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

Procurement Leadership
in the “Perfect Storm”

Presented by:

Copyright © 2010 Iasta, All rights reserved

Welcome

 Introducing IASTA
AGENDA
 Introducing OfficeMax

 The “Perfect Storm”

 The OfficeMax Executive Mandate

 The Approach Procurement
Leadership
 Mining the Opportunities in the
Perfect Storm
 Sustainable Procurement Excellence


Keys to the OfficeMax Transformation

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® “After a
thorough review,
On demand technology that delivers spend visibility, spend
analysis and compliance monitoring to a user’s fingertips. Users we found

generate reports and analyze spend from the single, centralized that Iasta

repository of spend data that is classified to a common language. offered
Nordstrom the
™
SmartServices best solution set,
combined with
The Iasta Consulting Group brings together experienced PEOPLE,
highest value for
proven PROCESSES and powerful TECHNOLOGY to help clients
our money.”
optimize every dollar they spend on goods and services anywhere
in the enterprise.


Iasta’s Global Footprint

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.”


OfficeMax Profile

► 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
Passionate
under the ticker symbol OMX.

► Corporate headquarters is in Naperville, Illinois.
Innovative
► Markets OfficeMax serves
 Enterprise-Level Organizations
Fun
 Mid-Size Businesses
 Small Businesses
 Home Offices and Individuals


OfficeMax Organizational Profile

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
Passionate
 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. Innovative
 2009 Revenue: $3.6B

► Corporate and Other Fun
 Operating expenses that cannot be allocated to the Contract or
Retail segments

2009 Top line revenue of $7.2B
(source: OMX 2009 annual report)

Contract Footprint


Retail Footprint


The “Perfect Storm”


The “Perfect Storm”

$10 The Great Recession
$9.2 $9.0 $9.1
$9
$8.3
$8
$7.2
Sales ($ Billions)

$7

$6

$5
“55% of all adults
$4 in the U.S. labor
$3 force say that in

$2 the past 30
months, they have
$1
suffered a spell of
$0 unemployment,
2005 2006 2007 2008 2009
a cut in pay, a
Year reduction in hours.
or have become
 OfficeMax revenues declined more than 20 percent from 2005 to 2009; vast majority of
involuntary part-
the decline occurred during The Great Recession
time workers.”
 Remained profitable by reducing fixed annual costs by over $400 million since
2005
Pew Research
 Not making expense cuts in areas that would be a detriment to customer service June 30, 2010


Executive Mandate

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 –
“Our team

1. Aggressive, cumulative 5-year savings targets remains highly
focused on the
2. Implement an enterprise wide, best-in-class procurement successful
process model execution of our
five-year
3. Implement an enterprise wide, best-in-class contract
strategic growth
compliance process
plan.”

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


The OfficeMax Indirect Procurement Model

There are three conventional approaches to Indirect
Procurement:

► Centralized Procurement

► Decentralized Procurement
Hybrid Model
► Hybrid Procurement Framework

 Refine existing
hybrid model
OfficeMax selected the Hybrid model processes

In the Hybrid model Procurement assumes a consultative  Integrate
effective
functional
role that enables all functions to leverage & optimize processes

existing subject matter expertise  Establish and
execute on
deliverables


Challenges

 Savings = Budget reductions (Who wants to help
that cause? It might include my job.)
 Perception that procurement was only focused on
the bottom line
Any type of
 Relationship issues
significant

 In many cases, functions had strong, long running change in an
organization will
relationships with suppliers (It wouldn’t be “fair”) present
challenges.
 In some cases, suppliers were also significant
customers of ours! (Who wants to be the one to Being able to
overcome those
lose revenue?) challenges is key
to procurement
 Multiple process disconnects
transformation

 General inertia 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
Procurement can

 Establish the Hybrid Procurement Model Framework serve as the
catalyst for
 Refine existing Hybrid Model processes & establish deliverables
positive change
 Integrate and leverage existing effective functional processes
when the
approach is based
 Synergize Existing Expertise on collaboration

 Sourcing Wave Strategies and the focus is
centered on
 Centralize Contracts, Spend Analysis and Supply Base
shareholder
 Cross-Functional development of value.
◦ Procurement Opportunities
◦ Policies/Procedures
◦ Communication Network

SIMS Framework

Store
Operations

Supply Marketing &
Chain Hybrid Indirect Advertising
Procurement Budget
Model Savings

Procurement
Spend
Governance
Analysis Strategic
Sourcing
EPMO
Finance
Information
Finance
Technology
Contract
Supplier
Compliance
Consolidation
Contract
Call

Human
Legal
Resources


Process Foundation

Budget Savings Hybrid Model

Process Core

Contract Compliance Source2Pay


Establishing a Common Language

IDENTIFY PLAN LEVERAGE CONTROL EXECUTE SUSTAIN

STEP 1 STEP 2 STEP 3 STEP 4 STEP 5 STEP 6

Opportunity Strategy Source & Contract & Invoice & Monitor &
Identification Development Negotiate Implement Pay Manage

 Spend Visibility  Category  Standardized  Template Mgmt  Enablement  Define approach
 Contract Visibility Knowledge Process  Codify T&Cs  Automation  Facilitation
 Supplier  Stakeholder  Template Mgmt  Price Compliance  Rate compliance  Score-carding
Assessment Alignment  Vendor Database  Eliminate Paper  Tactical process  Supplier
 Sourcing  RFx  Implement control development
Methodology  Knowledge Mgmt Purchase Order  Dynamic
 TCO  Collaboration  Feed Institutional discounting
 LCC Sourcing Knowledgebase
 Target Setting


Progressively Winning Heart and Minds

Tactical Administration On Demand Support
Tactical Role

 Tactical  Manage  Tactical  Award
administration supplier self- administration scenario
of RFx events registration & of RFx events development
NDA mgmt & analysis
 Help desk  Strategic
support for  Supplier advisory support  Contract
software & communications of RFPs, scope & implementation
process spec documents, support
questions bidding structure
Functional Trust Factor Functional Trust Factor

Ownership: Business Function Ownership: Business Function

SME Resources Fully Managed Category

Strategic Role
 Dedicated  Stakeholder  Dedicated  Real time mgmt
Subject collaboration for Sourcing of supplier
Matter Expert procurement Managers relationships
 Full strategy
administration  Monthly KPM
 Full
of RFx events  Award scenario reporting to
administration
 Category & development & business
of RFx events
market analysis functions
analysis
Functional Trust Factor Functional Trust Factor

Ownership: Shared Ownership: Procurement


Sample Indirect Spend Tree (Levels One & Two)

Total Indirect Spend
$x.xxB

Marketing Finance Supply Chain IT Store Ops Sales
($ xxxM) ($ xxxM) ($ xxxM) ($ xxxM) ($ xxxM) ($xxxM)

Media
($xx.xM)

Level 1 = Top Line Spend by Function
Physical Products
($xx.xM)

Labor
($xx.xM)
Level 2 = Strategic Spend Buckets
E-Commerce
($xx.xM)

Information
($xx.xM)


Procurement Strategy by Function*

Sample Spend Taxonomy Scatter Plot - Marketing
5.0
Paper
4.5
Ad Printing

4.0 Signage

Source Partner Packaging
3.5
Letters/Envelopes

3.0 Catalog Printing
Reward

Brown Bag Printing
2.5 Uniforms

2.0 Sales Collateral
Ad Agency
1.5
Manage Manage Consulting

1.0 Transactions Risk Graphic Design Labor
Photography
0.5 Logistics

0.0
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0

Risk

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


Progress and Results to Date

 Completed Spend Analysis on $2.2B in spend

 Completed Contract Call for top 97% supplier contracts

“Our team
 Fully engaged SIMS Team
remains highly
focused on the
successful
 Current savings 6 fiscal quarters ahead of plan
execution of our
five-year

 Breaking new ground in new areas of the business strategic growth
plan.”

 Transitioning strategic sourcing to a global procurement Sam Duncan
OfficeMax CEO
function


Roadmap to Savings Sustainability

Dimension of Examples of Best Practice
Procurement Management Description
Applications
Capitalize on supply market
Ability of Procurement to
opportunities as a part of
develop plan of action to
Strategy strategy to drive value through
achieve organizational goals
cost leadership, innovation and
and objectives
revenue realization
Embed procurement skills and
Structured hierarchy of
knowledge in key business
Procurement group focused on
Organization processes rather than functions;
maximizing organizational
differentiated strategic (CM) vs.
opportunities
tactical (Buyer)
Rotate high-potential
An integrated pattern of professionals as ambassadors of
human knowledge, belief, and procurement excellence across
Culture behavior supporting functions throughout the
organization and Procurement organization. Provide incentives
strategy for procurement process
excellence
Link procurement metrics to
The process of assessing
strategic objectives and to
Performance Management progress toward achieving
corporate results and proactively
predetermined goals
control procurement processes


Roadmap to Savings Sustainability

Dimension of Examples of Best Practice
Procurement Management Description
Applications
A rigorous process of
assessing all costs associated
Apply advanced techniques (e.g.
with a spend category and
cross-functional specifications,
competitively bidding the
Strategic Sourcing demand management, eRFPs,
category to identify suppliers
eAuctions) to leverage full value
that offer optimal total cost,
potential
quality and service
performance
A rigorous process of
assessing all costs associated
with a spend category and Effectively manage the tension
Supplier Development working with existing suppliers between value creation and risk
to reduce total cost, gain management
efficiencies and improve
quality/service.
Automate and upgrade operating
Streamlining operations as it processes using e-business
Procurement Automation relates to transactional technologies (e.g. Order
facilitation of purchases management software, trading
exchanges)


Conclusion

 Procurement
 now has the tools
 now has the voice
 now has the credibility

Thank You


For More Info…

Iasta Global HQ Iasta European HQ
12800 N. Meridian St. Hartham Park
Suite 425 Corsham, Wiltshire
Carmel, IN 46032 SN13 0RP
United States of America United Kingdom

Operations: 317.594.8600 Operations: +44 (0) 870 199 4060
Sales: sales@iasta.com Sales: +44 (0) 1249 700726

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