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Procurement portfolio analysis

Constraints Analysis
The missing link between Spend Analysis and Category Management

Jean-Louis Moreau
Procurement Consultant – Interim Executive

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Spend analysis
Sup-
pliers
PO’s AP Spend data

Bu’s
P- Direct

cards BU 1 Geography
Indirect Zone 1 Zone 2
BU 2

Classification

Raw data
Cleaning

Enrichment

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Portfolio Analysis of spend data
• Once spend data is clean and organized, it needs to be
analyzed to identify and prioritize areas of greater potential
for value creation, manage risk, and refine category strategy.
• Several methods are available for a strategic segmentation of
sourced products and services.
• Among the most commonly used:
- Internal/External Constraint Analysis
- Supply/Demand Relative Power Analysis
- Supply risk/Profit impact (Kraljic)
• Any combination of those methods is perfectly acceptable.

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Constraints Analysis
• Can be applied to items or to already structured categories.
• Facilitates understanding of Procurement segmentation per
category and helps define relevant category strategies.
• A simple methodology, easy to implement:
- Identify and weight internal technical and business constraints.
- Identify and weight external technical and business constraints.
- Calculate the percentage of weighted internal and external constraints.
- Plot the results into the Internal/External constraints matrix.
- Identify the corresponding category strategy to apply.
- Refine strategy using different complementary methodologies.
- Start generating and executing relevant strategic sourcing initiatives for
value creation .

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Constraints Analysis
Internal Technical constraints – Examples
• Expected quality level currently difficult to obtain.
• No functional specifications available.
• Engineering mandated supplier.
• No prior value-analysis.
• Unusual quality required for that type of category/items.
• Frequent spec modifications to be expected.
• No standard on-the-shelf alternate being considered.
• Very new product without past reference.
• Confidentiality/patent.
• Slow homologation process.

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Constraints Analysis
Internal Business constraints – Examples
• Mandated supplier / Single source.
• Lack of forecast.
• No bundling.
• Relevance of Purchasing documents.
• Too short-notice delivery requirements.
• Buying power.
• Fixed purchasing price.
• No quotation from suppliers.
• Internal supplier among other bidders.
• Multiple uncontrolled interactions with suppliers.

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Constraints Analysis
External Technical constraints – Examples
• Technological single source.
• Continuously evolving technology.
• Possible choice between several technologies.
• Lack of norms in the market.
• Restrictive norms and legislation.
• Uneven performance levels among suppliers.
• Short product life-cycle.
• Technical dependence with respect to sub-tier suppliers.

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Constraints Analysis
External Business constraints – Examples
• Current supplier inadequate for the sector (Certifications,…).
• Non-core product for the supplier.
• No real competition among suppliers.
• Monopoly or oligopoly.
• Limited production capacity in the market.
• Minimum quantity / Batch.
• Distribution channel very inflexible.
• Mandatory distribution channel.
• Heterogeneous and restrictive legislations.
• Brands / Patents / Licenses.
• Mandatory after-sales services.

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Internal constraints

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External constraints

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Constraints Analysis → Category strategy
Internal Constraints
100%

Strategic
purchases
Critical Strategic
75% Action on specifications Long-term agreements
VA/VE workshops Early involvement
Cost breakdowns Address all issues
Heavy
purchases

50%

Opportunity
purchases
Tactical Leverage
25% Simplify processes Identify levers
Promote competition Find new suppliers
Build cost models
Simple
purchases

0%
0% 25% 50% 75% 100%
External
Simple Commercial Technical Tight
Constraints
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Constraints Analysis →
Procurement Segmentation
100%

Critical Strategic
Weighted internal constraints

Tactical Leverage

0%

0% 100%
Weighted external constraints
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Procurement Segmentation
→ Portfolio strategy
100%

Critical Strategic
Weighted internal constraints

→ Change nature → Seek joint benefits


of demand with suppliers

Tactical Leverage
→ Manage spend → Foster competition
among suppliers

0%

0% 100%
Weighted external constraints
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Procurement Segmentation
→ Category strategy
100%

Critical Strategic
Weighted internal constraints

- Action on specs, - Partnerships


- VA/VE workshops, - Early involvement
- Cost breakdown - Address all issues

Tactical Leverage
- Simplify processes - Identify levers
- Promote competition - Find new suppliers
- Build cost models
0%

0% 100%
Weighted external constraints
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Constraints Analysis
Products/Services segmentation
• Constraints Analysis is in general not enough by itself. Further
analysis is necessary to confirm/refine results.
• In addition to Internal-External Constraints Analysis, several
complementary methods are available to perform an accurate
strategic segmentation of products and services, and build a
strong foundation to Category Management.
• Possible methods:
- Supply/Demand Relative Power Analysis
- Supply risk/Profit impact (Kraljic Portfolio Purchasing Model)

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Thank you
Questions?
Next steps

https://www.jlmconsultant.com

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