Transforming the Procurement Function: What Comes Next?

Eric Germa ANN INC. SVP & Chief Procurement Officer November 13, 2012

AberdeenGroup 2012

Session Agenda

ANN INC. Overview Our call to action The new Procurement operating model Our journey to sustainable value Your role in elevating the procurement function

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Company Overview
Leading Womens Apparel Retailer $2.2B In Revenue In 2011 2 Brands, 5 Channels of Distribution 981 Stores Across U.S.

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We Have 2 Leading US Brands

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Ann Taylor and LOFT

With Four Store Channels:

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Our Call To Action

Operational Excellence Opportunity
1

Indirect Spend

Store Lifecyle Management

5

Store Portfolio Restructuring

Store Operations

Organizational Effectiveness

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The First Year

Clear Purpose and Commitment

New Value $ Finding the Right Talent

New Approach and Process Discipline

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Our Sandbox
Non-Merchandise Spend Merchandise Spend

Non-Merchandise Spend

Store Occupancy, Design & Construction

Information Systems

Marketing

Human Resources

Logistics

Store Supplies

eCommerce

Corporate Services

Facilities Management

Direct Merchandising Directed Buys

>70 categories and over 15 stakeholder groups

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Clear Purpose Global Procurement

Vision Partner with all Divisions/Functions to strategically source and proactively manage Ann Taylors non-merchandise spend, and build a best-in-class procurement function for sustained savings and competitive advantage Mission
Provide the most responsive, expert, efficient and results-oriented support for all Ann Taylors divisions and functions Ensure strategic cost excellence lowest cost on planet, then year-over-year productivity Act as a change agent in improving processes, compliance, and supplier performance Build superior sourcing, category, and supplier development expertise in key spend areas - Marketing, Media, Store Development, Logistics, IT, Store Supplies, HR, Professional Services Optimize supply base, and develop strategic suppliers Develop e-sourcing/SAP eProcurement center of excellence
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The New Procurement Operating Model

Spend Management Deployment
Become a Strategic Partner
Align with Divisions/Functions agendas Lead cross-functional teams on VIP initiatives Drive spend management discipline

Develop Procurement Talent

Recruit and develop the best talent Mentor and coach staff One Team

Create/Sustain New Value

Procurement Value Creation Engine

Re-negotiate key contracts Address new spend areas through Value Initiative Pipeline (VIP) Lead PMO for all OPEX initiatives

Transform Spend Management Capabilities

Leverage spend analytics and eSourcing Implement process discipline and procurement excellence Shift balance from tactical to strategic work
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Becoming a Strategic Partner Strong Governance

Governance Structure
Procurement Council

Procurement Council Roles and Responsibilities

Provide procurement oversight Review and approve team recommendations Remove internal barriers Ensure benefits to company are optimized and balanced against other business priorities

Brand/Division
Business Unit Sponsorship and Stakeholder Buy-in

Program Management Office (PMO)

Ensure procurement guidelines are followed

Leadership Support

Sourcing Team
Process Continuity

Sourcing Team

Sourcing Team

Implementation Team
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Implementation Team

Implementation Team

Becoming a Strategic Partner - Implementing a new Procurement Policy to drive early involvement and compliance
No PO, No Pay

Procurement Early Involvement

Competitive Bidding

2 Signatures on Every Contract

No Shadow Procurement

Non-Compliance Consequence Model

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Create/Sustain Value - Value Initiative Pipeline (VIP)

Indirect Spend
Category Data Center Managed Services Telecommunications Internet Platform Temporary Labor Ocean Transportation Air Freight Customs Broker Services Wrap & Pack International Trade Legal Services Merchandise Trim Tags & Labels Merchandise eSourcing Demand Mgmt W&P, Hangers, Store Supplies POS Maintenance Corrugated Hangers Woven Labels Catalog Print Travel Hotels Office Supplies Wave 2 Indirect Spend Total Spend Addressable ($MM)

Target Annual Savings

($MM) (%) 15.0%

Target FY09 Savings ($MM)

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Accelerated Sourcing

Spend Management (Full Projects)

New Process Discipline In Search of Insights

3a
Develop Sourcing Strategy Profile Category and Identify Opportunities

4a
Source and Negotiate

5a
Award And Implement

1
Develop Pipeline and Annual Project Plan

6
Implement New Processes

3b
Develop Savings/ReEngineering Hypothesis

4b
Benchmark and Develop Solutions

5b
Final Recommendation and Approvals

Measure Performance And Continuously Improve

Strategic Sourcing Deliverables

Value Initiative Pipeline Category Profile Sourcing Strategy RF(x) Package Savings Tracking Realization Contract Summary Sheet Supplier Scorecards

Baseline Approval Form

Supplier Market Analysis

RF(x) Grading

Quarterly Business Review Form Risk Management Form

Negotiation Strategy Award Recommen dation Negotiated Savings Form

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Transform Spend Management Capabilities What-if analyses

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Develop Procurement Talent A new Paradigm

The New Strategic Sourcing Manager

Customer-focused Fact-driven, analytical Technology savvy Strong project management A change leader Value-driven Accountable Global mindset Collaborative but assertive, and aggressive Constantly reinvents

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Talent Development Excellence in Role

Competency
Problem Solving & Analytics

Senior Analyst
Identifies issues and independently leverages data sources and market research

Manager

Senior Manager

Director
Develops new insights into issues, efficiently and creatively directs team to develop powerful fact base, leverages analytical tools, and shares market insights

Senior Director
Stretches team perspective, creates faster, broader, deeper insights into issues Drives team to high-quality deliverables and ensures actionable recommendations

Rigorously identifies issues and creatively uses all data sources to develop comprehensive fact-base

- Process Effectiveness -Problem structuring & resolution - Analysis & synthesis

Tools -Market Research

Structures comprehensive approach to validate hypotheses, performs complex analyses, synthesizes and presents findings to stakeholders

-Spend Analytics -eSourcing -Scenario Planning

Independently develops and directs hypotheses, develops solution and work plan while managing stakeholder relationship and requirements

Directs team to develop powerful fact-base, leverages new analytical tools

Key Competencies

Coaches team on structuring approaches to complex problems and adjusting strategy as needed

Problem Solving and Analytics Spend Management Knowledge

Builds Excel models and Powerpoint presentations

Builds and validates advanced Excel models. Develops wellstructured and compelling Powerpoint presentations tailored to audience

Organizes and directs work; develops a comprehensive set of sound recommendations

Structures approaches to ill-defined problems Develops clear Challenges conclusions from recommendations and analyses to ensure best quality. feasible implementation plans Sets overall messaging for audience, and reviews Powerpoint presentations Probes and vets team members conclusions from Excel analyses and PPT presentations. Drives stakeholder decisions based on data and compelling logic/communications Helps team toand leverage Sourcing Communication platform to accelerate value Stakeholder Influencing delivery

Builds RFx and projects on eSourcing platform

Builds and manages complex RFx and projects on eSourcing platform

People Management Strategic Planning and Sourcing Pipeline Development

management Coaches and leads others regarding strategies for addressing complex sourcing categories

Strategic Sourcing and Demand Management Knowledge

-7Step process - Vendor Mgmt - SME - Sourcing & Outsourcing strategies - Cost models - Negotiations

Leverages additional tools as appropriate (BIQ, TSC, etc.) Is proficient in the 7-step spend Demonstrates expertise in the management process and the 7-step sourcing process and associated deliverables integrates the process into work activities Subject matter expertise in 1-2 basic sourcing categories and strategies SME in 2-4 basic sourcing categories

Trains cross-functional teams on the 7-step spend management process and clearly articulates all deliverables required SME in 1-2 complex sourcing categories and advanced sourcing strategies across several basic categories. Considers alternatives to sourcing-only methodologies (e.g., specs improvement, joint process improvements).

Sells Global Procurement and 7-step spend management process throughout organization. Has proven track record of executing large, complex sourcing programs, delivers sustainable results.

Broadens SME across teams regarding complex sourcing categories and advanced sourcing strategies (e.g., specs improvement, joint process improvements, relationship restructuring, off shoring, demand management, etc.)

leadership in Commitment spend Leadership and

Demonstrates intellectual

Prepares accurate spend baseline and negotiated savings forms, detailing underlying assumptions

Reviews spend baseline and negotiated savings forms and obtains required signatures from project sponsors Develops advanced cost models and negotiation strategies

Reviews spend baseline and negotiated savings forms as needed Ensures executive alignment with project results Conducts ongoing follow-up with stakeholders and identifies new projects

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Our Procurement Journey

Value Creation

Storming

Performing

Ingrained

Stakeholder Partnership Alignment to Strategic Initiatives Spend Analytics PMO Governance Pipeline Management Opportunistic Sourcing Talent Acquisition Complex Sourcing Talent Development Supplier Development Excellence in Role

2009
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2010

2011

2012

2013

What Comes Next?

Background
Align Procurement Goals with Strategic Business Objectives Focus on Managing Strategic Categories Accelerate Strategic Sourcing Enhance Data Reporting

Results
Exceeded cost savings targets for four consecutive years! Stakeholder satisfaction at all time high! Procurement viewed as a Strategic Partner to the Business!

Requirements
Stakeholder Acceptance is a Must Procurement Leadership must own the result Must Align with the Business Strategy Must Provide Career Growth Opportunities
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Actions
Interviews and workshops with over 30 Executive Stakeholders Informal benchmarking and best practice discussions with Procurement Leadership Tailored HR strategy for our people

Strategic Supplier Relationship Management

(SRM) Program is a strategic initiative to transform how Ann Inc. manages its non merchandise suppliers

Aligns with Ann Inc. corporate objectives (multi-channel growth; international expansion; and new store expansion) SRM focuses on total relationship value (advanced capabilities, joint processes, innovation, etc.) not transactional issues SRM positions Ann Inc. for capturing benefits above and beyond traditional Strategic Sourcing

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We estimate Strategic SRM will deliver 40-50% of total benefits within the next 24-36 months!

The Pillars of Strategic SRM at Ann

Prioritize Define expectations at every supplier level. Manage supplier engagement to drive collaboration among Ann staff and suppliers. Automated scorecards to drive improved supplier performance. Capabilities for planning and executing supplier development

Engage

Measure

Invest

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Lessons Learned
Keys to a successful Procurement Transformation

Create a vision generate excitement develop a team Secure clear executive support Stay stakeholder-focused price, quality, service, and innovation Understand spend, develop fact-base, excel at analytics Leverage technology Establish team credibility by demonstrating early results Find the best talent to support tomorrows vision, dont delay talent decisions Embrace suppliers' capabilities and collaborate Pick the battles that matterdont underestimate the time it takes to change behaviors Communicate, communicate, communicate Dont wait, create a sense of urgency

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How Do You Lead? Procurement Leadership Style

You
Superior

Jerk

Value Creation

Doer Challenger Problem Solver Ambassador Strategist

Average

Avoider

Politician

Uneven

Great

Stakeholder Management
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Closing Thoughts

What are your next BIG IDEAS? How do you improve stakeholder collaboration? How will you lead next year?

"If you want to build a ship, don't drum up the men to go to the forest to gather wood, saw it, and nail the planks together. Instead, teach them the desire for the sea." Antoine de Saint-Exupery

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 AberdeenGroup 2012

Thank you
Eric Germa, SVP & Chief Procurement Officer ANN INC. (212) 536-4355 Eric_Germa@anninc.com

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 AberdeenGroup 2012