Have Not Performed Consistent With Teams PBL’s and Regional Oversight Teams Will Be Challenged To Lead These Efforts *37 DOH Before Acquisition of New Sites

  21. Our Metrics Must Shift to Align with Divisional P&L’s • Shift Focus to Savings Generation • Savings Contribution Must Be Quantified • Separate Market Impacts From Value Add • Shift From Best Cost Country to Total Best Cost and Regionalization • Reduction of Complexity Becomes a Core Driver • Preferred Suppliers • Consolidation of Supply Base – “Killing The Tail” Detail on New Metrics Will Be Established Approved by The Task Force and Integrated in Business Planning Q2 2009 Procurement Update 21

  22. Emerson Key Performance IndicatorsModifying Strategies To Drive Impact MIN Parts Analysis ES Inflation Model Velocity Capture Rate BCC MIN PSL / Scorecard Material Selection Complexity MIN SDT Contract Management Implementation Time And Savings Outstanding Needed, But Current Method For Measuring Is Inadequate – Project Level

  23. Task Force Recommendations Logistics • The Task Force Strongly Supports the Corporate Logistics Group • Logistics Can Truly Be Leveraged Across Emerson • A Truck, Container or Ship is the Same Regardless of the Product Inside • The Benchmark Study Suggests We Are Behind in Logistics and a Focused Effort in This Area Will Close the Gap Logistics Update 23

  24. CAT Deloitte Benchmarking SurveyEstimated Logistics Costs at 9% of Revenue in 2007 Forecasted to Increase to 11% by 2012 6% Target Represents the Industry Average of Our Peer Group Potential Savings Potential Projected *$30B in revenue without acquisitions

  25. Four Programs Drive $431M Reduction in Logistics Costs by 2012 • Global and Regional Mode Teams $172M • Development of the Global Strategies by Mode, Competitive Tension and the Selection and Performance of the Carrier Base • Intercontinental Ocean and Air Programs $59M • Operational Movement of Intercontinental Freight • North America Trucking Program $173M • Canada, US and Mexico • Operational Movement of Domestic Freight • Digitizing of the Supply Chain $27M Electronic Connectivity Between Emerson/Trading Partners • Electronic System to System Transactional Data for Operating Programs • Audit Payment of Freight Bills IOA Logistics Update 25

  26. Steel Electronics Electrical Products Corrugated Components Magnet Wire Current Commodity SegmentationCorporate and Leveragable Commodities 60% of Spend 2008 Spend: ~$9.2 Billion $0.87B $0.79B $0.73B $1.13B $2.79B $2.14B Bearings Division Managed $0.65B $0.05B Intercompany $0.07B Team Managed Spend: ~$5.5B Division Managed Spend: ~$3.7B

  27. Commodity Rationalization • Assessment Criteria • Usage In Majority of Business Groups and Divisions • Leverage Within Commodities and/or Suppliers • Scale is Critical to Ensure Supplier Focus and Attention • Ability To Add Uncommon Value • Analyzing All Commodities Based on Similar Criteria • Corporate Managed, Business Group Managed, or Division Managed Team Analysis VP Procurement / PBL / Team Leader Review and Approval Present Recommendation to Divisions for Review and Approval Developing Process to Consult Organization / Divisions on Recommendations

  28. Corporate TeamFuture Management Structure Procurement Business Leader Team Leader Business Group Comm. Managers • Point of contact for Divisions • Drives Key Performance Metrics • Leverage across Business Group • Implementation • Strategy Development & Alignment • Conduit to Procurement Business Leader Global Commodity Managers • Point of Contact for Preferred • Commodity Expertise • Sourcing Strategy • Provides vehicle to go to market as Emerson Regional Commodity Managers • Identify regional suppliers • Match Division requirements to Supplier Capabilities • Provide regional commodity knowledge • Support Supplier Transitions & Help Resolve Division Issues (CDCM) Support Team- GMDC Transition Business Group Responsibilities to the Procurement Business Leader

  29. Corporate TeamFuture Responsibilities Remains Team Managed: Business Group / Division: Commodity Expertise (Global) • Raw Material Forecasting • Raw Material Selector Tools • Industry Knowledge • Regional Trends & Capacity • Technology Integration • Sourcing Strategy Development Preferred Supplier Management • Integrate Suppliers into New Product Design • KPI Metrics (Savings, DPO, DOH, etc.) • Single Point of Contact • Identification & Development • Supplier/Division Alignment • Regional Coverage • Issue Resolution E-Sourcing: • Planning • Project Management • Yield Analysis Inventory Days Payable Outstanding (DPO) Net Material Inflation (NMI) Strategy Development / Priority-Setting Process Improvement Training Compliance “Pull” Corporate Resources Speed of Implementation Reduce Complexity thru Design (NPD) Corporate will focus on Commodity Expertise & Preferred Supplier Management

  30. Re-Defining The Roles Within The Remaining “Corporate Team Managed”Increase Expertise and Align With The Business Groups Communication, Coordination, Execution Strategy Cross Divisional Commodity Manager (CDCM) Commodity Manager • Global Strategies & Leverage • Competitive Tension • Develop Preferred Suppliers • Industry Expertise • Manage Preferred Supplier Performance • Elevate Division Needs • Elevate Supplier Issues • Plan Development • Communication • Key Project Management ACTIONS Change Reporting to PBLs Elevate Skill Levels

  31. Steel Actions • No Changes Required – All Steel Commodity Families Will Continue to be Leveraged at the Corporate Level

  32. Electronics Actions • All Commodity Families Currently Under the Electronics Team Will Be Shifted to Embedded Computing & Power

  33. Electrical Products Actions • Capacitors, Contact Points, Fans & Blowers, Relays and Switches To Division Managed • Circuit Breakers, Fuses and Power Switching Managed By Network Power • Protectors Managed By MAC Group • Leverage Connectors, Wire and Cable, and Contract Manufacturing Across Emerson

  34. Components Actions • Plastic Resins Will Be Managed By Tools & Storage • Ferrous Casting Commodity Families Divided And Managed By Climate Technologies And Process Group

  35. Bearings, Corrugated, & Magnet Wire Actions • Corrugated Shifts To A Division Managed Commodity With Tool Group Maintaining A Business Group Focus • Magnet Wire Managed By MAC Group • Bearings Managed By Industrial Automation

  36. Division Managed Actions • Investigation Yields Few Additional Leverage Opportunities • All Commodity Families That Are Currently Division Managed Will Continue To Be Division Managed.

  37. Commodity Shifts ProposedBy Business Group

  38. Emerson Key Performance IndicatorsModifying Strategies To Drive Impact MIN Parts Analysis ES Inflation Model Velocity Capture Rate BCC MIN PSL / Scorecard Material Selection Complexity MIN SDT Contract Management Implementation Time And Savings Outstanding Needed, But Current Method For Measuring Is Inadequate – Project Level

  39. Commodity Management Organization Structure Moving Forward Establish Corporate Procurement Strategy Council Corporate Procurement Leader Procurement Business Leaders (PBLs) Regional Procurement Councils Oversight • Central Teams • $3.2B • Steel • EMS • Distribution • Castings • Business Led Teams • $2.2B • Electronics • Batteries • Circuit Breakers • Division Managed • $3.8B • Corrugated • Contact Points • Motor Protectors Management Common Data and Systems MIN, Inflation Model, eSourcing, NPD 2.0, Parts Analysis Tools Common Metrics – NMI, DPO, DOH, Supplier Leverage, P&L Impact Spend Will Migrate to Business and Division Level Along With Responsibility To Meet Strategic Objectives Outcome Procurement Update 39

  40. Corporate Procurement OrganizationCurrent

  41. Corporate Procurement OrganizationProposed * * * * Recommended Adds To Manage New BG Commodity

  42. Agenda • Task Force Update • European Council Discussion • European Council Requirements • Tools / Metrics • Organization

  43. Council RequirementsProcurement Council 2009 Priorities • Determine How to Manage Current CEESCO Based Division Resources • Define Support Need • Reconsider Supplier Quality and Development Need • Define Locations and Administration • Transition Plan and Monitoring Execution • Communicate Division Needs For Corporate Leveraged Commodities • Outline Commodity Management for Newly Formed Business Group Lead Commodities in Europe, As Well As Team Managed • Determine Country Coverage Needs • Develop Standard Report Pack for All Division Use Accross Europe • All Europe GMs Incorporate it to their Quarterly Business Update • Report Progress Through Council Lead At Quarterly GM Meeting Retain Talent, Knowledge Base and Supplier Relationships Procurement Update

  44. European Procurement Council ResponsibilitiesFocus 4 Procurement Strategies European Procurement Council Commodity Teams Preferred Suppliers Consolidation – 50% Reduction Regional Alignment Supplier Development Leveraged Local Resources BCCS Alignment Leverage Savings Tension Speedof Implementation Cross-Functional Project Management Total Cost Sourcing New Product Integration eSourcing Velocity Material Information Network (MIN) Procurement Update

  45. Supplier Relationship Preferred Supplier ProgramEach Commodity Team Has This In Focus Supply Base ROTC Improvement Competitive Advantage World Class Quality & Service Marquee Vision Innovation Strategic Fit Industry Exp. Global Footprint Approved Velocity Agility Flexibility Responsiveness Alignment Developmental Value Quality Cost Delivery Technology Performance Product Criteria Integrative Strategic Collaboration Relationship

  46. - Harmonized Team strategy - Harmonized PSL Development - Market Knowledge Support CEESCO Preferred Supplier Alignment BE THE EXPERT; Target the Right Suppliers and Maintain the Relationship! • PSB (Potential Supplier Base) • Multidivisional Experience • Multidivisional Strategy and PSL • Trip Reports • Tech Sources • ESAC Results

  47. WS21365 Fisher Regulators Tech.: High pressure zinc die casting Weight/Size: Required clamping force min. 125t Mat.: ZAMAK 3 Quant; PN 200 000 pcs/year; 2PN Spec. Req.: Low porosity Other op.: Impregn., assembly, leakage test Spend: $ 1 113 k (19% saving) Bid Date: 02.28.2008 • LENIZ (ES) • LENIZ (ES) • RITTER (DE) • RITTER (DE) • Preferred Bidder FY08 • Preferred Bidder FY08 • Preferred Bidder FY08 • Preferred Bidder FY08 • DOURLET (FR) • DOURLET (FR) • TATRAMAT (SK) • TATRAMAT (SK) • Preferred Bidder FY08 • Preferred Bidder FY08 • Preferred Bidder FY08 • Preferred Bidder FY08 • B.C.B. (SK) • B.C.B. (SK) • Preferred Supplier FY08 • Preferred Supplier FY08 • CERTA (HU) • Prec Cast (HU) • Preferred Supplier FY08 • Preferred Supplier FY08 Fisher Regulators Tech.: High pressure zinc die casting • MORELLI (RO) • MORELLI (RO) Weight/Size: Required clamping force min. 25t • Preferred Bidder FY08 • Preferred Bidder FY08 Mat.: ZAMAK 3 Quant; PN 200 000 pcs/year; 2PN • AJEFA (BG) • AJEFA (BG) Spec. Req.: Low porosity • Preferred Bidder FY08 • Preferred Bidder FY08 Other op.: - Spend: $ 350 k (28% saving) Bid Date: 04.28.2007 • AKM (TR) • AKM (TR) • Preferred Supplier FY08 • Preferred Supplier FY08 Components TeamCommodity Expertise (Europe Die-Casting) Alignment w/ Division Requirements: Expertise = Savings

  48. New CEE Supplier Identification2005 – 2008 1300+ New Suppliers Identified 500+ Supplier Visits 270+ Preferred Bidders 85 Blacklisted We Must Ensure We Maintain This Momentum And Continue Focused Growth In Eastern Europe

  49. Preferred Supplier Criteria & Development

  50. Leverage Discussion • Harmonised and Common Bidders List for Same Commodity Used by Various Divisions • ESO for Full Source Events • Common Potential Supplier Database • Common Supplier Workshops • Latest: Brno, 2008 Sept • Preferred Supplier Program

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