Akzo Nobel N.V. Executive Committee
Guidelines Procurement - An AkzoNobel Process Source document
Directive 2.02 AkzoNobel Processes
Content Owner
Strategy
Signed off by
Date
Effective Date
Executive Committee
May 22, 2014
2014
Purpose These Guidelines explain the Procurement Process in detail.
Scope and definitions This Procurement Process applies to all processes and all parts of the company. A “process” process” is simply a set of actions that build on one another. An AkzoNobel “Process” Process” is a set of standard actions, carried out by everyone in the same way, which helps us to achieve better financial and/or non-financial results.
Table of contents 1.
Introduction........................................................................................................................ ..................................................................................................................................... ............. 2
2.
The AkzoNobel strategy ................................................................... ................................................................................................................. .............................................. 2
3.
The AkzoNobel Processes .............................................................. ............................................................................................................. ............................................... 2
3.1.
What is an AkzoNobel Process? ................................................................. .................................................................................................... ................................... 2
3.2.
The six AkzoNobel Processes ......................................................... ....................................................................................................... .............................................. 2
4.
Overview of the Pr ocurement Process .......................................................................................... 3
5.
Business processes of the new Procurem ent Process explained ................................................. 5
5.1.
Strategic Sourcing Process ............................................................. ............................................................................................................ ............................................... 5
5.2.
Key Supplier Management Process ............................................................ ............................................................................................... ................................... 5
5.3.
Purchase-to-Pay (P2P) Process .................................................................................................... .................................................................................................... 6
5.4.
Raw material index and price forecasting f orecasting .............................................................. ...................................................................................... ........................ 7
6.
Expected outcom es and how this will affect you............................................................... ............................................................................ ............. 7
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Guidelines
1.
Introduction
In 2013, we announced a new vision, strategy and targets focused on delivering leading performance in terms of organic growth and operational excellence. We also initiated a set of core principles, values and behaviors that will support us in realizing that leading performance. This document explains how the AkzoNobel Processes – one of the building blocks of our strategy – will support delivery of both our vision and our targets.
2.
The AkzoNobel strategy
The vision for AkzoNobel is to ensure that our leading market positions deliver leading performance. We have set short-term (2015) targets to help us measure and monitor progress towards our longer term vision. These targets incorporate both financial and non-financial targets. To help drive our progress towards achieving this vision, we have defined a strategy that consists of four main building blocks.
1. Strategic focus areas: We have defined five main areas for strategic action during this
2.
3.
4.
strategy period. We believe that by making improvements in these areas, we will achieve our short-term targets, thereby making progress towards realizing our longer term vision, which goes beyond the 2015 targets. Processes and capabilities: To help bring about improvements in our Strategic focus areas, we have established six AkzoNobel Processes. Individual businesses and functions have also identified capabilities that are more specific to their own success. Actions: A set of high level Actions has been defined and are being implemented across the company. Again, parts of the AkzoNobel organization are defining more business-specific, or function-specific, Actions to drive improvement consistent with the overall approach. End-user segments: In order to achieve our targets and make progress towards our longterm vision, our Actions must result in market success in our four main End-user segments.
Everything that we do in terms of strategy is underpinned by our core principles and values, which will remain in place for the foreseeable future. To help everyone in the company better understand how to bring these values to life, we have defined a set of behavioral dos and don'ts.
3.
The AkzoNobel Processes
3.1. What is an AkzoNobel Process? A process is simply a set of actions that build on one another. An Ak zoNobel Process is a set of standard actions, carried out by everyone in the same way, which helps us to achieve better financial and/or non-financial results. In other words, once we have created and rolled out these Processes in a disciplined way across the entire company, an AkzoNobel Process will be one that will differentiate us from our competition.
3.2. The six AkzoNobel Processes The six Processes that we have identified are: 1. People, Product and Process Safety
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2. 3. 4. 5. 6.
Operational Control Cycle Continuous Improvement Innovation Procurement Talent Management
We already have versions of these processes currently running in AkzoNobel. However, all six are being carried out in different ways, so it isn’t possible for us to create best practice in any of these areas. Each AkzoNobel Process will be identical, wherever you work in the company. By defining a consistent approach to each of these AkzoNobel Processes, it will be easier for individuals to understand what is expected, as everyone will be speaking the same language and using the same tools. Longer term, once these Processes have been rolled out and implemented throughout the company, it will be easier for us to continuously improve them in a way that will bring us closer to bestin-class levels. Eventually, these Processes will become our true strengths and help us to achieve, and even go beyond, our leading performance vision.
4.
Overview of the Procurement Process
Procurement is not just about price. Raw material and indirect spend are a significant component of our cost base. There are also situations whereby the same company can be a supplier, competitor and customer of our businesses. Careful management of the Procurement Process is therefore very important. It will make doing business across the company simpler and more efficient as we will “speak the same language” and avoid wasting resources on reinventing the wheel. The AkzoNobel Procurement Process is a way of working. It is not a project. It a holistic approach underpinned by four pre-defined elements – business processes, organizational infrastructure, business enablers and culture – that will help drive us towards operational excellence. Key elements underpinning the AkzoNobel Procurement Process
A precondition for the Procurement Process is a strategic fr amework and process architecture. This framework – which includes the four pre-defined elements outlined above – describes the recourses, tools, methods and enablers that will determine performance, identify gaps and create improvement
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plans. The most relevant business processes in this framework are highlighted on the next page. The Procurement strategic framework and process architecture
Selected procurement processes described in this document Strategic sourcing process
Key supplier management
Purchase to pay
Raw material index and price forecasting
Description
Spend and market analysis, supplier selection and negotiation, signing and implementation of contracts Jointly drive value from innovation, sustainability, procurement, sales and supply chain improvements while balancing supplier/competitor/ customer relations Purchasing requisition, creating purchase order, receiving goods or services and (by finance) paying the supplier Share the index of current and forecasted price movements with business and margin management. Analyze value chains to act on future supply risks or opportunities
KPIs
Spend reduction Working capital improvement % spend covered by strategies to support security of supply Number of plans internally and externally aligned and in place Value driven from joint projects (financial and non-financial) % no PO no pay Number of transactions through SRM Monthly price indices/ forecasts delivered on time Forecasting accuracy Number of value chains analyzed
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5.
Business processes of the new Procurement Process explained
5.1. Strategic Sourcing Process The Strategic Sourcing Process forms the backbone of the commercial Procurement Process. It starts with the requirements defined by the company, business unit and functional strategies. For example, when we grow in a market, we first define the requirements of the business units to then select suitable suppliers that meet these specific requirements. The Strategic Sourcing Process includes four steps: Analyzing spend and market data to develop sourcing strategies Assessing our suppliers Negotiating and implementing contracts Reviewing the results periodically
The Strategic Sourcing Process
The Strategic Sourcing Process is carried out for each of the important raw material groups or services. It can be done on a global level across all business units, on a regional or business unit level, depending on the spend group and supply market dynamics. When applicable, sourcing strategies also take into account our in-house production options and toll manufacturers to ensure decisions in the best interest of the whole company. From an IT perspective, the Strategic Sourcing Process is enabled by spend data from Business Warehouse, eSourcing to compare different offers to facilitate the negotiation phase and the Contract Lifecycle Management system to store the signed contracts and trigger contract renewals. Training and template documents are available on SharePoint to further support the process. The Project Tracking Tool (PTT) is used to track savings results for each activity. The overall P&L impact of these activities, including upward or downward market movements, is tracked as spend reduction. The sourcing strategy is measured against agreed, annually defined KPIs: Spend reduction tracked by activity-based savings, as defined in savings convention Working capital improvement through improved payment terms Percentage of spend covered by sourcing strategies to support security of supply
5.2. Key Supplier Management Process This enables AkzoNobel to make balanced decisions on a company level, taking into account that many of our key suppliers are also key customers and competitors. Key supplier management includes four elements: Identifying the full scope of the relationship – is this company a supplier, competitor and/or a customer of each of our business units? Establish joint value drivers – on which of the following topics do we think we can drive the
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most value with this supplier: innovation, sustainability, sales, procurement or supply chain? Align governance externally and internally – on which levels should we m eet, discuss the strategic intentions and define joint plans? Ensure delivery of results with standard frameworks to formally underpin our joint plans and track progress and capture results
From an IT perspective, the Key Supplier Management Process is enabled by spend data from Business Warehouse. Training and template documents are available on SharePoint to further support the process. Benchmarking of suppliers against each other, or against ourselves, is a powerful enabler to identify best in class performance The Key Supplier Management Process is measured against agreed annually defined KPIs: Number of key supplier plans fully aligned with all internal stakeholders (sales, innovation, sustainability, supply chain, procurement for all relevant business units) and with stakeholders on the supplier side Potential value (financial and non-financial) identified in joint projects with suppliers Value captured (financial and non-financial) from identified projects in time and in full
5.3. Purchase-to-Pay (P2P) Process This aims to increase the efficiency of our transactions, first-time-right orders, compliance with AkzoNobel policies and the quality of our spend data to support reduction of external spend . It starts with creating a purchasing requisition, continues with receiving the goods or services and ends with the supplier being paid by our finance department. A purchase requisition can be driven from a 1 production plan and material requirement plan in the case of a product related (PR) order. In the case 2 of non-product related (NPR) goods and services, there are two main channels:
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Non-product related spend needs a purchase order and is channeled through our SRM system, except for the agreed and authorized exceptions which are listed in Purchase Instructions. Many standard goods and services can be bought through online catalogs, and for other items there are special requests, advice requests and a couple of other workflows available in SRM. 4 Travel and expenses are reclaimed in Concur , a purchase order is not needed, but travel is approved by your manager in the pre-trip approval process
Continuous improvement is used for all our processes, but is especially powerful for the P2P Process, because it physically brings the raw materials, goods and services to our sites and offices. The Purchase-to-Pay Process is measured against agreed, annually defined KPIs: % of payments linked to a purchase order (“No purchase order no pay”) Channeling of transactions through SRM system as part of P2P Reduction of cost of the total function
Want to know more about this process? Watch this video online.
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Product related (PR): all items that are part of the finished products, such as raw materials and packaging Non-product related (NPR): goods and services that are not part of our products, such as equipment, logistics, marketing, temp labor, laptops etc. 3 SRM: our system for non-product related purchases, with the exception of Travel & Expenses, Logistics and Energy (SRM is an abbreviation for Supplier Relation Management). 4 Concur: our system to approve travel and expenses 2
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The Purchase-to-Pay (P2P) Process
5.4. Raw material index and price forecasting Informing the business about expected movements in the supply market is crucial to ensure that factories keep running and the margins of our products are managed effectively. Buyers are typically the first to pick up intelligence from the market about raw material prices moving up or down. These price forecasts are collected and shared with our business and finance leaders, who can choose to adjust our sales prices accordingly, or keep more margin in our pockets. We also structurally analyze the supply chains we are part of, to understand which risks and opportunities lie ahead of us. We obviously track oil price movements and global shale gas, which both have major implications for our energy bill and the raw materials we buy, Less obvious, but equally interesting, is the following example. We hardly buy any cotton, but we do keep track of cotton prices. Most of the raw materials for the resins that are critical for our coatings do not end up in coatings. They are used for polyester fibers that go into (cheaper) clothing. If cotton is expensive because there was a bad harvest, more polyester fibers are used for clothing, and less feedstock is left for the resins that are critical in our coatings.
The raw material index and price forecasting process is measured against agreed, annually defined KPIs: Up-to-date value chain analyses in place for all critical supply chains Sharing supply market intelligence on time with the right stakeholders (monthly frequency) Raw material price forecasting accuracy
6.
Expected outcomes and how this will affect you
In the future, we will work in a company which is less complex and more efficient. We will be experienced in managing interdependencies with business units and other functions. The process of
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defining requirements with business units and cross-functional stakeholders will be more transparent and documented in sourcing strategies and key supplier plans. Decisions, trade-offs and potential escalations will be clear to all ke y stakeholders. Sourcing strategies will be updated and available for all PR and NPR spend areas. Key account/supplier plans will be available for all key suppliers for which we have identified sufficient opportunities. We have fully implemented our Purchase-to-Pay Process and supporting IT landscape, which allows us to have shared services for the remaining transactional work and information processes. For product related, we will have significantly reduced the complexity of our raw material portfolio, as well as in the number of suppliers we work with. On the non-product related side, this will be achieved by channeling standard purchases through catalogs. The processes in the field of raw material price forecasting and sharing intelligence will be fully standardized, available online and automated wherever possible. The output will be used by business unit and cross-functional leaders and stakeholders. It will be a key part of the input for margin management and other decision-making processes.
Related documents Directive 2.02 AkzoNobel Processes Directive 10.01 Procurement Guidelines on Continuous Improvement Process Guidelines on Innovation Guidelines on Operational Control Cycle Guidelines on Safety Process Guidelines on Talent Management Process
