The Savoir Faire of Buying, A comparative study of French and Australian Procurement strategies

‘THE SAVOIR FAIRE OF BUYING’ A comparative study of French and Australian Procurement strategies

FOREWORD Dear Members, Since 1899, the French Australian Chamber of Commerce and Industry has strived to promote French and Australian Business Relations, supporting the development of various industries on Australian soil. Charged with over 116 years of history, Business is part of our DNA and we greet 2015 with a wide range of developments all aimed to benefit our members. It is for this reason that we are very pleased to present the first publication of a series of Partnered Business Studies to be released over the course of the year. Our first publication, developed in collaboration with our Corporate Member Infosys Portland investigates the Procurement practices of French and Australian organisations based in Australia, titled “The Savoir Faire of Buying”. This study will address the following points:

• Procurement roles in the organisation, key priorities and challenges for 2015

• Procurement model (Centralised vs. Decentralised, Global vs Local)

• Impact of Technology (eCommerce, Big Data, Mobile, etc) This is a truly innovative project that will advance the Chamber and its business community through informing, supporting and development of its Members and their network. I would like to extend an invitation to any of our Members who would be interested in collaborating in future studies to contact the Chamber directly.

Frank Ribuot CEO of Randstad and NSW President of the French-Australian Chamber of Commerce & Industry

TABLE OF CONTENTS

Introduction 4 Executive summary 5 Survey results 7 profiles

7

• Respondents

• Top

• Organisation

& Models

9

• Procurement

practices & Challenges

12

• Technology 15

priorities 8

Conclusion 16 About Infosys Portland 18

the Authors 18

• About

About the FACCI 19 Participating companies 20

• Thank

you 20

Appendices 21

• Table

of figures 21

INTRODUCTION French companies have over 300 subsidiaries in Australia employing more than 85,000 Australians, making France a primary business partner of Australia. Some French companies, along with their Australian partners, are leaders or among the leaders in their field in Australia. French companies operating from Australia also deal with global operating models (headquarters in France) and local operations and purchases.

The French Australian Chamber of Commerce & Industry (FACCI) and Infosys Portland have partnered in 2014 to uncover the Procurement practices of French and Australian organisations based in Australia.

The primary objectives of this study are to understand the procurement strategies and models from leading French Australian organisations and the specifics for French organisations in Australia in terms of: • Procurement role in the organisation, key priorities and challenges for 2015 • Procurement model (Centralised vs. Decentralised, Global vs. Local) • Impact of Technology (eCommerce, Big Data, Mobile, etc...)

The study has spanned over a year and was composed of three different phases: - The first phase of the study consisted in conducting interviews with six Patron and Corporate members of the FACCI in New South Wales and Victoria. The goal was to gather qualitative insights from Chief Financial Officers (CFOs), Chief Operations Officers (COOs) and Chief Procurement Officers (CPOs) and help to design a quantitative survey - The second phase of the study focused on gathering quantitative data through an online survey issued to over 70 companies with a response rate of ~40%. The online survey was organised in four sections and this article highlights the overall results and key insights - The third phase was a Business Seminar organised by FACCI NSW which took place on June 26th 2014 at the “Alliance Française de Sydney” to uncover the preliminary results. The preliminary survey results were followed by a presentation on the Procurement maturity journey and best practices by Bruce Stevenson, CEO of Infosys Portland and a panel discussion with Andrew Brightmore, CPO of Goodman Fielder, Jacques Seidenberg, CPO of Accor, and Paul Millett, NSW Director for Infosys Portland

FIGURE 1: EVENT HELD ON JUNE 6TH 2014 AT ALLIANCE FRANÇAISE IN SYDNEY

Over 50 participants from over 30 different organisations came to the event with a majority of Procurement professionals including CPOs of Australian and French organisations.

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EXECUTIVE SUMMARY The French Australian Chamber of Commerce & Industry (FACCI) and Infosys Portland have partnered in 2014 over the last year to uncover the Procurement practices of French and Australian organisations based in Australia and outline key differences and similarities on the following themes:

• Procurement role in the organisation, key priorities and challenges for 2015 • Procurement model (Centralised vs. Decentralised, Global vs. Local) • Impact of Technology (eCommerce, Big Data, Mobile, etc...)

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The top 10 insights from the qualitative and quantitative phases of the survey are summarised below:

1

While Australian companies surveyed tend to be larger than French respondents, their Procurement function have similar challenges and objectives with the top 3 elements of the participant’s Procurement Strategy being targeting financial savings, improving supplier performance and improving risk management

2 3 4 5

73% of Australian respondents have acknowledged having a procurement strategy against only 60% of the French participants

Most Australian organisations have a Chief Procurement Officer (CPO) or equivalent when only half of the French organisations have one

40% of French organisations have opted for a decentralised model versus 9% for Australian respondents

French organisations in Australia tend to focus their Procurement efforts on their direct cost bases and still have opportunities to improve the management of their indirect categories

6

While large Australian organisations are more and more inclined to outsource some of their non-strategic Procurement activities such as category management support, tactical procurement and business support services, this is not the case for the French companies surveyed. However some of them leverage group shared-service centres in Asia Pacific

7

Although Australian companies surveyed manage more vendors, they seem to be more active in Category management - especially with Supplier Performance Management - than French organisations in Australia

8

Overall 80% of the respondents think that the influence of the Procurement function has increased over the last three years. This was the case for 70% of the French companies surveyed vs 90% for the Australian

9

Systems for Procurement within Australian and French Organisations are similar: 43% of them use the SAP and Oracle Enterprise Applications however there is room to improve efficiency in Procurement with only a quarter of the respondents managing the Purchase Requisition / Purchase Order process and a fairly low percentage (~10%) managing Supplier Performance and Contract

1O

Yammer is used as the main tool (private social network) in both Australian and French companies for Collaboration in the Procurement function

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SURVEY RESULTS RESPONDENTS PROFILES Participants spanned over a variety of industries and included six FACCI Patron and Corporate members interviewed and 26 Australian and French companies completing the online quantitative survey.

26 organisations completed the online survey, including 15 French organisations, over the following industries: • Energy, Utilities, Communications, Services (46%) • Retail, Consumer Packaged Goods, Logistics, Life Sciences (23%) • Manufacturing (19%) • Banking, Financial Services & Insurance (12%) Examples of participants who agreed to be quoted in this survey include Alstom, AMP, Bouygues Construction, Downer, Essilor, L’Oreal, Mirvac, Renault and SITA. While French companies surveyed are all part of large multinationals, 70% have less than 500 staff in Australia, when the majority (81%) of Australian respondents count more than 1,000 employees.

Similarly, when 73% of the Australian companies surveyed have turnover exceeding $1Bn, only 53% French respondents have an annual revenue comprised between $100M and $1Bn.

FIGURE 2: SURVEY PARTICIPANTS – EMPLOYEE COUNT AND ANNUAL REVENUE IN AUSTRALIA FR AU

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TOP PRIORITIES Half of the companies surveyed have ranked growth and increase of market share as their top priority for 2015, followed by increasing profitability and customer satisfaction or brand image.

When asked about their current challenges in the procurement field, the results vary greatly with French companies mentioning savings target as their number one focus (47%) while Australian organisations display a broader list of challenges including technology implementation and stakeholder satisfaction.

FIGURE 3: TOP BUSINESS PRIORITIES FOR 2015

FIGURE 4: KEY PROCUREMENT CHALLENGES FR AU

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FR AU

ORGANISATION & MODELS PROCUREMENT MODEL

GOVERNANCE STRUCTURE Chief Procurement Officer (CPO) or similar roles are more common in Australian than French organisations (91% vs 60% of respondents admitted having a CPO or similar role).

40% of French participants have a procurement decentralised structure against only 9% of Australian. The leading model in Australian companies is centralised (45%) followed by centre led with a commodity split (27%).

FIGURE 5: PRESENCE OF A CPO OR EQUIVALENT

FIGURE 6: PROCUREMENT ORGANISATIONAL STRUCTURE FR AU

In French organisations, the CPO role reports primarily to the Chief Finance Officer (CFO) (40% of respondents) and 20% to the Chief Operating Officer (COO). The reporting is similar in Australian organisations, with 36% of CPOs reporting to the CFO and 27% to the COO. Infosys Portland’s insight: Even when procurement is seen as a highly valued function and has regular forums with C-Level executives, including the CEO, it appears that organisations are still struggling to make the structural leap to have procurement reporting directly to the CEO.

FR AU

Infosys Portland’s insight: In some cases there had been movement from centralised to decentralised and vice versa over the past three years, mostly based on changes in corporate strategy rather than on overwhelming impetus from the procurement function itself. Centralised procurement, whether it be national, regional or global is still the dominant structure but with the need of stronger relationship between Procurement and the business, centre-led and embedded procurement models are growing.

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FIGURE 7: PROCUREMENT OUTSOURCING

FR AU

The main drivers for procurement outsourcing include:

• Outsource non-strategic areas

• Improve procurement capability

• Improve management of spend Infosys Portland’s insight: Where organisations have engaged in some degree of procurement outsourcing some reported results which were moderately or extremely successful in terms of benefits realisation, indicating an overall positive experience. In terms of benefits tracking, some reported that this was often overlooked once the business case had been made and implemented or that only first year benefits were tracked. Where respondents had experience with multi-year outsourcing, they suggested that short term benefits are relatively easily achieved but that over an extended period, the arrangement may need to move to a different pricing model based more on a risk / reward structure.

36% of Australian respondents have partially or fully outsourced their Procurement operations whereas only 13% of the French respondents have partially outsourced.

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PROCUREMENT STRATEGY The top 3 elements of the participant’s Procurement Strategy are targeting financial savings, improving supplier performance and risk management.

• 73% of Australian acknowledged having a procurement strategy against only 60% of the French participants

• 88% of the procurement strategies are defined for a period of 2 to 3 years (no significant difference between French and Australian)

• Some strategy elements are country-specific u Audit compliance is over-represented in French organisations u Finance approval is over-represented in Australian organisations

FIGURE 8: ELEMENTS INCLUDED IN PROCUREMENT STRATEGY

FR AU

Infosys Portland’s insight: Where the nature of procurement is more project driven there is not a single common strategy. Financial targets tend to be driven by budgets on a project by project basis. Another observable trend is that procurement teams are increasingly involved in assisting their sales colleagues from the front end of the business in bid preparation and subsequent sourcing of project goods and services once contracts are awarded. Other spend categories that are common across the organisation such as travel, fleet and office supplies have universal cost down targets.

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PROCUREMENT PRACTICES & CHALLENGES SPEND ANALYTICS AND SPEND PROFILE Although French participants report a smaller number of active vendors, they report not managing 30% of their indirect spend.

• Majority of spend maps are produced using Accounts Payable data (37% single system + 33% multiple systems)

• Before making procurement decisions: u French organisations use standard periodic reports (38% of participants) u Australian organisations use historical and descriptive data analysis like spend by categories (55% of participants)

FIGURE 9: TYPE OF ANALYSIS PERFORMED BEFORE MAKING PROCUREMENT DECISIONS

FR AU

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Infosys Portland’s insight: Measuring and reporting on procurement’s contribution to the organisation is still challenging, despite often having effective reporting systems. Greater credibility is afforded to the procurement function, in particular by the finance function, when actual rather than forecast benefits are tracked and reported.

FIGURE 10: NUMBER OF DIFFERENT ACTIVE VENDORS

FIGURE 11: PERCENTAGE OF INDIRECT SPEND

FR AU

FR AU

Infosys Portland’s insight: In some organisations, vendors are automatically removed from the database if they are not active for a period of 13 months. In cases and in order to ensure compliance with P2P processes, vendors paid wholly by corporate card or purchasing card (Pcard) were removed from the vendor masterfile to ensure that invoices are not paid to this vendor via accounts payable, thereby very effectively controlling leakage or off-contract spend.

Infosys Portland’s insight: Though leading organisations regularly review their major commodities, they need to prioritise on a continual basis to stretch their limited resources across as many categories as possible. For some organisations, this is assisted by offshore teams who perform for example the bulk of the market research, spend analysis and report generation. There is some disconnect here though when deep local knowledge and market insights are lacking to support and overlay the analysis.

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Respectively 60% and 82% of French and Australian Procurement departments regularly competitively review all major categories but only 40% to 45% regularly monitor supplier performance.

FIGURE 12: PERCENTAGE OF RESPONDENTS WHO REGULARLY COMPETITIVELY REVIEW ALL MAJOR CATEGORIES OF SPEND FR AU

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FIGURE 13: PERCENTAGE OF RESPONDENTS WHO MONITOR VENDOR PERFORMANCE MONTHLY FR AU

TECHNOLOGY Not surprisingly SAP and Oracle Enterprise Resource Planning Systems (ERPs) are the most used in Procurement by both French and Australian organisations.

The creation of purchase requisitions / purchase orders and Spend analytics are the most covered processes by systems, with around 25% of the respondents.

This percentage is fairly low for some processes that we consider as major in the Procurement area: with about only two companies out of 10 managing Contract, E-sourcing and Supplier Performance with the help of a system, the room for improving the Procurement efficiency is significant for both Australian and French organisations.

FIGURE 14: TECHNOLOGY SYSTEMS USED AND PROCUREMENT FUNCTIONS ASSISTED BY THESE SYSTEMS

FR AU

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CONCLUSION Given their larger size, Australian companies tend to be more mature in their procurement operations than the French companies in Australia surveyed and benefit from a larger negotiation power when dealing with their national suppliers.

Opportunities are there for French organisations in Australia to better manage their indirect spend, which is typically not influenced by their group procurement function and global contracts as it mainly involves local suppliers.

Establishing the optimised procurement operating model requires a critical assessment of all activities performed by the procurement function, as described in figure 15 below.

FIGURE 15: PROCUREMENT SERVICES OVERVIEW Strategy & Relationship

Proc.

Strategy Strategic Sourcing

Sourcing & Category Execution

Procurement Operations & Support

Category Management Tactical Sourcing & Category Management Support

Example Activities • Procurement Strategy • Diagnostic & Opportunity Identification • Global Commodity Council • Strategic Sourcing • Supply Market & Industry Research • RFX & Negociation Execution • Change and Project Management • Category Strategy & Planning • Category Reporting & Demand Mgmt • Supplier Performance Management • Compliance Management & Audits • Spend Analytics & Benefits Tracking • eRFX / Auctions Systems • “Trail Spend” Management & Spot buying

Purchasing & Payment Operations

• Contract Administration • PR to PO Conversion • Invoice Matching and Processing

Helpdesk

• Catalogue / Price Maintenance • Supplier prequalification • Issue Management and Helpdesk

Some critical questions need to be addressed by the CFO or COO when looking to develop and optimise its procurement capabilities in order to be both efficient (low cost) and effective (high value generation) as described in figure 16: 1. Is this best done in-house by Procurement, by the business, by an external party or not at all?

2. What am I trying to improve – efficiency or effectiveness?

3. How much capability do I need?

4. Where can I get the capability?

5. Where is this best delivered – onshore or offshore?

6. Would I benefit from technology, and how can I get it?

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FIGURE 16: PROCUREMENT CAPABILITY OPTIMISATION Efficiency (lower cost) Low Cost-Low Value Delivery Process Efficiency Capability

Low Cost-High Value Delivery Capability Optimisation

• Focus on efficiency • Small procurement team • Limited use of external specialists • Fixed operating costs • Low benefits generation

• High ROI - efficient professes and high value delivery • Lower total cost of procurement • Higher use of external specialists • Scalable, variable operating cost

Low Cost, Basic Service Delivery Building Basic Capability

High Cost, High Value Delivery Value Delivery Capability

• Focus on operational capability • Basic processes utilised • Low level of systemisation • Fixed operating costs

• Significant procurement resource & systems investment including external (consulting) assistance • Focus on ROI • Low process efficiency

Effectiveness (better results) Efficiency and Effectiveness Scales

Low

High

Infosys Portland is well placed to assist CFO, COO and CPOs to identify and implement the optimised procurement operating model for their organisations.

Infosys Portland has an impressive track record in delivering tangible value to our clients. Given our specialist procurement focus, we have deep expertise across all categories and have relevant experience working within global and local companies at all levels. This hands-on experience provides us with the unique opportunity to quickly identify savings opportunities that are implementable and sustainable. Approximately 80% of value delivery programmes undertaken by Infosys Portland achieve close to the high-end of our estimates.

Infosys Portland assists clients through mainly project-based services to quickly and reliably achieve successful, sustainable results. Our procurement consulting and operational competencies ensure that our teams take a ‘problem-solving’ approach to develop structural, process and category strategies that are implementable and sustainable.

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ABOUT INFOSYS PORTLAND Infosys Portland is a subsidiary of Infosys BPO Ltd., a part of Infosys Ltd. Our mission is to make our clients successful by increasing their profitability through procurement and supply chain improvements. We are unique in providing services to improve efficiency and effectiveness across our clients’ complete procurement and supply chain functions, ranging from innovative, high-end strategy through to effective, low-cost operations and transactional processing. The resulting transformational benefits for clients include lower costs, reduced risk and improved service from client suppliers.

ABOUT THE AUTHORS Leo Denes With 11 years’ experience in Management Consulting, Business Process Review and Financial Assurance, Leo is in charge of Infosys Portland’s French Desk assisting subsidiaries of French listed companies in their development in Australia leveraging Infosys Portland’s expertise in Procurement.

Over his last 4 years with Infosys Portland, Leo has assisted clients conduct major Procurement strategy, opportunity assessment, strategic and rapid sourcing, business transformation and change management projects across multiple industries (Government, Retail, Manufacturing, Telco, Financial Services, Private Equity, Entertainment) and organisation types (public and private sectors). Leo graduated from EMLYON Business School with a Master in Management in 2003 and performed an MBA exchange programme at Mt Eliza Business School in Melbourne in 2002-2003.

Eric Wimphen Eric Wimphen is an Associate Director with Infosys Portland. With a career spanning over 20 years in the finance and management consulting sector, Eric has held leadership positions with various management and information technology consulting firms including PricewaterhouseCoopers Consulting and IBM. He has successfully defined, led, and implemented powerful business strategies for clients and internal business, delivering ‘technology-enabled business transformation’ projects that involved re-organization, process re-engineering, SAP implementation, change management and Business Process Outsourcing (BPO). Eric’s clients span the real estate, financial services, telecommunications, retail and distribution, oil, manufacturing, CPG, and government industries within Australia and Europe. Eric graduated from ESCP Europe with a master’s in strategy and organization consulting.

Jonathan Dreyfus-Schmidt Jonathan Dreyfus-Schmidt is a Senior Consultant in Infosys Portland’s Sydney office. Over his 3 last years with Infosys Portland, Jonathan successfully led several procurement opportunity and capability assessments for ASX listed companies across a wide variety of industries.

He demonstrated passion and drive for achieving results and outperforming expectations in various business performance improvement and transformation projects. Jonathan also developed a deep level of expertise in outsourced procurement operating models and wrote a white paper on this effective strategy to reduce the cost and increase the efficiency of procurement departments (Read here). Prior to joining Infosys Portland in 2012, he completed 8 years of project and change management consulting, and managed the business development and project’s portfolio (PMO) of a high-tech company in Montreal. He holds an MBA from Laval University in Quebec and a Master degree from EDHEC Business School in France.

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ABOUT THE FACCI The French-Australian Chamber of Commerce & Industry (FACCI) was founded in 1899. At the time, Australia’s trade relations with France were almost solely dependent on the export of wool. More than a century later, this relationship now includes a host of many other industries.

The French-Australian Chamber is an independent not-for-profit organisation governed by 15 Board of Directors and comprising more than 700 members. Our head office is based in Sydney and we also have four other Chapters and offices in Melbourne, Brisbane, Perth, and Adelaide.

The Chamber is affiliated to CCI France International, a worldwide network of 111 French Chambers operating in 81 countries.

The Chamber’s main mission is to promote our members and support French companiessucceed in Australia through information, networking and business support services.

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PARTICIPATING COMPANIES

THANK YOU The authors would like to thank all the participants to the event organised on June 26th 2014 in Sydney, with a special mention to the panellists: Jacques Seidenberg, CPO of Accor Andrew Brightmore, CPO of Goodman Fielder Paul Millett, NSW Director for Infosys Portland This study would also never has been possible without the great contribution of the FACCI (Claire Kasses, Julia Lecomte, Patricia Michel, Kevin Quemarrec, Mathieu Van Hieu and Marie Varnier Gittard).

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APPENDICES TABLE OF FIGURES Figure 1: Event held on June 26th 2014 at Alliance Française in Sydney

6

Figure 2: Survey participants – Employee count and annual revenue in Australia

7

Figure 3: Top business priorities for 2015 8 Figure 4: Key Procurement challenges 8 Figure 5: Presence of a CPO or equivalent

9

Figure 6: Procurement Organisational Structure 9 Figure 7: Procurement Outsourcing 10 Figure 8: Elements included in Procurement Strategy

11

Figure 9: Type of analysis performed before making procurement decisions

12

Figure 10: Number of different active vendors

13

Figure 11: Percentage of indirect spend 13 Figure 12: Percentage of respondents who regularly competitively review all major categories of spend

14

Figure 13: Percentage of respondents who monitor vendor performance monthly

14

Figure 14: Technology Systems used and procurement functions assisted by these systems

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Figure 15: Procurement services overview 16 Figure 16: Procurement capability optimisation 17

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