When consumer foods giant Kellogg Company set out on its Procurement Transformation effort, they knew they would be looking not just for solutions to address organizational and process opportunities, but also for creating quick-hit yet meaningful opportunities to demonstrate sizable value creation to the business. The good news is, these aren’t just words on the page: progress so far has been extraordinary. After 120 days into their Procurement Transformation initiative, Chief Procurement Officer (CPO) Walter Charles has much to share about the transformation journey so far.
From this Procurement Leaders executive webcast presentation (April 30, 2013 - view at: http://response.procurementleaders.com/webinar_registration_april), this dynamic and engaging CPO described how the Kellogg Company is:
Generating value creation successes across several business-critical direct and indirect spend categories
Re-evaluating their “solution” toolset and how tool expansion plans are delivering incremental value
Facing significant challenges in how to best align their people resources and process to maximize time spent on higher-impact activities
Setting new stretch-target goals supported with renewed organizational focus
The presentation was sponsored by advanced e-sourcing solution provider, CombineNet, who also shared how their global customers, including Kellogg Company, leverage their unique capabilities to support Procurement Transformation efforts.
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Kellogg Company CPO Shares Ingredients of its Procurement Transformation
1. Kellogg Company CPO shares ingredients of their transformation strategy
Walter Charles
CPO
Kelloggs
Steve Hall
Editor
Procurement Leaders
Jennifer Sikora
VP Marketing
CombineNet
30 April 2013
3:00pm BST / 4:00pm CEST / 10:00am EST
3. “Everyone engaged in strategic procurement
activities – from a CPO down to a category
manager or analyst – will learn something that
changes how they think about sourcing from
talking to CombineNet.“
- Jason Busch, Five Specialist Vendors You Must Talk to in 2013
(December 21, 2012)
CombineNet Named a Top 5 Specialist
Vendor to Talk to in 2013
4. Tactical Events
•Fewer Items
•Fewer Locations
•Fewer Suppliers
•Emphasis Primarily on Price
Large Events
•100’s or 1,000’s of Items
•Many Locations
•Many Suppliers
•Aggregated/centralized spends
•Multiple Stakeholders
Complex Award
Decisions
•Multiple price and non-price bid
components
•Total supplier value and risk
•Complex cost models
•Competing Stakeholder interests
Where CombineNet Fits for e-Sourcing
5. CombineNet ASAP Differentiators
• Collect both detailed price and non-price bids from suppliers
• Solicit alternative item proposals, conditional offers, packages, etc.
• Drive competition and price compression with Expressive Feedback
• Suppliers put their “Best Foot Forward” in a collaborative bidding
process
Expressive
Bidding®
• Easily supports events involving larger #s of items, suppliers, and/or
bid attributes (involving hundreds of thousands of bid data points)
• Support spend aggregation across item types, overlapping supply
bases, locations, and/or business units.
• Support complex categories , such as transportation, packaging.
Scalability &
Performance
• Create robust scenarios with unlimited # of rules per scenario
• Scenarios optimized and results returned in seconds
• Easy to collaborate with stakeholders
• Find the best scenario balancing innovation, value, and risk.
Analytics &
Optimization
6. 28% Savings on Packaging
6% Savings from Conditional
Offers / Expressive Bids
45% Savings on Displays
8% Savings on Truckload
10% Savings on Ocean Freight
11% Savings on Direct
Material Ingredients
10% Savings on Aggregated
Facility Services
Sourcing Cycle Time
Reduced by 3x
Analytics Time Reduced
by 10x
Replaced 100s of
Spreadsheets
“We are procuring on a
higher level.”
Supply Base Optimized &
Diversified
Awarded Supplier for
Proposing a Better Material
Optimized Transportation
Mode Allocation
Secured Seasonal Capacity
Re-Allocated Awards Based
on Market Changes
Increased Spend Under
Management by >2x.
Actual Results for Our Customers
Additional Savings Increased Throughput
& Efficiencies
Supply Chain Innovation
& Optimization
Sampling of results reported by CombineNet customers. Data available in our online case studies.
7. CombineNet’s Customers Include…
Focused on the Needs of Supply-Chain Driven
Global Companies
Food & Beverage
Manufacturers
Consumer Goods &
Pharma Manufacturers
Retailers &
Restaurant Chains
Manufacturing
Logistics
12. Agenda
• Setting New Stretch Target Goals
• Value Creation Successes Across
Business-Critical Direct and Indirect
Categories
• Solutions Toolset Re-evaluation
• Organizational Implications
• Call to Action on Shared Challenges
13. GOALS Deliver 1.5 times, (50%) improvement in
negotiated cost savings in three years
Make long-term sustainable
Re-imagine Procurement’s operating model to:
1. Best people, best process, best insights
2. Maximize global spend leverage
3. Minimize redundancy
4. Operationalize Procurement best practices with KWS
5. Be Relentless in our application of Best Practice &
Continuous Improvement
6. Go Bigger, Go Bolder & Highlight Different Strategic
Approaches
Procurement Transformation
Stretch Targets, Goals & Approaches…
14. Diagnose &
Design Phase 1 Rollout
Rollout to rest of
the organization
Multiple
Categories
Clean Sheets
Cost-based
Negotiation
Global Categories
Global Execution
Multi-regional
categories
Regional execution
Capability
Building
Playbook Design
Procurement & Supplier Tools
Workshops
Performance Management
Procurement Transformation
Focused on Three Main Work Streams
Wave 3 - Global
Aug - Dec
Wave 2 - Global
Feb - July
Wave 1 – North America
Sep - Jan
WAVE 1
Lessons Learned Lessons Learned
Savings
Projects
People
Development
Organizational
Structure
Timeline
15. Kellogg’s Procurement Transformation
Delivered $113MM in the First 120 Days
Ingredients
200+ Specifications
80+ Suppliers
Clean-sheet modeling
Capability building
Risk Management
Huge Commodity Spend
4-12 Financial tools
Focus on Speed of Decision Making
New / Robust Governance Model
Expanded Financial Toolset
Maintenance &
Repair (MRO)
~30 plants in NA Network
All plant buying in scope
Aggregated Spend Across Plants
Consolidated & Standardized key
Category
Logistics
~4600 lanes
Inbound & Outbound
Fuel in scope
New CombineNet Solution
Value Lever or
Focus Area
Scope
Tools and
Approaches
16. CombineNet Solution Mitigates
Traditional Constraints
FROM
Facing $10MM in Inflationary
Headwinds in September 2012
Constrained by traditional limitations:
• Headcount
• Amount of data to be analyzed
• Complexity of Quantitative & Qualitative Data
• Robust Feedback Mechanism
• Largest Bid Historically at ~40MM and 1/10th of
our Network
TO
$23MM in favorable budget move
with the largest logistics bid in
Kellogg History
We Asked: How do we do the Largest Bid in the
history of our business?
Should we consider technology solve to mitigate
our traditional limitation list?
How do we action:
• 4600 lanes
• Full US network, with inbound lanes
• 155+ suppliers
• 95,000 bid results
Get actionable award scenarios to make the
analytics doable!
17. CombineNet Solution Mitigates
Traditional Constraints
FROM
Facing $10MM in Inflationary
Headwinds in September 2012
Constrained by traditional limitations:
• Headcount
• Amount of data to be analyzed
• Complexity of Quantitative & Qualitative Data
• Robust Feedback Mechanism
• Largest Bid Historically at ~40MM and 1/10th of
our Network
TO
$23MM in favorable budget move
with the largest logistics bid in
Kellogg History
We Asked: How do we do the Largest Bid in the
history of our business?
Should we consider technology solve to mitigate
our traditional limitation list?
How do we action:
• 4600 lanes
• Full US network, with inbound lanes
• 155+ suppliers
• 95,000 bid results
Get actionable award scenarios to make the
analytics doable!
18. Questions We Asked to Inform our
Organizational Design Process
We asked the leaders globally: what would be the best way to manage
the spend we had?
Specifically, what should be managed Globally, Regionally or Locally?
Are we structured today to effectively drive behaviors in an increasingly
global and cross-regional paradigm?
What structural changes should we be considering to best deliver the
aspiration of a sustainable 1.5X?
How do we protect with Regional Priorities (What) and how can we
Functionally own the process (How) to deliver on the business
priorities?
19. Procurement Organization from
Regionally to Globally ManagedStrategyExecution
Local Regional Global
Global
Regional
Local
Strategy Development
Local Regional Global
Global
Regional
Local
Current strategic sourcing matrix
% of total spend
Future strategic sourcing matrix
% of total spend
6
2
22
66
4
33
22
1
41
1
StrategyExecution
Strategy Development
2
Organizational changes to improve focus on strategic sourcing
All operational activities will be transferred to a newly formed procurement operations
function to free up 30-40% of category managers’ time
Global and lead category manager structure enables strategy setting at global level and
allows procurement to pull a more holistic set of levers and capture synergies globally
Future Procurement Organization will move from
~85% Regionally Managed to ~60% Globally Managed
20. Procurement Organization from
Regionally to Globally ManagedStrategyExecution
Local Regional Global
Global
Regional
Local
Strategy Development
Local Regional Global
Global
Regional
Local
Current strategic sourcing matrix
% of total spend
Future strategic sourcing matrix
% of total spend
6
2
22
66
4
33
22
1
41
1
StrategyExecution
Strategy Development
2
Organizational changes to improve focus on strategic sourcing
All operational activities will be transferred to a newly formed procurement operations
function to free up 30-40% of category managers’ time
Global and lead category manager structure enables strategy setting at global level and
allows procurement to pull a more holistic set of levers and capture synergies globally
Future Procurement Organization will move from
~85% Regionally Managed to ~60% Globally Managed
21. Call to Action on Shared Challenges
If you believe as I do, that key procurement value levers are the
following:
1. Having a robust, large and increasingly global supply base that should
be universally available – “Global Supplier Information Database”
2. Having robust systems to quadruple the number of RFPs that your
strategic resources are working on…….
3. Develop better systems for the industry to standardize around quality,
delivery, issue mitigation & continuous improvement
If any of you are interested in potentially partnering on any of the three
above opportunity areas, contact Jessi Olivarri at jessi.olivarri@kellogg.com