Procurement role in Cost Optimization Presentation at IST

1. NATIONAL BANK OF GREECE GROUP PROCUREMENT ATHENS – 22FEBRUARY, 2012 Procurement role in Cost Optimization Presentation at IST

2. CONTENTS • Introduction2-4 • 2. Framework of Procurement Organization 5-11 • Policies & Processes 12-18 • Procurement Infrastructure & Monitoring19-25 • People & Skills26-33 • Q&A 34

3. NBG GROUP PROFILE (December 2010 data) National Bank of Greece, the oldest and largest among Greek banks, heads the strongest financial group in the country. It boasts a dynamic profile internationally, particularly in Southeastern Europe and the Eastern Mediterranean. The Bank's branch and ATM network, the largest in Greece (558 domestic banking units and 1,426 ΑΤΜs), effectively covers the entire country. It is developing and expanding alternative distribution channels for its products, such as Mobile and Internet banking. Today, after acquisitions in SE Europe and Eastern Mediterranean, the Group's network overseas includes 1,144 units (data as at 30.09.2011). Overseas the NBG Group is active in 12 countries and includes 9 banks and 59 other companies.NBG aims to be the leading banking group in a market of 125 million. The Group has major presence in Bulgaria, Romania, Serbia, FYROM and Turkey.

4. FINANCIAL DATA Profit and Loss Account Group Greece From these figures we easily conclude the importance of Operating Expenses for the results of the Bank, as well as the significance of the subsidiaries impact in a Group

5. CONTENTS • Introduction2-4 • 2.Framework of Procurement Organization 5-11 • Policies & Processes 12-18 • Procurement Infrastructure & Monitoring19-25 • People & Skills26-33 • Q&A 34 1

6. THE ENVIRONMENT WE OPERATE Questions • All organizations procure (purchase), BUT HOW? • What is the posture of a Procurement Unit within a global organization? • Do banks have “world-class” procurement practices? • Who is actually responsible for the costs? Answers • A number of companies, especially in Greece, are purchase “de-centralized”. Every requestor is buying its’ needs • Usually the Procurement Unit is under Finance or HR + Administration and deals with recurring and low cost/multiple orders items (stationery, furniture, utilities) • Banks are among the “worst” buyers. Top of class is Automotive, Telecoms and Packaged Goods industries. • Everyone!! But be careful, not anyone! Procurement is the safeguard of the transparency, the completeness and implements the procurement process.

7. WHAT MATTERS MOST? Importance of drivers for overall purchasing performance • The diagram shows which framework building blocks have the highest correlation with financial performance • Financial performance defined as average of • Annual purchasing savings • Annual reduction of COGS • Average EBITDA margin It is more than clear that capabilities and culture and structured framework are the “winning” drivers. Source: McKinsey GPE Team

8. BUILDING THE RIGHT FRAMEWORK (1/2) FROM TO • One unit, responsible for items both locally and globally. Segregate sourcing from buying. • Across the board analysis of all items in the G&As. Link with accounting practice, monitor, report and emphasize performance. • Set up Policies, Procedures, both at global and local levels • Implement systems for all major procurement-chain attributes (requests, orders, tenders, contracts, suppliers) • Build capabilities and culture, upgrade talent • Many Units, many Subsidiaries • Limited Cost Transparency • Multiple ways of doing things • Limited Infrastructure • Limited or No Culture

9. BUILDING THE RIGHT FRAMEWORK (2/2) Procurement Organization Process • Set up of Procurement Unit according to best practice (separate Sourcing from Buying) • Category based organization and cost management • “Export” this practice to subsidiaries • Centralize performance measurement • Top management approves Procurement Policy document for the Group and endorses its implementation • All local subsidiaries endorse and approve the Policy • Group Procurement framework • Procedures Manual based on Group Manual for every entity Skills and Capabilities Systems • Improve Accounting SW to incorporate procurement needs • Implement in Greece one of the best Procurement SW (SAP-SRM) • Implement in all subsidiaries a common procurement module • Develop tools for orders, requests and monitoring • Implement e-procurement where possible • Depending on organization needs, we attracted relevant professionals (both procurement experts and category experts) • Career paths and people development • Attract people from inside the Bank • Identify skills that need improvement

10. TARGETS AND CHALLENGES We had to But also to • Establish clear responsibilities and governance model for procurement function, including leadership, approval and review • Redesign and streamline processes, while increasing transparency • Build specialist procurement skills and capabilities, especially commercial, financial and analytical • Develop/enhance decision support tools (e.g., MIS, total cost of ownership analysis, KPIs and performance management for procurement function). • Immediately present significant cost savings in many category items • Keep people motivated • Ensure sustainable results • Handle huge number of procurement projects (›1.000 items per year) • Partner effectively with various Units and Subsidiaries

11. IMPROVE YOURSELF Importance in managing and controlling purchasing through Procurement NBG purchasing “health” compared to industry • In a range 1-5 the results are (Banking industry, sample size 39) • Purchasing Followers 1.8 • Average of all Banks 2.5 65% • NBG following implementation of the initiatives presented earlier: • Old score (Oct 2007) 1.7 • 1st phase score (Oct 2010) 2.4 • Current score (Q4 2011) >3.0 Source: McKinsey GPE Team

12. CONTENTS • Introduction2-4 • 2. Framework of Procurement Organization 5-11 • Policies & Processes 12-18 • Procurement Infrastructure & Monitoring19-25 • People & Skills26-33 • Q&A 34 1

13. WHAT IS A PROCUREMENT PROCESS (1/2) Specs Definition Identify user needs and develop specs • Define user requirements and challenge demand • Develop Specifications – Improve transparency • Demand Consolidation 1 Develop Market Knowledge/Vendor Intelligence • Develop comprehensive fact base of supplier and category market - Benchmarking • Risk analysis • Develop category/supplier database – Commodity Classification Strategy Development 2 Define Sourcing Strategy • Formulate and evaluate strategic options • Define strategy • Regularly review strategies • Existing agreement reevaluation 3

14. WHAT IS A PROCUREMENT PROCESS (2/2) Process Execution Manage RFx Process • Develop/Issue RFI-RFQ-RFP • Manage evaluation process 4 Negotiation, Supplier Selection, Contract • Define negotiations strategy – Set the target • Perform negotiations • Select Supplier – Conclude contract terms 5 Communicate and Implement • Communicate supplier and terms/rules for implementation to Organization • Coordinate implementation effort 6 Supplier Mngmt Evaluate and monitor Supplier performance • Define Supplier KPIs and tools • Monitor, review and report external and internal performance 7 Administrate Contracts • Ensure internal business compliance • Continuously consolidate and update contracts Mainte-nance 8

15. APPROACH FOR COST OPTIMIZATION Baseline Analysis - Preparation Planning Implementation • “Know your numbers” • Create transparency by building one cost database • Lay foundation for tracking results • Uniform categorization required – Commodity classification • Negotiations • Starting with quick wins – stop spend • Manage RFx • Implement new processes • Install regular tracking of progress – Saving monitoring • Evaluate/change strategy based on achieved results • Ensure management support • Ensure sustainability • Data gathering • Existing agreements, duration, contract obligations, etc. • Develop spending analysis per category • Create spending analysis per Supplier • Review existing agreements • Review/revisit specification-demand • Identify cost drivers • Identify Cost reduction areas • Set the target • Top down targets, validated bottom up • Share the target – Set up project Teams • Develop sourcing strategy i.e. negotiations, conduct RFP, introduce second supplier etc. • Set the time plan • Prioritize • Identify “quick wins”, medium term targets, ease of implementation

16. COST OPTIMIZATION EXAMPLE – SUPPORT CONTRACTS (1/3) • Baseline • Identify cost related to Support Contracts (maintenance to existing applications, tools) from the P&L. • Analysis - Preparation • 1. Create a database with all Support Contracts using: • Actual Contracts • Accounting Information • Suppliers input • Assure completeness and accuracy. • Include all critical information i.e. Supplier, Contract value, Duration, Description of services provided, SLA, Cost drivers etc. • 2. Analyze Data per: • Area e.g. IT H/W, IT S/W, Office Equipment, Telecom Infrastructure etc., so as to define potential fragmented supplier base, i.e multiple supplier for the same service. • Supplier, so as to bundle volumes and negotiate margin. • Materiality (contract value) i.e. Identify contracts of high value and contracts of low value. Percentage of achieved saving may be the same but achieved € are not. • 3. Involve stakeholders in the process. Review the need for existing SLAs based on Bank’s current needs, establish common SLAs based on criticality & importance for company operation. Change scope where applicable. (Specification Review - Demand Control) 1

17. COST OPTIMIZATION EXAMPLE – SUPPORT CONTRACTS (2/3) • Planning • Assign saving target to every contract. Aim higher than expected. Include also implementation time for saving realization. • Involve stakeholders in the process. Transform cost saving target from “Procurement” initiative to “Company” initiative. After all they are responsible for the services provided. Establish common teams. • Set the time plan starting from high value contracts & quick wins. Keep the balance between contracts that can produce fast saving, and contracts that need a serious of actions in order savings to be achieved. All savings are needed. (Define Sourcing Strategy) • Ensure Management support. • Implementation • Negotiations with suppliers • Work with the suppliers to lower the cost. Try to identify what is their actual cost • Aim to the margin • Take advantage of current Market Conditions • Create a Backup plan • Be determined • Where multiple suppliers provide the service issue a Tender. • Manage Contracts according to negotiations and implementation plan. • Create and maintain a periodic saving monitoring report. Present it to the Management regularly. Review strategy based on results achieved.

18. COST OPTIMIZATION EXAMPLE – SUPPORT CONTRACTS (3/3) As a result… # of Contracts handled >300 Company Target 20% (vs. needs 2011) Savings achieved 23,5% - 9mn€ 1

19. CONTENTS • Introduction2-4 • 2. Framework of Procurement Organization 5-11 • Policies & Processes 12-18 • Procurement Infrastructure & Monitoring19-25 • People & Skills26-33 • Q&A 34 1

20. MAPPING PROCUREMENT to SYSTEMS & MONITORING Demand Purchasing Accounting PROCUREMENT ACTIVITIES Budgeting Requisitions Management Sourcing Buying Contracts Management Suppliers Invoicing Payment e-collaboration (B2B) Enterprise Resource Planning (ERP) Enterprise Resource Planning (ERP) Budget tool e-procurement Enterprise Resource Planning (ERP) Purchase Orders processing e-contracting Supplier Market Analysis Systems e-procurement e-RFX INFRASTRUCTURE & MONITORING e-auction EDI Procurement Performance Management / KPIs Monitoring Supplier Performance Management Spend Analysis / Monitoring :Significant cost optimization area

21. PROCUREMENT SYSTEMS (1/3) Description Area Key Objectives • Improve Transparency & auditability of activities • Efficiency • Speed • Reduction of operating cost • Cost savings e-RFX: IT system that enables Procurement Department to conduct tender procedures using internet. (RFI, RFP, RFQ) e-Auction: Real-time bidding procedure using internet Procurement / Sourcing Purchase Orders: Issuance of orders to suppliers using a software according to a commodity catalogue e-procurement: Business to Business (B2B) purchasing transactions. Custom-made / pre-approved catalogues / blanket agreements for purchasing. Buyers can access the approved cataloguesand create purchase orders directly to suppliers EDI: Electronic data interchange allows buyers to transfer orders - electronic documents or other data directly to suppliers’ systems and vice versa • Automation & standardization of business process • Efficiency • Speed • Reduction of operating cost Procurement / Buying

22. PROCUREMENT SYSTEMS (2/3) Description Area Key Objectives • Automation & standardization of business process • Collaboration with business partners • Reduce transaction costs e-contracting: Contracting using a s/w enables buyers and contract administrators to prepare – manage – monitor and review agreements with suppliers Procurement / Contracts Management ERP: Enterprise Resource Planning. System that integrates and streamlines the administrative processes. All financial transactions are handled though ERP to make financial settlement more efficient by using tools for invoice management, evaluated receipt settlement & invoice payment • Procurement – Accounting functions integration Accounting e-procurement / ERP: Enables sourcing experts and buyers to consolidate purchase requests in terms of further procurement activities Budget tool: integrated s/w to ERP or to other procurement systems that enables Procurement to initiate and monitor Budget - spend • Increase collaboration internally • Minimize manual process • Cost control Demand / Budget - Requisitioning

23. PROCUREMENT SYSTEMS (3/3) – Example @ NBG (SAP / SRM) SAP Supplier Relationship Management (SAP SRM) provides the insight and analysis that a company needs to manage the source-to-pay process • At NBG it has already been already implemented: • Part of the Requisitioning by allowing users to create manually with SAP SRM shopping carts based on catalogue entries. • Order Management with manual assignment of sources of supply – apart from the usage of catalogued items where pricing is maintained. • Capture of the Receiving event for some types of purchase items. • Financial Settlement is performed at ERP but the payment release of invoices is manually triggered via SAP SRM. Already implemented Under implementation

24. PROCUREMENT MONITORING (1/2) – MONITOR PROCUREMENT PERFORMANCE & SPEND Key Business Objectives Procurement Performance Management (KPIs) • Measure procurement (efficiency, cost saving, quality, delivery, etc) • Improve / change procurement activities • Set savings targets • Develop procurement professionals • Improve data accuracy and availability • Flexible, fast & accurate spend analysis • Support to financial controlling • Monitor of alignment & compliance of sourcing strategy • Provide sourcing support • Provide decision support • Managerial reporting Spend Analysis / Monitoring

25. Key Deliverables • Supplier’s Development Plan • Supplier’s Scorecard • Supplier’s mapping on spider plot • List of approved suppliers PROCUREMENT MONITORING (2/2) – SUPPLIER PERFORMANCE MANAGEMENT Identify Suppliers to evaluate Design supplier assessment scorecard Set targets & goals Perform assessment Define improvement plan • Review each category to determine key criteria (quantitative & qualitative) • Define and document performance levers each criteria • Derive targets for each supplier based on procurement targets • Ask business owners to provide input for targets • Ask suppliers to provide input for targets • Gather and analyze data for the selected suppliers • Conduct supplier workshop • Deliver a supplier improvement plan • Identify cost savings opportunities • Provide input for sourcing activities • Select Suppliers to be evaluated • Define key drivers (Criticality & Materiality spend)

26. CONTENTS • Introduction2-4 • 2. Framework of Procurement Organization 5-11 • Policies & Processes 12-18 • People Procurement Infrastructure & Monitoring19-25 • People & Skills26-33 • Q&A 34 1

27. PEOPLE AND SKILLS People as already discussed more than 1/3 of the success is capabilities From… “Buying” dedicated staff, predominately lacking commercial, analytical, technical skills Low or unclear career perspective To… High value professionals with comprehensive procurement skills and capabilities set from varied spectrums of Business Clear development paths, including “life after” procurement Not many of those in Greece…

28. INVEST IN TALENT Building in Capabilities is significant. The most significant areas are: Talent Management: - Individual category capabilities - Purchasing career paths - Training, capabilities and talent development Mindsets and aspirations: - Expectation about purchasing value creation - Purchasing vision - Change readiness - Focus on strategy execution

29. PEOPLE AND SKILLS Necessary hard skills (1/2) • Analytical • Issue identification (define critical issues, define areas of cost improvement) • Data gathering (especially in finding new/original data sources, e.g. via internet DBs) • Analytic tool mastering (Excel, Word, Access, PowerPoint, SAP-ERP, monitoring tools) • Developing recommendations • Based on clear definition & articulation of various options/tradeoffs (e.g. cost vs. reliability risk, cost vs. technological superiority etc.) • Develop action plans that anticipate implementation problems & leverages internal and supplier capabilities • Excellent verbal and written communication skills • able to highlight key issues, turn presentations into a constructive dialogue and move audience to action, • able to structure stand-alone documents that are persuasive & enlightening in nature

30. PEOPLE AND SKILLS Necessary hard skills (2/2) • Commodity specific technical knowledge • Considered by internal & external sources as a leading expert on commodity • Catch up with the rapid cycles of product development (especially in high-tech industry) • Predict/anticipate marketplace events & trends • Manage demand proactively • Drive the decision making process by having a valid and tested point of view (influencer) • Leadership, teamwork, management • Act as a group thought leader (is sought out by others in procurement & other business units for advice) • See gaps in coverage of key issues, able to absorb more responsibilities as Unit grows (this is major in transitions from local to group procurement) • Transfer knowledge to junior members of the team, crucial as team grows • Strategic skills • Define sourcing strategies & design internal/supplier relationships to maximize value from current/potential supply base

31. PEOPLE AND SKILLS Necessary soft skills • Interpersonal skills • emotional intelligence results in balanced supplier, internal customer relationships, cross functional linkage (between various inside business units) • knowing when & where to be aggressive, and who to influence • Able to communicate the message across, above, below • Passion • Relentless in searching for, identifying, capturing cost reduction & value enhancement opportunities • Always working on “another creative idea” to reduce cost • Negotiation skills • understand how sales people work, • develop & execute negotiating strategies in anticipation of supplier sales strategies • Integrity

32. PEOPLE AND SKILLS Variety of NBG Procurement Staff A team that comprises of many educational backgrounds and experiences taken inside and out of NBG Who we are Auditors IT professionals Sales people Mathematicians Engineers Lawyers Finance Experts Retail Banking experts How it helps Control Technical expertise Commercial know how Quantitative analysis Thinking outside of the box Terms & Conditions Banking industry know how

33. PEOPLE AND SKILLS Case study (putting skills to use) All inclusive 3yr complicated Software agreement with NBG’s biggest SW vendor Managed to control demand on various components of the contract (initial proposal was 2 times of what was bought), • Effective cross functional linkage (interpersonal skills), analytical skills, technology skills, strategy, passion Streamlined the way the growth of the contract was calculated • Analytical skills, passion, developing recommendations Changed the way invoicing was done (on a quarterly instead of a yearly basis for maintenance) • Developing recommendations, communication skills, strategy Managed to achieve level of expertise similar to the vendor’s (complex contract) • Technology skills, analytical skills, teamwork Achieved 30% of saving on something that is sold solely by this supplier • All skills used

34. CONTENTS Q&A 1