20130213 Discovering the Power of a World Class Pr…

Erste Group Procurement (EGP)
Discovering the Power of a World Class Procurement

Robert SEMETHY

2013-02-13

History: Austria’s first savings bank: Founded in 1819
Erste Group went public in 1997
with a strategy to expand its retail New holding
structure
business model into CEE 2008 improving
Group
Governance

Acquisition of more than 10 2007
banks between 1997 and 2008
2006
Erste Group now runs market
leading retail banking operations
2005
in the new EU member states,
which remain underpenetrated
2004
compared to their Western
European markets
2003

2001

2000 Erste Group’s customer base
grew from 600 000 in 1997 to
17,3 million in 2011
1997

EGP – Member of Erste Group © 2013
All rights reserved Page 2

Erste Group in Central and Eastern Europe


Erste Group Procurement: Procurement of the Erste Group
Erste Group Bank AG - Holding Board

CEO CFO COO CRO Group Markets GCIB Group Retail
Erste Group Procurement Facts & Figures:
Erste Group Procurement EGP AT
Central procurement function within Erste Group (incl. Centre Functions, as Finance,
(Procurement Services GmbH)
HRM, Org/IT)
Managed 3rd party spend more than EUR 1 billion
Group Org/IT
EGP RO
Headcount over 165 employees in 9 countries
Group Banking Operations
EGP CZ
Process owner for group-wide S2P process
Group Services
EGP SK
AT: Warehouse with more than 3 000 sqm
EGP HU
Erste Group Procurement – (Procurement Services GmbH) EGP HR
Management Board SPV DRUCK

Leadership by EGP
Procurement RS

Functional
HRM Finance Sourcing Org/IT Procurement ME
Procurement UA

Erste Group Procurement AT Sourcing AT

EBSPK Sourcing SK Erste Group Procurement SK
Established 2006

Erste Group Procurement CZ Sourcing CZ

Procurement Dept.
Sourcing HU Erste Group Procurement HU Ukraine
Czech Rep
Slovakia
Erste Group Procurement HR Sourcing HR
Int. & Austria
ME1) Sourcing RO Erste Group Procurement RO Hungary
Romania
Sourcing RS Croatia
RS2)
Procurement
Sourcing UA UA3) Dept. Serbia
SPV – DRUCK
Procurement
Dept. Montenegro
1) Department of Erste Bank AD Podgorica - Montenegro
2) Department of Erste Bank Novi Sad Division
Board Team in Matrix
3) Department of Erste Bank Ukraine


Erste Group Procurement (EGP) Company Costs since 2008
How much do we cost?

Annual Procurement company operations costs decreased for more than
EUR 30 million compared to 2008
Procurement Company (EGP) cost development 2008-2012

69% cost reduction within 6 years
18% average decrease p.a.

2008

2009
2010
2011 2012


Erste Group Procurement (EGP) CoA since 2008
How much do we cost?

Cost of Acquisition (CoA*) – KPI continously decreasing

EGP Cost as a Percentage of EG Spend

2,7%

1,8%
1,48%
1,35%
2008 1,2%
2009
2010 2011 2012

*) CoA = group procurement costs (incl. VAT) vs. annual company spend
Peer Group Benchmark: 0.83%, World Class Benchmark: 0.63%


Savings resulting from purchasing activities
How much do we save?
EGP Cost Reduction (CR)/Cost Avoidance (CA) 2012 YTD

Cost Reduction / Cost Avoidance

3,86%credible, transparent and auditable hard savings achieved.
→ Real and permanent reduction in the unit cost of goods manufactured or services rendered
without impairing their suitability for the use intended or diminution in the quality of the product.
Peer Group Benchmark*: 1.80%, World Class Benchmark*: 3.00%
EG managed

3rd party

spend 1,26%
CA
1,26% soft savings achieved.

3,86%
CR → A purchasing action by means of which certain material/supplier increases are not incurred
by the purchasing firm.
Peer Group Benchmark*: 0.20%, World Class Benchmark*: 1.39%
3rd Party
Spend CR/CA

*based on Hackett Report

EGP – Member of Erste Group © 2013 Page 7
All rights reserved

Erste Group Procurement (EGP) KPIs since 2008
How satisfied is our customer?

Drove continuous increase of customer satisfaction while at the same time
decreasing budget and Cost of Acquisition.

98% 98% 98%
93%
87%
Customer Satisfaction

Cost Development
3% 2% 1,3% 1,1%
1,5% 1,2%
CoA
2008 2009 2010 2011 2012 2013


How did we achieve these results?

• Defined clearly formalised and structured process to avoid misunderstandings.

• Defined clearly roles & responsibilities to achieve the best joint decision.

• Transparent and documented process flows and results.

• Increased efficiency and effectivity.

• Ensured compliance to Erste Group standards.

• Ensured the purchase of goods/services at the optimum possible total cost in the

correct amount and the best quality.


Clearly defined EGP in Erste Group

Aligned priniciples within Erste Group:

…The central and single competence for procurement activities within Erste Group lies in Erste Group Procurement (EGP)…

…EGP has to be involved in any external spend of any Erste Group majority owned entity. Any exception has to be agreed between EGP
and the respective Erste Group entity…

…All external spend should follow the principle of Total Cost of Ownership (TCO) and Quality, Cost and Delivery. In balance with socio-
economic, ecological and customer relationship factors the assignment of a contract has to follow the highest added value for Erste
Group principle…

…EGP owns, defines and aligns with the local entities the purchasing processes within Erste Group...

EGP Cooperation with clients based on:
Contract (SLAs)
Responsibility (NDAs)
Code of conduct
Purchasing Policy & Handbook


Clearly defined EGP Services in Scope

Erste Group Procurement
Customised Outsourcing Business
Sourcing Tactical Order Process
Procurement Competence
International/Local Purchasing Management Services Center Outsourcing

Category Mgmt Category Mgmt Category Mgmt
Vendor Mgmt Vendor Mgmt Vendor Mgmt
Contract Mgmt Contract Mgmt Contract Mgmt Operations of
Additional Compliance with
requirements Outsourcing support
Purchasing Project Purchasing Project Purchasing Project requested Policy Provision processes
by customer of Outsourcing for the local
and are not in Project entities, i.e.
Contract Creation Contract Creation Contract Creation the scope of Documentation
purchasing
• Travel Depart.
Requisition Requisition Requisition • Print Shop
& & & • Warehouse
Ordering Ordering Ordering
Documentation Documentation Documentation
& & &
CR/CA Calculation CR/CA Calculation CR/CA Calculation

Receipting Receipting Receipting Customer Compliance to Provide
& & & Satisfaction regulatory cost-efficient
Evaluating Evaluating Evaluating and services
internal
Invoice Invoice Invoice requirements
Processing Processing Processing

Strategic, monitored Ensure fast, easy and efficient execution On Customer’s Improved Services
purchasing in a team Demand for the customer’s benefit
approach By EGP By EGP or Customer

Invoicing as a % of 3rd party spend Invoicing in a separate fee (SLA)


What is sourcing at a glance?

Sourcing is the strategic process of identifying potential suppliers, conducting
negotiations, and agreeing on supply contracts in order to achieve a sustainable cost
reduction and meet the customer’s expectations.

Demand analysis Identificaton of potential suppliers
based on to conclude a GMA
GMA
Category Management support through
Supplier Management
Contract Management
eAuction / RFx / negotiation

Supporting tools
Reporting Package Supplier / Country / eAuction, RFx
(SAP FI / QLIKVIEW) Project Management tool (“CAP”) (Electool)

• Analysing the spend of • Allows the linking of information • Live eAuctions
entity/supplier/category to a 360°view of projects,
• Collecting of informationen (RfI*)
contracts, product categories
• Strategic basis for the and offers (RfQ*) in a defined
and suppliers.
procurement project specification form
• “In-house” development *RfI = Request for Information
*RfQ = Request for Quotation


Sourcing International/Local
Category Management/Matrixorganisation
Matrixorganisation Category Classification

Sourcing Specialist, the first contact for the customer and
Find opportunities, create & implement a strategy in a
groupwide Category Manager and Supplier Relationship
team approach with the Business Line.
Manager.

Category Management
145 categories divided according to local and international opportunities.
Sourcing Categories
FM Facility Management (FM) IT Informationstechnology (IT) S&O&M Service & Operations & Marketing (S&O&M)
FM FM Maintenancerelated Services/Work IT Personal and Office Computing S&O&M Car Fleet
FM FM Investmentrelated Services/Work IT Telephony and Communication S&O&M Cards
FM Goods IT Networks S&O&M Consulting
FM Energy IT Branch Equipment S&O&M Logistic
FM Security Equipment IT Servers/Storage/Host Components S&O&M Marketing
FM Property Management IT Infrastructure Software S&O&M Office Equipment & Office Operation
IT Direct Application Software S&O&M Personnel Management
IT IT Services S&O&M Travel
IT Indirect Application Software S&O&M Security Service


Contract Management/Spend Data Analysis/Data Reporting
Budget and Category Analysis Tool Data Reporting

Structure spend by suppliers, categories, countries and entities. Define Spend categories, analyse it (spend & suppliers)
Real-time. Business Intelligence Tool for management In a team approach with the Business Line.

Contract Management
Integrate all supplier contracts in Contract management solution and establish proactive & timely contract activity plan


Supplier Relationship Management Tools

Identify and focus on key suppliers.
Implement supplier relationship model in cooperation with Business Line.

Supplier Supplier
Business Reviews Escalation
Audits Strategies
• HYR/QBR • Standardised • Similar to Category • Escalation management
Questionnaire for Management
• Standardised • Single Point of Contact
Assessment and Self
presentations • Long Lists and Short and coordination of all
Assessment
Lists participants (Business
• Participants: Business
• Document Management Line, Legal, Countries,
Line, Supplier and EGP
System, Reminders Suppliers)
• Measuring the periodically and
• Identification of
cooperation automatically
disqualified suppliers
• Search out further • Scoring through
cooperation/collaboration Business Line
• Risk Management
• Ethics


Tactical Purchasing (TP) and Order Management (OM)
Purchasing Project

The fast, easy and efficient execution of routine administrative tasks. These are day-
to-day buying activities, which are low volume with no strategic importance or based
on agreements that have been set in place.

Purchase requisition
through GMA or catalogue(OM)
Demand
(online or catalogue) or Offer Agreement
Tender Project (TP)

Supporting tools
Catalogue / OM Software eAuction
SAP SRM
(ITAM – Office Asset) (Electool)
• In 3 countries available • Standardised articles • In all EGP countries available
• Integration with MM / Accounting • Order Processing for low purchases • Efficient eAuction through webbased
form
• Covering about 55% of the spend • Integration in Warehouse Management
System • Supplier’s self registration for saving
resources


KPIs and the Reporting


How did we achieve these results?
The Key Messages for a successful Procurement Organisation
Centralised procurement in one seperate company with clear groupwide organisation structure and an agreed and
approved Power of Attorney (PoA)

Organisation Unique systems and tools applied in all subsidiaries in all countries
&
Structure Unified processes with locally optimised deployment

Service Agreement structure and hierarchy applied in all countries

Full costs transparency through analytic tools and reporting

Transparency Quarterly Business Reviews with clients and suppliers
&
Communication
Defined communication and escalation process

By using spend analysis tool the bypassing/‘maverick spend‘ procurement activities are identified and tracked

Sustainability High compliance through common cooperation with budget owners on the product groups strategies and/or supplier
strategies

Through active management of product groups and suppliers EGP creates a bond between suppliers and budget owners

Procurement EGP is involved in the whole procurement process with clear tasks and responsibilities
Process
Educated procurement specialists (Sourcing Matrix)

Transparency in the level of achieved goals of the cost reduction through one clear methodology and tool-based
Goals measurement


Thank you!
Erste Group Procurement
Procurement Services GmbH

Robert SEMETHY
Managing Director
Chief Procurement Officer

Email: robert.semethy@erstegroup.com


EGP’s development started at 2006
s Proserv renamed to
100% subsidiary in Erste Group
HR. Start Procurement - The EGP =
operations in a Purchasing of the World Class Procurement
Procurement Erste Group.
Department RS

Finalisation and approval
Procurement of the new s Proserv
Transformation Business Strategy Start implementation of
(Centralization/ Start of NGPS project Lean Enterprise Order Increase the value of a
Consolidation) (New Group Procurement Management (LEO) centralised procurement
Solution)
company

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Service optimisation
Foundation of 100% Start operations SRM Management
s Proserv subsidiary in in a Procurement Category Management
RO. Department New RFx tool
100% UA. • Transparency
subsidiaries In the new Erste Finalisation of the new • Service Quality in Sourcing and
established in Holding structure s s Proserv Business Procurement
AT, CZ, HU, SK Proserv reports Strategy • Cost Reduction and Cost
to the CFO Avoidance
(previously to the Start operations
• Ethical Standards
COO). in a Procurement
Aligned procurement • Fraud Prevention
Department
principles within EG
ME.
(Purchasing Handbook)


An overview of the main steps in a RFI/RFP process
What is Request for Information (RFI) 1 What are the roles & responsibilities 2 What information is required for a 3
and Request for Proposal (RFP)? in RFI/RFP processes? successful RFI/RFP process?
Filtering system: 1. A joint effort of Business, Operations, 1. Introduction
Organization and Procurement. 2. Background
1. Initial total solution space
2. Overall project and process is managed by a 3. Subject of RFI/RFP
2. Preparation marketing screening
project manager nominated by Organization
3. RFI - Long list of solutions (up to 15) 4. Requirements
3. The procurement relevant part is driven by a
4. RFP - Short list of solutions (3-5) single point of contact nominated by EGP 5. Legal Disclaimer
5. Finalist solutions (1-3) 4. Definition in a RACI matrix

5 What are the main steps in a RFI/RFP process? 4
When we are announcing the winner?
1. EGP decides on commercial 1. Preparation

2. Business decides on technical/content 2. RFI (optional)

3. Joint decision on supplier selection 3. RFP
4. POC – Proof of Concept (optional)
5. Contract Negotiation


What are the critical success factors?
DOs
• Early involvement of EGP
• Fully defined scope/specification by business before commercial negotiation starts.
• EGP in charge of all communication with suppliers unless otherwise agreed between EGP
and business line.
• Negotiation strategy and method selected by EGP.
• All supplier communication through Electool (EGP’s tendering and auctioning tool).
• Agreement on TCO and evaluation matrix before RFP starts.

DON’Ts
• EGP cannot decide on content/technical requirements.
• No commercial negotiation without EGP.
• Business triggers a RFx process without involving EGP.


RFI/RFP process for quickly focusing on feasible solution
What is Request for Information (RFI) and Request for Proposal (RFP)?
RFI/RFP process as filtering system Explanation
Initial total solution space Identify key stakeholders

Solu- Solu- Solu- Solu- Understand business and business objectives, strategic framework and TOM
Solu- Solu- Solu-
tion Solu- tion tion tion
tion tion tion Define generic solution concepts and identify potential solutions and solution providers out of
Solu- tion total solution space (Long List)
Preparation/Market screening
Solu- tion
Solu- Solu-
Solu-
tion Solu- tion Solu- Solu- tion Solu- Request for Information (RFI)
tion Solu- tion
Solu- Solu- tion E tion Solu- tion
Solu- Solu-
Long list tiontion Solu-Solu- tion Solu-15)
tion tion
of solutionsSolu- to
tion tion
tion
(up Survey used for requesting information to
tion tion − Secure basic understanding of market
… Gain first information on solution providers
RFI −

Main characteristics: − Identify Short List of solutions (3-5)
• RFI is an information only
No legally binding proposal; not suitable to engage with supplier
• RFI is the best to cooperate
• RFI can be initiated by BL Up to 100 requirements
• RFI can be part of Market Research and Little interaction with solution providers
done independently by EGP
Limited internal efforts; project organisation not necessarily required
Solu- Solu- Mandatory alignment with Erste Group Procurement
Solu-
Solu- tion
Short list of solutions (3-5)
tion
tion Solu-
tion
tion Request for Proposal (RFP)
Formal invitation for solution providers to bid on supplying solution within specified time period
RFP and process
Main characteristics:
RFP is always a BL request Formal proposal; mandatory task before engaging with supplier
RFP will result in a purchase Legally binding for solution provider (appendix for final contract)
RFP is always in cooperation
Solu- More than 100 requirements
tion
Intense interaction with solution providers
Solu-
tion Requires involvement of several internal units with substantial internal efforts and a clear project
organisation and structures
Finalist solutions (1-3) Mandatory involvement of Erste Group Procurement

A RFI process can be a joint effort OR can be done independently by EGP (as part of Market Research).
A RFP process is a joint effort of Business, Operations, Organization and Procurement.


General responsibilities in RFI/RFP process
What are the roles & responsibilities in RFI/RFP processes?

A solution selection project and RFI/RFP process is a joint effort of Business, Operations, Organization and Procurement. Whilst the overall
project and process is managed by a project manager nominated by Organization, the procurement relevant part is driven by a single point of
contact nominated by Erste Group Procurement.

Project Sponsor (PS) Project Manager (PM) Erste Group Procurement (EGP)
(see Erste Group Project Management Standard) (see Erste Group Project Management Standard)

• Defines the goals and priorities • Planning, coordination and tracking of all project activities • Communication with external suppliers
• Approves business case, project charter • Consolidating of inputs from the various streams • Consolidation of RFI/RFP documents
• Ensures the funding of the project • Reporting to project sponsor and steering committee • Commercial and legal negotiations with solution providers
in all phases
• Provides strategic guidance and leadership to the project
• Approves project deliverables
• Contract management

Org – Business Analyst (Org-BA) Business/ Operations Representative (Bus/Ops) IT Expert
(incl. IT Solution Management, IT Operation, IT Architecture)

• Defining and evaluating requirements along the six defined • Definition of requirements for business functionality • Defining and evaluating technical requirements and
categories requirements for implementation and ongoing support
• Evaluating of business functionally
• Ensure that strategic and operational business • Providing IT expertise and input where needed
requirements are considered throughout the project
• Defining expected benefits business and operations
• Management of testing environments
• Operational support for Business/Operations

Sample of a RACI Matrix for an IT Project
Key Activity PS PM EGP Bus/Ops Org-BA IT IS CON LA
0.1 Understand business and IT objectives, strategic framework and TOM
0.1.1 Perform focus interviews with stakeholders A C C R C
0.1.2 Draft strategic requirements for needed solution A C C R C
0.1.3 Research external case studies with comparable business objectives I A C R C
0.1.4 Enrich understanding of challenges & framework with case study findings I A C R C
0.1.5 Outline benefits of needed solution A C C R C
0.1.6 Define strategic requirements A C C R C C RACI Matrix
0.1.7 Agree on measurable KPIs for project success A C C R C C
0.2 Market screening & “big picture”
0.2.1 Perform market research of potential solutions (internal & external) A C R C
0.2.2 Review case studies (internal & external) A C R C
0.2.3 Collate and present research findings I A C R C
0.2.4 Define generic solution concept A C C R C C
0.2.5 Consider make or buy decision A C I C R C C


Draft RFI/RFP according to standard contents
What information is required for a successful RFI/RFP process?

Topic Subtopic Description Important appendices
1. Introduction • Objectives of the document • Explains purpose of RFI/RFP
2. Background • Entity’s Background • Description includes
• Current situation − Overall strategy the RFI/RFP process supports
• Objectives of RFI/RFP − Selection goals
process − Affected business processes or operations
− Specific capabilities that on business requires
to realise improvements

3. Subject of • Scope of the solution • Outlines required applications and services • Information on
RFI/RFP • Planned implementation time • Explains expected time frame organization, volumes,
frame (if applicable) FTE s etc.
• Response documents and • Outlines required response format and content (e.g. • Roll-out roadmap
deliverables solution overview, cost breakdown)
• Schedule and time frame of • Outlines selection process, e.g. rules of the “game”, terms
RFI/RFP process • Informs about deadlines and time table
4. Requirements • Business functionality
• Non-business functionality
• Excel file with detailed
• Technology (if applicable) • List of organized questions to confirm availability of requirements
• Implementation and on going desired requirements and to measure solution provider’s
• Interfaces
support competencies, reliability and ability to fulfil requirements
• Solution provider
• Cost evaluation sheet
• Cost indication/TCO
5. Legal • - • Includes e.g. liability and non-disclosure agreement
disclaimer


Overview solution selection approach in five steps
What are the main steps in a RFI/RFP process?
Phases

Contract
0 Preparation 1 RFI 2 RFP 3 POC 4 Negotiation

• Understand business • Develop and issue RFP • Agree on scope, project plan,
• Develop and issue RFI • Evaluate RFP responses • Define and prepare POC milestones and success
objectives, strategic
Activities

approach criteria
framework • Evaluate long list of solutions • Reference checks
• Market screening • Solution provider presentation • Perform workshops, tests and • Conduct and finalize
demonstrations commercial and legal contract
• Plan roadmap
• Design „big picture“ negotiations
• Estimate costs • Evaluate POC results
• Evaluate solutions

• Detailed requirements • Proof of concept approach & • Finalised contractual
• Joint understanding of • Requirements • Weighting and evaluation process documents and appendices
approach
• •
Key Deliverables

business challenge /strategic • RFI, NDA (Optional) Test cases and test data Handover material (if
framework
• RFP, NDA (mandatory)
applicable)
• RFI responses • RFP proposals • POC3) report
• First thoughts on business,
•
operations and benefits • Qualitative evaluation Evaluation results • Updated evaluation
• TCO4 & benefits analysis • Updated TCO4) & benefits
• Strategic requirements • Feasibility cross check
• Roll-out roadmap
• Generic solution concept • Short list of solutions • Feasibility and
• Implementation and
cost/benefit check
(3-5) resource plan
• Long list of solutions
(up to 15) • Agreed further selection • Finalist solutions (1-3) • Updated ranking of finalist
process • Feasibility and solutions (1-3)
• Defined selection process cost/benefit check
• Agreed further selection process

1 2 3 4 5
Key decision

• Long list of solutions (up to • Short list of solutions • Finalist solutions (1-3) • Updated ranking of • Contract ready for
points

15) (3-5) • Go/No go decision finalist solutions (1-3) signature
• Go/No go decision • Go/No go decision • TCO4 & benefits • Updated TCO4) &
benefits
• Defined selection process
• Go/No go decision
1 RFI = request for information 2 RFP = request for proposal 3 POC = proof of concept 4 TCO = Total cost of ownership


„Negotiations“ and „Winner Announcement“
When we are announcing the winner?

EGP Sourcing Specialist starts a negotiation EGP Business Joint
Line decision
project and owns the process on
Content/
Commercial supplier
Technical
Decision selection
Decision
Joint decision on Short List
A negotiation …
EGP ensures the right quality in the
right time to the right price of goods .. process is owned by the sourcing specialist
and services in the most efficient
.. can be focused with one selectee
way by selecting the appropriate
supplier. .. lasts until the contract is signed

In case no signature is reached with the first selectee a
Commonly selected supplier signs
negotiation ...
the contract
NOTE: Only after signing a …can be restarted with other selected suppliers
contract a winner is to be
announced! …can run parallel with multiple bidders
The supplier - who signs the
contract - is the ‚Winner‘ and will be The EGP Sourcing Specialist must document the
announced as such. achievements and offers/wording in discussion/analysis
during all negotiation stages


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