IASTA's "Procurement Leadership in the Perfect Storm," featuring OfficeMax

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Procurement Leadership in the “Perfect Storm”


Introducing IASTA

Introducing OfficeMax

The “Perfect Storm”

The OfficeMax Executive Mandate

The Approach

Mining the Opportunities

Sustainable Procurement Excellence

AGENDA

Procurement

Leadership

in the

Perfect Storm

Welcome


SmartSource SRM®

SmartSource SRM combines critical sourcing components into one

application and include auction and RFx, award analysis &

decision optimization, contract management, supplier

management with supplier self-registration

SmartAnalytics®

On demand technology that delivers spend visibility, spend

analysis and compliance monitoring to a user’s fingertips. Users

generate reports and analyze spend from the single, centralized

repository of spend data that is classified to a common language.

SmartServices™

The Iasta Consulting Group brings together experienced PEOPLE,

proven PROCESSES and powerful TECHNOLOGY to help clients

optimize every dollar they spend on goods and services anywhere

in the enterprise.

“After a

thorough review,

we found

that Iasta

offered

Nordstrom the

best solution set,

combined with

highest value for

our money.”

Keys to the OfficeMax Transformation


Iasta works with over 150 global companies of various

sizes and international locations.

"After a

thorough review

of the e-Sourcing

market, which

included over 10

vendors, we

found that Iasta

offered the best

solution set,

combined with

highest value for

Burlington Coat

Factory.”

Iasta’s Global Footprint


Passionate

Innovative

Fun

► OfficeMax is a leader in both business-to-business and

retail office products distribution.

► OfficeMax customers are served by approximately

31,000 associates through direct sales, catalogs, the

Internet, and retail stores.

► Common stock trades on the New York Stock Exchange

under the ticker symbol OMX.

► Corporate headquarters is in Naperville, Illinois.

► Markets OfficeMax serves

Enterprise-Level Organizations

Mid-Size Businesses

Small Businesses

Home Offices and Individuals

OfficeMax Profile


2009 Top line revenue of $7.2B

(source: OMX 2009 annual report)

Passionate

Innovative

Fun

OfficeMax manages its business using three reportable segments:

► OfficeMax – Contract

Markets and sells office supplies and paper, technology products and solutions, office furniture and print and document services directly to large corporate and government offices, as well as to small and medium-sized offices.

2009 Revenue: $3.7B

► OfficeMax – Retail

Markets and sells office supplies and paper, print and document services, technology products and solutions and office furniture to small and medium-sized businesses and consumers through a network of retail stores.

2009 Revenue: $3.6B

► Corporate and Other

Operating expenses that cannot be allocated to the Contract or

Retail segments

OfficeMax Organizational Profile


Contract Footprint


Retail Footprint



$9.2 $9.0 $9.1

$8.3

$7.2

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

2005 2006 2007 2008 2009

Sale

s (

$ B

illio

ns)

Year

The Great Recession

OfficeMax revenues declined more than 20 percent from 2005 to 2009; vast majority of the decline occurred during The Great Recession

Remained profitable by reducing fixed annual costs by over $400 million since 2005

Not making expense cuts in areas that would be a detriment to customer service

“55% of all adults

in the U.S. labor

force say that in

the past 30

months, they have

suffered a spell of

unemployment,

a cut in pay, a

reduction in hours.

or have become

involuntary part-

time workers.”

Pew ResearchJune 30, 2010


Increase EBIT and market share

► Procurement’s role –Transform how direct and indirect goods and services are procured by transitioning into a Global Procurement function.

► The Four-pronged mandate –

1. Aggressive, cumulative 5-year savings targets

2. Implement an enterprise wide, best-in-class procurement process model

3. Implement an enterprise wide, best-in-class contract compliance process

4. Centralize spend in an enterprise-wide Source2Pay program concurrent with a multi-year ERP systems upgrade

“Our team

remains highly

focused on the

successful

execution of our

five-year

strategic growth

plan.”

-Sam Duncan

OfficeMax CEO

Executive Mandate


The OfficeMax Indirect Procurement Model

There are three conventional approaches to Indirect Procurement:

► Centralized Procurement

► Decentralized Procurement

► Hybrid Procurement

OfficeMax selected the Hybrid model

In the Hybrid model Procurement assumes a consultative

role that enables all functions to leverage & optimize

existing subject matter expertise

Hybrid Model

Framework

Refine existing hybrid model processes

Integrate effective functional processes

Establish and execute on deliverables


Savings = Budget reductions (Who wants to help

that cause? It might include my job.)

Perception that procurement was only focused on

the bottom line

Relationship issues

In many cases, functions had strong, long running

relationships with suppliers (It wouldn’t be “fair”)

In some cases, suppliers were also significant

customers of ours! (Who wants to be the one to

lose revenue?)

Multiple process disconnects

General inertia

Challenges

Any type of

significant

change in an

organization will

present

challenges.

Being able to

overcome those

challenges is key

to procurement

transformation

success.


The Approach - SIMS

“Spend Information Management System (SIMS) Team”

Grass roots implementation of Hybrid Procurement Model

Upstream reporting

Track and report deliverables

Procurement delegates tactical support

Business-function delegates strategic advisory support

Establish the Hybrid Procurement Model Framework

Refine existing Hybrid Model processes & establish deliverables

Integrate and leverage existing effective functional processes

Synergize Existing Expertise

Sourcing Wave Strategies

Centralize Contracts, Spend Analysis and Supply Base

Cross-Functional development of

◦ Procurement Opportunities

◦ Policies/Procedures

◦ Communication Network

Procurement can

serve as the

catalyst for

positive change

when the

approach is based

on collaboration

and the focus is

centered on

shareholder

value.


Strategic Sour\cing\

\\

Store Operations

Marketing & Advertising

Information Technology

LegalHuman

Resources

Finance

Supply Chain

Procurement

FinanceEPMO

Indirect Budget Savings

Hybrid Procurement

Model

Spend Analysis

Supplier Consolidation

Governance

Contract Compliance

Contract Call

SIMS Framework


Budget Savings Hybrid Model

Contract Compliance Source2Pay

Process Core

Process Foundation


STEP 1

Opportunity Identification

STEP 2

Strategy Development

STEP 3

Source & Negotiate

STEP 4

Contract & Implement

STEP 5

Invoice & Pay

STEP 6

Monitor & Manage

Category

Knowledge

Stakeholder

Alignment

Sourcing

Methodology

TCO

LCC Sourcing

Target Setting

Standardized

Process

Template Mgmt

Vendor Database

RFx

Knowledge Mgmt

Collaboration

Template Mgmt

Codify T&Cs

Price Compliance

Eliminate Paper

Implement

Purchase Order

Feed Institutional

Knowledgebase

Enablement

Automation

Rate compliance

Tactical process

control

Dynamic

discounting

Define approach

Facilitation

Score-carding

Supplier

development

PLAN LEVERAGE

Spend Visibility

Contract Visibility

Supplier

Assessment

IDENTIFY SUSTAINCONTROL EXECUTE

Establishing a Common Language


Progressively Winning Heart and Minds

Tactical administration

of RFx events

Help desk support for

software & process questions

Manage supplier self-

registration & NDA mgmt

Supplier communications

Tactical Administration On Demand Support

SME Resources Fully Managed Category

Ownership: Business Function Ownership: Business Function

Ownership: Shared Ownership: Procurement

Tactical administration

of RFx events

Strategic advisory support

of RFPs, scope & spec documents, bidding structure

Award scenario

development & analysis

Contract implementation

support

Dedicated Subject

Matter Expert

Category & market

analysis

Award scenario development &

analysis

Stakeholder collaboration for

procurement strategy Full

administration of RFx events

Full administration of RFx events

Dedicated Sourcing

Managers

Real time mgmt of supplier

relationships

Monthly KPM reporting to

business functions

Tacti

cal R

ole

Str

ate

gic

Ro

le

Functional Trust Factor Functional Trust Factor

Functional Trust Factor Functional Trust Factor


Total Indirect Spend

$x.xxB

Marketing($ xxxM)

Finance($ xxxM)

IT($ xxxM)

Store Ops($ xxxM)

Supply Chain($ xxxM)

Sales($xxxM)

Physical Products

($xx.xM)

Labor

($xx.xM)

E-Commerce

($xx.xM)

Media

($xx.xM)

Information

($xx.xM)

Level 2 = Strategic Spend Buckets

Level 1 = Top Line Spend by Function

Sample Indirect Spend Tree (Levels One & Two)


0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0

Rew

ard

Risk

Sample Spend Taxonomy Scatter Plot - Marketing

Paper

Ad Printing

Signage

Packaging

Letters/Envelopes

Catalog Printing

Brown Bag Printing

Uniforms

Sales Collateral

Ad Agency

Consulting

Graphic Design Labor

Photography

Logistics

Source Partner

Manage Risk

ManageTransactions

*Risk/Reward metrics in this plot are for illustrative purposes only

Procurement Strategy by Function*


Progress and Results to Date

Completed Spend Analysis on $2.2B in spend

Completed Contract Call for top 97% supplier contracts

Fully engaged SIMS Team

Current savings 6 fiscal quarters ahead of plan

Breaking new ground in new areas of the business

Transitioning strategic sourcing to a global procurement

function

“Our team

remains highly

focused on the

successful

execution of our

five-year

strategic growth

plan.”

Sam Duncan

OfficeMax CEO


Dimension of Procurement Management Description

Examples of Best Practice Applications

Strategy

Ability of Procurement to develop plan of action to achieve organizational goals and objectives

Capitalize on supply market opportunities as a part of strategy to drive value through cost leadership, innovation and revenue realization

Organization

Structured hierarchy of Procurement group focused on maximizing organizational opportunities

Embed procurement skills and knowledge in key business processes rather than functions; differentiated strategic (CM) vs. tactical (Buyer)

Culture

An integrated pattern of human knowledge, belief, and behavior supporting organization and Procurement strategy

Rotate high-potential professionals as ambassadors of procurement excellence across functions throughout the organization. Provide incentives for procurement process excellence

Performance Management

The process of assessing progress toward achieving predetermined goals

Link procurement metrics to strategic objectives and to corporate results and proactively control procurement processes

Roadmap to Savings Sustainability


Dimension of Procurement Management Description

Examples of Best Practice Applications

Strategic Sourcing

A rigorous process of assessing all costs associated with a spend category and competitively bidding the category to identify suppliers that offer optimal total cost, quality and service performance

Apply advanced techniques (e.g. cross-functional specifications, demand management, eRFPs, eAuctions) to leverage full value potential

Supplier Development

A rigorous process of assessing all costs associated with a spend category and working with existing suppliers to reduce total cost, gain efficiencies and improve quality/service.

Effectively manage the tension between value creation and risk management

Procurement Automation

Streamlining operations as it relates to transactional facilitation of purchases

Automate and upgrade operating processes using e-business technologies (e.g. Order management software, trading exchanges)

Roadmap to Savings Sustainability


Procurement

now has the tools

now has the voice

now has the credibility

Thank You

Conclusion


For More Info…

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United Kingdom

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Carmel, IN 46032

United States of America

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IASTA's "Procurement Leadership in the Perfect Storm," featuring OfficeMax

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Transcript of IASTA's "Procurement Leadership in the Perfect Storm," featuring OfficeMax