GAMEPLAN SEASON 8 – Case

It is August 2018 and Akio, VP - Procurement at Vantage Automotive, Inc. is wary about the upcoming 3rd quarter meeting with
Marcella. Marcella, the CEO, has been unrelenting on the heads of different functions to identify ways of addressing the
company’s dismal financial performance over the last 2 years. Though revenue has been growing at 15.2% through acquisitions,
net profits have grown at a meager 3.6%. Marcella believes the internal costs have been largely ignored over the years as the
company grew by leaps and bounds. [Exhibit 1: Scope of procurement organization]

Akio knows that supply chain and procurement will be on Marcello’s priority list. He knows that Marcella has had limited success
in his reviews with the other functions earlier in the year and is looking for big opportunities under procurement. Akio realized
that it was time to reach out for help before it was too late. He remembered hearing about GEP in a recent supply chain
conclave, and their capabilities around transforming supply chain and procurement’s value for large complex businesses. He
wasted no time and invited GEP to his office.

In his first meeting with the GEP team led by Brandon, Vice President – Consulting, Akio came straight to the point about the
problem at hand.

Akio: Gentlemen, our financials over the last 2 years have not been great and the company CEO is looking for opportunities to
improve the bottom line in every core internal function. She is particularly keen on reviewing the procurement organization
and I would like GEP to help me unravel such opportunities.

Brandon: Of course. We have helped several organizations review and transform their procurement functions and will certainly
be able to help you out. Could you provide us an overview of Vantage Automotive’ s business?

Akio: Of course. Vantage Automotive is amongst the top 5 car manufacturers in North America today with operations primarily
in the United States. We are very aggressive on top line and strongly believe in inorganic growth. We acquired about 5 firms
over the last decade to boost our product portfolio and help expand our presence in other parts of the automotive value chain
where we see synergies with Vantage’s car manufacturing operations. This has helped to grow our top-line, but we are yet to
see the impact on our profits. We now operate 16 manufacturing and assembly line facilities across United States for vehicle
assembly and automotive parts manufacturing. In addition, we have about 38 office locations across United States for sales
and other administrative functions.

Brandon: I see...well, can you provide an overview of how procurement is handled today in Vantage?

Akio: Sure. Like most manufacturing organizations, our overall procurement needs are handled by two separate functions. The
direct spend is entirely managed by the Operations and Supply Chain Group. This includes the spend on direct materials, which
is mainly the raw materials that go into our final product, and the spend on direct labor that support the operations in our
manufacturing, assembly and warehousing facilities. Procurement Group manages the expense on various support and
administrative services such as Capital, logistics, IT, marketing and other professional services spend - referred to as the
“Indirect Spend” in company parlance. [Exhibit 2: Scope of procurement organization]

In 2017, our indirect spend was $1.2 billion. Of this, the procurement group actively managed about $600 million and identified
the bulk of the remaining $600 million as un-addressable. These are mainly taxes/regulatory expenses or expenses under long
term contracts such as facility rent or leases. Last year, the procurement group’s efforts led to a 3% YoY savings on the spend
under management. Though this is commendable, I would like to see how this compares against the industry standard on
procurement YoY savings.

Brandon: Sure, that does seem a bit low compared to other organizations that we have worked with. We have helped create
significantly higher returns or value for procurement functions at other organizations.

It’s obvious that YoY savings is an important KRA for your team. But are there any other KRA’s for the procurement group
today?

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Akio: Yes, our most important KRA is to ensure availability of external suppliers for our business needs. Procurement must
ensure that we have suppliers and contracts in place so that there are no disruptions to operations or business processes. YoY
savings is the next KRA that we track to justify the procurement group’s existence. We measure our YoY savings on the overall
indirect spend as well as for the individual categories like capital, IT, etc.

Brandon: Ok. That makes sense… And what about the costs for sustaining the procurement organization? Could you elaborate
more on the procurement organization structure?

Akio: Our procurement group has two sub-groups – the sourcing & category management group and the procurement
operations group. Here is our procurement organization chart. [Exhibit 3: Procurement organization chart]

The sourcing & category management group is responsible for managing the indirect spend and the associated suppliers. This
group reviews our indirect spend annually and helps negotiate the costs with the associated suppliers. They primarily work
with various business teams such as Engineering for capital expenditure, Technology group for IT spend, etc.

We have 23 FTEs in the sourcing & category management group supporting various categories and business units. Of the 23,
we have 3 senior managers, 6 sourcing leads and 10 buyers. We also have 2 sourcing / category managers each for our Octan
Parts and Bauer Motors operations that came in through the recent acquisition. [Exhibit 4: Sourcing & Category Management
Scope]

Our procurement operations group is mainly tasked with managing purchase requisitions, creating purchase orders (POs) for
suppliers, processing supplier invoices and payments, and managing the procurement helpdesk. We have a total of 52 FTEs in
this team. 11 FTEs support the purchase order generation activities, 20 FTEs support the invoice processing activities, and 21
FTEs support the helpdesk operations

The PO team manages all activities related to creating POs – such as processing requisitions, expediting orders, requesting
authorizations at different levels of approvals, error checking, mailing POs to suppliers, tracking goods receipts, and
documentation. We have a lot of vendors that do not have procurement tools and hence require paper-based POs – they are
very well managed and tracked by our PO team. The invoicing team processes all invoices and manages related activities such
as receiving invoices - both paper and digital, matching invoices to POs and checking invoice errors – particularly on paper-
based invoices, correcting errors with suppliers, processing payments and managing documentation. Finally, the helpdesk team
responds to all requests or queries from internal users related to procurement and triages them to the respective procurement
teams or responds directly for simple queries. These requests or queries could be related to the status of an order or payment,
sourcing a new product or service, or information from a supplier contract.

Our PO team handled 7,348 invoices in 2017 with an average cycle time of 7 business days. Errors in PO processing was 18%
last year. The invoicing team handled 16,472 invoices last year with an accuracy of 78% in processing it correctly the first time.
Cycle time for invoice processing was 11 days. [Exhibit 5: Procurement Operations Scope]

As far as staff costs are concerned, here are the 2017 salaries for the procurement staff. [Exhibit 6: Procurement Staff Wages]

Brandon: I noticed that you have 21 FTEs for helpdesk operations. That looks like a big number. Is there any reason for this?

Akio: Yes, we have had to retain this team size due to internal feedback on the helpdesk performance. I have Elena here with
me. Elena heads the helpdesk operations here and can shed more light on your question.

Elena: Well, Akio, I think our helpdesk team size is justified considering the amount of tickets we receive. In addition, we have
hired the best talent in industry that’s toiling hard to resolve tickets. In fact, take a look at 360-degree feedback scores of
team members – it’s well above company average [Exhibit 8 – Performance and Cost Matrix]

Akio: I know, Elena. But Employee Turnover Rate and costs are increasing for your team, and its benefits are not reflecting in
the team’s performance. It would be good if you can you help Brandon understand the current process.

Elena: Ok, let’s see… Our process today is standard – our internal customers call our helpdesk, which is handled by 5 operators.
The operators prioritize the issue and books the ticket in system, which automatically assigns the relevant executive to the
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ticket. Thereafter, we reach out to the customer over email for further details and solution. We resolve about 1500 queries
each month. [Exhibit 7 - Current helpdesk process; Exhibit 9 - Query Prioritization Matrix]

Brandon: Ok. Can you tell me how much time the operators take to attend the call? I hope it aligns with market standard of
one and half minute. Also, how many resources are deployed currently?

Elena: At the best of our efficiencies, we have been able to reduce Time to Reach Agent to 3 minutes using current system. As
far as assigning priority is concerned, industry practice is to focus on queries related to PO creation and delivery delays before
any supplier payment clearance issues, followed by contract related queries. I can share some documentation on the
information you need. [Exhibit 10 - Resource Matrix]

Brandon: Thanks Elena. If you can also share the ticket log data, our team can help you identify root causes and we can share
our observations and recommendations with you.

Elena: Sure, I can do that, Brandon. Here you go. [Exhibit 11 – Ticket Log]

And just a note - you may not want to touch the technology piece. We have been using it for 10 years, and ignoring some
noise from L1 resources, my team is very comfortable using it.

Brandon: Noted… Thank you Elena, this is very helpful.

And what about the procurement tools, Akio? I suppose they would be the second biggest cost for the procurement function.

Akio: Yes, we do have procurement tools for two activities – purchase order processing and invoice processing. We use
ProOrder Basic for purchase orders and InPro123 for invoice processing. We have 10 core user licenses for the purchase order
tool and 20 core user licenses for the invoicing tool. Annual license cost for these tools are $48,000 and $36,000 per license
respectively.

And though we have a digital platform now for invoice management, many of our suppliers still submit paper invoices that are
processed by our invoicing team.

Brandon: Ok. And what about spend reporting and contract management? How do you manage these today?

Akio: We don’t have any tools for managing them. We track our indirect spend through our legacy finance systems. Our
sourcing and management team works with the Corporate finance function to get the external contract spend every year and
uses the data for spend tracking and analysis. For contract management, we store all our contracts on an internal SharePoint
site. Our Legal function owns the SharePoint location and maintains a report of active contracts with renewal or expiry
information that the sourcing team uses to identify and prioritize upcoming renewals for renegotiations or rebidding. We did
look at investing in tools/systems to manage these activities a few years back but based on our volumes, we found that it was
not justified.

Brandon: Hmm… I think a cost benefit analysis on the same will help answer this. How much time do you think the sourcing
team spends on tracking spend and managing contracts?

Akio: I would think the sourcing team spends 10%-15% of time throughout the year reviewing spend data from finance. This
includes sanitizing and classifying the spend data under categories, performing spend analysis and drawing insights. Another
15%-20% of their time goes into contract management - on activities like pulling out contracts, reviewing key contract meta-
data and tracking contract renewals or expiry. I am open to use of new technology but would like to see the benefits first.
Would be also great if you can do some research on the options if you are recommending any.

Brandon: Of course, we will review such opportunities while doing the assessment. This is very useful, Thanks.

I think we have a lot of data around the costs of the procurement function now. Could you throw some light on the main
stakeholders or internal customers for procurement? And what role do business teams and other stakeholders like finance and
legal play in the process?

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Akio: Our sole customers or stakeholders are the business teams who come to procurement with their requirements. Generally,
business plays the central role in the process and engages procurement, legal, finance etc. at appropriate times. We expect
business teams to provide procurement group with well-defined requirements and budget. Business teams also coordinate
with other stakeholders such as legal, finance, etc. and communicate the requirements from such stakeholders. Procurement’s
role is to focus on the sourcing and procurement operations aspects – typically this involves researching the supply market,
qualifying potential suppliers, negotiating contracts, and ensuring prompt service delivery to business by processing POs,
invoices and payments on time. Often business provides us with the recommended suppliers and we execute on the remaining
parts of the sourcing process.

Brandon: Hmm… And what about your internal processes? How do you manage company purchases and ensure compliance?

Akio: We do have policies or guidelines in place on when to engage procurement and for approvals required on purchase
orders, etc. Despite these, our compliance on procurement policies is not great today. We have also retained some policies
that we inherited from our acquired companies since these business units have historically managed indirect spend themselves
without a procurement organization, and we wanted to keep disruptions to a minimum.

Brandon: Interesting… We have come across such problems with other clients as well and will put forth some recommendations
to address all these issues.

Akio: That would be great! I look forward to hearing your recommendations. Needless to say, I am very curious to know how
our procurement function compares to other organizations that you have worked with.

Brandon: Absolutely. We will be able to deliver this summary in two weeks. Additionally, we will draw upon insights from the
comparison and make our recommendations for the procurement function, along with the associated benefits and costs/risks.
We can also provide an implementation roadmap for the recommendations.

Akio: Perfect! Looking forward to the meeting in two weeks.

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 Exhibits

Exhibit 1: Income Statement of Vantage Automotive for last 3 financial years

(in $ millions) FY 2017 FY 2016 FY 2015

Revenue $ 9,827 $ 9,179 $ 8,530
Cost of Revenue $ 6,684 $ 6,214 $ 5,898
Direct Material $ 4,797 $ 4,478 $ 4,295
Direct Labor $ 1,887 $ 1,736 $ 1,603
Gross Profit $ 3,143 $ 2,965 $ 2,632
Sales, General and Admin. $ 2,165 $ 1,991 $ 1,682
Internal SG&A Expense $ 948 $ 837 $ 761
External / 3rd Party Expense $ 1,217 $ 1,154 $ 921
Operating Income $ 978 $ 974 $ 950
Additional Income/Expense Items $ (28) $ (36) $ (31)
Interest Expense $ 149 $ 187 $ 158
Taxes $ 318 $ 294 $ 303
Net Income $ 539 $ 529 $ 520

Exhibit 2: Scope of procurement organization

Cost of
Operations

Operations &
Procurement
Supply Chain
Group
Group

Direct Indirect
Direct Labor
Materials Spend

Exhibit 3: Procurement Group Organization Chart

VP,
Procurement

Sourcing &
Procurement
Category
Operations
management

Team lead, Team lead,

Senior Octan Spares Bauer Motors Helpdesk team
Purchase Invoicing team
managers (3) Operations (2) Operations (2) (21)
Orders team (2)

Sourcing leads PO specialists Invoicing

Buyers (10)
(6) (10) specialists (18)

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 Exhibit 4: Sourcing & Category Management Scope

# of Spend Under % Savings # of # of # of

Category Total Spend
FTE Management on category Projects Suppliers Contracts
Capital 4 $349 million $258 million 2.6% 8 12 18
Logistics 4 $119 million $83 million 3.3% 14 25 21
Facilities 2 $46 million $29 million 3.5% 19 52 25
IT 4 $115 million $87 million 2.7% 15 19 37
Marketing 3 $41 million $31 million 4.1% 14 23 16
Professional Services 2 $53 million $35 million 3.5% 17 31 43
Octan Spares Operations 2 $97 million $49 million 2.8% 9 19 7
Bauer Motors Operations 2 $68 million $42 million 1.9% 6 15 6
Real Estate, Taxes & other
- $329 million - - - 41 12
regulatory expenses

▪ Capital includes external contractor spend for all capital/infrastructure projects, capital equipment for plants and
warehouses and capital services such as engineering & design services.
▪ Logistics includes spend road, rail and ocean freight spend with external suppliers
▪ IT includes IT hardware, IT software and IT services spend with external suppliers
▪ Facilities includes external contract spend on offices, plants and warehouses general operating expenses (non-capital)
▪ Professional services include management consulting, statutory audit, legal, tax services, etc.
▪ 4 FTE from Octan Spares & Bauer Motors operations manage sourcing activities for all categories at these recently acquired
units

Exhibit 5: Procurement Operations Scope

No. of invoices / purchase orders / queries

Activity FTEs Cycle time Accuracy
per year
Purchase orders processing 11 7,348 7 business days 82%
Invoice processing 20 16,472 11 business days 78%
Helpdesk queries 21 18,411 -

Exhibit 6: Procurement FTE Wages

Role No. of FTEs Average Staff Salaries per FTE
Senior manager 3 $121,500
Sourcing lead 6 $97,500
Buyers 10 $74,340
Octan Parts Operations 2 $95,200
Bauer Motors Operations 2 $93,160
PO Team lead 1 $88,780
PO specialists 10 $62,490
Invoicing team lead 2 $89,580
Invoice specialists 18 $64,230
Helpdesk Operations 21 $29,410

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 Exhibit 7 - Current helpdesk process

Exhibit 8 – Performance and Cost Matrix

Sr Salary Sr Salary
Category Resource Score* Location Category Resource Score* Location
No (USD) No (USD)
1 L3 R1 4.7 Buffalo $23,000 12 L2 R12 4.6 Omaha $30,000
2 L3 R2 3.7 Oakland $28,000 13 L2 R13 3.8 Oakland $46,500
3 L3 R3 4.6 Omaha $19,600 14 L1 R14 4.6 Buffalo $46,500
4 L3 R4 3.6 Miami $25,500 15 L1 R15 3.5 Miami $56,000
5 L3 R5 3.8 Buffalo $23,000 16 L1 R16 4.5 Boston $70,000
6 L3 R6 3.7 Miami $23,000 17 Operator OP-1 3.9 Buffalo $9,000
7 L3 R7 4.6 Boston $32,500 18 Operator OP-2 3.5 Buffalo $9,000
8 L3 R8 3.8 Miami $23,000 19 Operator OP-3 3.8 Oakland $14,000
9 L2 R9 3.5 Boston $46,500 20 Operator OP-4 4.8 Miami $11,500
10 L2 R10 4.8 Buffalo $35,000 21 Operator OP-5 3.8 Omaha $9,000
11 L2 R11 4.7 Miami $37,000
*- 360-Degree Feedback score; on the scale of 5, 5 being the best

Exhibit 9 - Query Prioritization Matrix Exhibit 10 - Resource Matrix

Priority Category Engineer Experience (yr.) Category No. of resources Attrition Rate
High P1 0 to 5 L3 8 10%-20%
Medium P2 5 to 10 L2 5 20%-25%
Low P3 10 + L1 3 30%-40%

Exhibit 11 – Ticket Log

HD_TicketLog_Q3&
Q4.xlsx

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 Participant’s Corner

Deliverables
Participants are expected to provide in-depth analysis and recommendations to address Akio’s questions. Key aspects to
address are –

1. Assessment of Vantage Automotive’ s current procurement performance and maturity, and comparison against
industry standards
2. Identify any problems, inefficiencies and challenges in Vantage Automotive’ s current procurement group
3. Recommendations to improve Vantage Automotive’ s procurement performance across different aspects of
procurement function
4. Implementation roadmap based on the above deliverables across different aspects of the procurement function

Submission format
Please ensure your submission abides by the below guidelines:

1. Maximum number of slides is 8 with cover slide included

2. Appendix slides are not mandatory and there is no limit on number of appendix slides if you wish to add any. Please
mark these separately to avoid confusion with the actual solution. Appendix slides will not be considered for
evaluation.
3. You are encouraged to use graphs, charts, tables to strengthen your solution
4. Only Calibri fonts are allowed and font size in any slide should not be lower than 10. However, lower limit for the
font sizes is 8 for graphs and charts.
5. Teams are required to prepare a PPT for their final solution. The PPT files along with other supporting
documentation can be submitted in the form of a .zip or .rar format file (maximum size of 15 MB). Files that exceed
this size will be disregarded.
6. Please name your submission file as <Institute Name>_<Team Name>. For e.g., if you are a student of ABC college
and your team name is XYZ, your submission file should be named as ABC_XYZ.

Queries
You can post your queries on the Q&A portal via this link – Query Form

GAMEPLAN Team will respond back with answers to all questions received from all the participants via email.