Breakout Session 1808 Anne R. Morton Principal Acquisition Solutions, Inc. April 12, 2006 10:45 AM

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

5. Strategic Sourcing Is Transformational It shifts the organizational focus . . . 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 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 NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

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

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

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

11. Strategic Sourcing Delivers Results Produces real savings, compliance, and continuous improvement Source: Hackett Survey 2000 NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

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

13. Governance – The Challenges Improve process capabilities with cost effective initiatives generating direct results • 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 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 NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

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

16. Spend Analysis – What Is It? How much, how and what is being bought, who is buying from whom “. . . 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 . . . Analyze Data Develop Strategy Execute Strategy Identify Strategic Relationships NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

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

19. Spend Opportunities NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

20. Spend Prioritization NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

21. Market Segmentation Leverage Strategic • 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 Leverage Strategic Integrated Telecom Computer Hardware Integrated Telecom Software Computer Hardware Computer Hardware Commodity Bottleneck Telecom Equipment Strategy Office Equipment Ground Transportation Telecom Equipment Office Equipment Ground Transportation Complexity Source: ATKearney NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

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

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

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

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

29. Thank You NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management