Deal Announcement: Advancy Australia advised Quadrant’s $410m buy of Australian VIP Petfoods

Quadrant has agreed to pay $410 million for VIP Petfoods – which was founded by Mr and Mrs Quinn in 1994 – in a deal aimed at growing the Yatala-based business in other parts of the world.

Quadrant was advised by Advancy, PwC, Gilbert & Tobin & Deutsche Bank AG. VIP was advised by PwC and Couper Lawyers.

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Full article from BRW. here:

http://www.brw.com.au/p/business/quinns_to_climb_rich_after_vip_petfoods_z41ZP1lSN6KgJZk9Sb0kDJ

Top Managers’ Choice in Global Sourcing: Everybody’s Business or Failure

by Marc Staudenmayer,  Senior Partner,  Advancy

After more than 300 global sourcing projects, we have seen five companies out of six fail to reach their savings objectives. We have seen Asian suppliers which look highly performing and whose products never pass a French quality department. We have seen Eastern European suppliers who deliver the right quality for two years and then suddenly fail. We have seen German technical departments that are unable to communicate product specifications to a Chinese supplier because of missing standards and language. We have seen many more failures – and we have derived key success factors from companies succeeding better in global sourcing than their competitors. The following article explains what makes some companies more successful in Global Sourcing than others and provides a structured approach to manage successfully Global Sourcing activities.

Global Sourcing has been put on top of Chief Procurement Officer’s (CPO) agenda in most industries in the late 1990s. During that decade, growing globalization with simplified currencies, tax and customs rules, access to suppliers from so called best cost countries and generally sinking logistics costs have pushed the global sourcing share in corporate procurement volumes. However, modern Global Sourcing had started much earlier but was limited to a small number of countries like Japan, Taiwan & Korea (1980s) and to very few industries like textile for example.

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Source: Dennis Arnold: Textile & Apparel Sourcing, Advancy project experience and analysis

Looking at Global Sourcing development, one notices that its success does neither depend on the Chief Procurement Officers’ focus or energy nor on the curiosity to enter an emerging market. It is in fact depending on the consequent strategic focus of the whole corporate organization as it implies much more than a perfect/state-of-the-art procurement department to succeed.

Global Sourcing is not a necessity in itself and is addressed, most of the time, under competitive cost pressure. While at the beginning of global sourcing activities, pressure is mostly put by high-cost competitors having started earlier with global sourcing, in more mature markets this cost pressure is mainly put by competitors from developing countries. Competitive advantage is thus generated not by the fact of doing global sourcing but by the fact of being first and fast – and our experience shows that being first and fast in Global Sourcing means mastering three key issues:

  • Sourcing maturity stages: know the current development stage of your organization and manage the process in order to reach the next level
  • Sourcing content: identify which countries are interesting right now and in the near future and which ones need to be left aside
  • Sourcing mobilization: activate all necessary internal and external resources

 

Mirror Mirror on the Wall – Chose your Sourcing Maturity Stage of them all

The Advancy Global Sourcing project experience has lead to identify five subsequent maturity stages in corporate global sourcing. Working with small specialized industrial players as well as with large scale international corporations has shown break-through successes possible at every maturity stage: Sustainably introducing the first Chinese supplier into a production process of a SME is as trendsetting for the corporate organization as implementing a global shared service center in a best cost country for a highly mature company. Nevertheless, every improvement in Global Sourcing is at high risk of failure and it is of utmost importance to manage the process carefully – whatever maturity stage an organization is in.

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Typical corporate behaviors for the different stages are:

  • Stage 1: suppliers are met in home countries on trade fairs, intermediates act in-between supplying and procuring organizations
  • Stage 2: all direct procurement categories and main known sourcing countries are scanned for global sourcing potential. Competitors’ sourcing processes are analyzed.
  • Stage 3: own IPO (international procurement offices) have been set-up with supplier development capabilities, emerging markets take growing importance also in sales
  • Stage 4: production sites in emerging markets have been set-up, global sourcing is performed in one single local organization
  • Stage 5: global network of production sites and sourcing activities exists. Own product manufacturing and supplier sourcing decisions taken with global cost analysis including customs and tax considerations

It is quintessential to know your organization’s sourcing maturity stage and to be candid about it to yourself: None of the above mentioned maturity stages must be left out/skipped in corporate development as organizations learn in each one of them to prepare for the following. So: Take an ingenious look at the mirror. Assuming the willingness to determine objectively an organization’s maturity stage is therefore crucial. So is knowing exactly where an organization stands today and what stage comes next in order to manage the maturity process transparently. It is only through this process an organization gains time and process security.

Once an organization has clear transparency what maturity stage to go for, the next challenge is to know which countries to target at in order to create a competitive advantage.

 

Sourcing Content: Be a pioneer!

Whatever the maturity stage your organization is in, sourcing content is king. While a joke says most people would answer “China” to every question concerning global sourcing, there is deep economical insight necessary to take the right sourcing decision if it shall create competitive advantage. “China” might have been true for a couple of years but there are many more opportunities depending on which industry and maturity stage a company is in.

An easy way to identify a new sourcing market is to look what competitors do – and most of the time what top-management are reading in the news. Unfortunately, the truth in Global Sourcing is most of the time less brilliant than the stories told and creating a competitive advantage through global sourcing is not about imitating others but about being a pioneer.

Our project experience shows the best way to go is gathering all data and running your own economic analysis until you come to a conclusion. There is much information available, the tables show as an example industry specific information about Asia and Eastern Europe.

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The identification of economic trends per industry and the reflection about the industry’s local supply bases provide an insight into the country and regional development perspectives and thus allows to chose the right countries for corporate sourcing activities.

Knowing the Global Sourcing maturity stage to go for and the countries to address subsequently, the risk of failure is almost reduced to the capability of mobilizing the whole organization behind the project.

 

Sourcing mobilization: Yes, it is everybody’s business!

The main corporate error in Global Sourcing is to consider it is a procurement only task. The procurement department being able to tackle with a global supplier base is no more than a conditio sine qua non. Whether in stage 1 or in stage 5, the procurement department relies heavily on other departments when it comes to introducing new Global Sourcing solutions.

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Here are some examples for the involvement of other departments into the Global Sourcing Process:

  • Introducing a new best cost country supplier only works if the quality department is able to qualify products and systems according to foreign (and sometimes exotic) standards
  • R&D must contribute when specifying products and keep technical specifications open to foreign standards
  • Logistics department needs to be able to evaluate supply risks associated to best cost country suppliers
  • Tax and customs considerations must be assessed by the finance department
  • HR needs to integrate capability needs for global sourcing activities into the corporate HR development plan

Moreover, the even more important challenge is to open up the employees’ mindset for Global Sourcing. There are justified apprehensions in high cost country organizations about delocalization which need to be addressed transparently. People in high cost countries may face so-called loss aversion and react illogically when it comes to Global Sourcing. The main implication of the sheer number of departments and the transformational aspects make Global Sourcing an issue which cannot be handled by the procurement department only. It needs a bigger bracket and therefore is of executive board importance.

Chief Procurement Officers confirm the necessity of the executive board attention by stating in a survey at 95% that the main driver for global sourcing success is the corporate strategy – ahead of pure procurement drivers like cost reduction, supplier portfolio reduction, low cost production site development, tax advantages or raw material access.

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Sourcing Results

Most companies running Global Sourcing activities focus on cost reduction only. Upfront savings expectations range generally between 10 and 20% of direct purchasing costs which in real life – and under real total cost of ownership calculation – are very difficult to reach. Nevertheless, the impact of cross-functional Global Sourcing activities is much higher then just cost reduction as it provides access to new markets, to local market intelligence, a higher resilience against volatile sourcing markets and even access to know-how in the later maturity stages of the emerging countries for instance.

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Considering these cross-functional benefits and the competitive advantage they provide, it is the responsibility of a top-manager to run Global Sourcing as a cross-functional and all encompassing activity which cannot be handled by the procurement department only. Experience shows only one out of six leads its organization to success in Global Sourcing. The path to get there is mastering the sourcing maturity process, the sourcing content and, last but not least, the ability to mobilize a corporate organization behind Global Sourcing objectives.

Marc Staudenmayer,  Senior Partner,  Advancy

Further information at www.advancy.de

Advancy Academy: Customer Experience for Finance am 9. Juni 2015 in der Deutschen Börse in Frankfurt

Am 9. Juni 2015 findet die Konferenz „Customer Experience for Finance“ (www.cefin.de) in der Deutschen Börse in Frankfurt statt. Die Konferenz wird von Maurizio Singh organisiert, Leiter der Advancy Academy, ein Tochterunternehmen der Advancy GmbH, das sich ausschließlich mit spannenden Zukunftsthemen auseinandersetzt.

Die Interaktion zwischen Kunden und Finanzdienstleistungsunternehmen hat sich in den letzten Jahren fundamental verändert. Noch nie waren Kunden informierter und vernetzter als heute. Die veränderten Kundenerwartungen erfordern neue Konzepte des Touchpoint Managements. Gerade Finanzdienstleistungsunternehmen müssen ihre Kundenzentrierung anpassen und den geeigneten Mix zwischen persönlichem Kontakt und digitaler Beratung finden. Wohin geht die Reise? Wie kann der Kunde begeistert werden?

Die Konferenz Customer Experience for Finance findet in diesem Jahr bereits zum zweiten Mal statt. Sie wendet sich ausschließlich an Banken, Versicherer und Kapitalverwaltungsgesellschaften. Durch diese Fokussierung ist ein hoher Praxisbezug gewährleistet.

Spannende Referenten und Diskussionsforen warten auf Sie:

  • Keynote Speaker: Dr. Helge Lach, Mitglied des Vorstandes, Deutsche Vermögensberatung: “Digital Consultant – Auf dem Weg in die digitale Beratung“
  • Christian Zani, Axa Winterthur, Leiter Strategisches CRM Direktvertrieb, CRM und Kooperationen: “Wiederentdeckung des Kunden – Kundenfreiräume mittels trigger basiertem CRM“
  • Dr. Sebastian Paris-Scholz, Targobank Head, Customer and Channel Management: “Online- und Offline-Kampagnen verbinden, steuern und messen. Wie verändert sich Vertrieb und Marketing durch die Digitalisierung?“
  • Dr. Thomas Bloch, Vaamo, CEO: „Sparschwein war gestern – Start-ups verändern die Welt der Finanzdienstleister – Rivalen oder Kooperationspartner?“
  • Raphael Schleiter: HVB – Unicredit, Leiter Online Marketing der HVB: „Weniger Filialen, mehr Digital – Wie geändertes Kundenverhalten die Online-Kommunikation der HVB verändert“
  • Weitere Refereten aus den Häusern: Swisscom, SAP, Postbank, Targobank.

Mehr über das Programm unter: http://www.cefin.de/programm-2015/, die Referenten werden hier vorgestellt: http://www.cefin.de/speakers-3/

Sehr gerne würden wir auch Sie auf der Konferenz begrüßen und bieten Ihnen den Besuch der Konferenz zu einem Sondertarif an. Wenn Sie sich über Advancy anmelden, beträgt die Teilnahmegebühr nur 395 € zzgl. MwSt. anstatt 680€ zzgl. MwSt. Wir freuen uns auf Ihre Anmeldung unter: s.sebastian@advancy.com

How to tax-optimize your procurement

Optimization of procurement costs has been a great savings generator since the early 90s. On their way to maturity in procurement excellence, organizations have optimized what to buy, where to buy and how to buy. However, we have noticed that even with mature clients the procurement savings through tax optimization remain mostly untapped. This is all the more interesting as for instance effective tax rates (ETR) differentials between highly industrialized and low-tax countries amount to more than 20%. The objective of this paper is to explain the reasons for this and to show a way to optimize the situation thoroughly.

 

Procurement tax component not optimized today 

With the professionalization of the procurement function main efforts are to optimize cost components and many organizations have done so successfully – with the remarkable exception of the tax component. Our experience shows four good reasons for that:

  • Tax costs are not only product related but depend also on the country, the selling and procuring organization are registered
  • Tax costs depend on the chosen legal and tax scheme from one single entrepreneur on the one side to multi-entrepreneur schemes on the other extreme
  • Operational business units do not have tax targets as optimization levers are bigger on corporate level
  • Tax is a major compliance issue for globally acting organizations and thus under direct control of the executive board, mainly the CFO

 

Complex savings potential calculation

Tax optimization in procurement is easy to imagine: if your supplier currently manufactures a finished good in China, your procurement organization operates in Germany and you sell it to France, the benefits will be generated in Germany with an ETR of around 30%. Moving your procurement department’s operations closer to China, for instance to Hong-Kong, will allow your organization to generate the benefits there and profit form an ETR of 16,5%.

The immediate conclusion would be to transfer all procurement orders to a tax optimized country. The apparent savings potential then sums up to 20% as the effective taxation rate in highly industrialized European countries is close to 30% and main interesting international locations offer importantly lower taxation rates.

In reality savings potentials are lower as transforming a procurement organization for tax reasons is very challenging and risky:

  • the cross-functional aspect (procurement, logistics and finance/tax) implies high organizational complexity
  • compliance risks are high, for instance with corporate tax, internal transfer pricing and function shifting: Highly industrialized countries’ tax authorities have put a major effort in controlling transfer pricing systems with the effect of lowering the benefits drastically. On top of that, these countries have also installed a “function shifting” taxation system which allows the authorities to tax the delocalization of a corporate function to a low-tax country.
  • tax advantages can only be realized on selected product categories and not the whole procurement volume
  • the future operating costs of building up a procurement function in a new location can be important and balance initial savings: Tomorrows salary levels, infrastructural costs and cost of living in location selected might be higher than today.

Knowing the different challenges and based on our operational expertise, we recommend strongly to first run a business case analysis, align executive and supervisory boards and then only start execution.

 

Structured approach leads to sustainable savings 

Pre-requisite 1: As the complexity of this cross-functional optimization approach is high, we strongly recommend to run such a project on executive board level. Pre-requisite 2: You will have to adapt your company’s legal/tax organization and should definitely build a cross-functional team with finance/tax, procurement, logistics, external legal advisors and external consultants: only the alignment of all involved corporate functions plus the challenge trough the external expertise from the very beginning will lead to a sustainable success.

The main tasks to be executed in the business case are the following:

  • tax1Analyze thoroughly your procured goods physical flows with the objective to build procurement category risk-classes for transferable procurement volumes. Focus especially on the value creation chain of your final products in order to illustrate your own organizational value add
  • tax2Analyze your current operating procurement model for the addressable categories: current supplier footprints, current purchaser locations, current associated procurement functions (supplier quality management, etc.), procurement IT-systems availability
  • tax3Assess your organizations current tax scheme between one single entrepreneur and multi-entrepreneur, integrate the current transfer price model used. Also integrate historical evolutions of this schema in order to address change risks with local authorities
  • tax4Run a location selection process in order to identify the best fitting country. Focus first on operational levers (proximity to supply base, availability of work-force, cost of operations, etc.) and then address potential tax advantages
  • tax5Build scenarios based on cost advantages and associated operational and tax risks in order to find best fitting solution for your organization

As a conclusion, our project experience shows tax-optimized procurement leads to a saving up to 10% on addressable scope. It is definitely a board task and requires a high excellence in project execution.

Marc Staudenmayer, Senior Partner, Advancy

Further information at www.advancy.de

Strategic Business Wargaming reloaded – the right strategy tool for top managers in faster moving business environments

Top managers often argue that Strategic Business Wargaming is a slightly old-fashioned tool from the late 90s, only applicable to very specific situations and with limited insights in overall market strategy. However, as current day-to-day business in an increasingly fast-moving world shows, managers are required to take decisions where uncertainty increases, time-pressure is high, budgets are limited and available human resources are scarce. We have experienced the Strategic Business Wargaming approach as a very powerful tool to support top managers’ strategic decision making processes:

  1. Even if Strategic Business Wargaming provides only a limited insight in overall strategy, it provides a lot more than no insight at all and it allows to derive generally valid strategic patterns out of given specific situations
  2. Strategic Business Wargaming definitely helps to find an answer to serious challenges which are or could become major threats to the whole company. In this situation it helps top managers to:
    • focus on the real issue,
    • bring competences and people in a common room,
    • get the capability to solve the problem,
    • find ways to convince their organization, that there is only one best solution for the challenge
  3. Due to the interactions between people with different capabilities and functions Strategic Business Wargaming assures that all participants act in concert to implement the commonly selected solution

And last but not least: top managers will definitively benefit from a transformational mindset created by Strategic Business Wargaming within the team for a long time.

 

Strategic Business Wargaming – understanding competitors’ reactions is key

Top managers dispose of a broad range of tools to evaluate business strategies today. They can be split into three situative segments: (1) tools to analyze situations (2) tools to project the future and (3) tools to validate specific situations. We have experienced that Strategic Business Wargaming fits best to deliver validated results in complex, highly dynamic and forward-looking issues. Which is basically what business today in our global, digitalized and fast moving world is all about. The main objective of Strategic Business Wargaming is to find out what strategy leads to the highest value for an organization based on the most valuable strategic options for its competitors. Even it state-of-the-art marketing and sales organizations today fully integrate the perspective of customers, suppliers and regulators, the additional value of Strategic Business Wargaming is to understand competitors’ reactions and subsequently understand threats, opportunities and strategic implications generated by a change in competitive dynamics. This is also where Strategic Business Wargaming differentiates from the regular strategy development process as it incorporates competitive behavior into own decision-making.

 

Methodology – how to simulate the best strategy scenario

Strategic Business Wargaming derives the best strategic option through so-called heat-maps integrating all major input factors: information about competitors, products, addressable markets and customer behavior. The as-is cost base, valid strategic levers like price, promotion, sales force and additional market data complements the input data for simulation. All simulations lead to a “best strategy”, to the definition of strategic breakpoints and to measures how to implement the strategy. It clearly shows the dependencies between the own strategy and the best strategies of the competitors.

SBW7 The output of Strategic Business Wargaming is structured and easy to understand, to communicate and to implement.

 

Not only the result matters – team interaction and transformational impact is key!

On top of giving a logical path to strategic decisions, our experience shows that Strategic Business Wargaming helps to foster a common understanding for the strategic situation and related challenges and thus to build a sound basis for transformational initiatives. Based on our experience, we recommend a 4-step approach:SBW5  The central part of the Strategic Business Wargaming approach is the workshop in step 3 which generally lasts 1,5 days. Organizations will build three teams with dedicated roles and tasks to fulfill:

  1. Market player team (own organization and every main competitor)
    • Define product offerings (price, positioning, features and capacities)
    • Picture the competitive dynamics
    • Evaluate the value of the options
  2. Market team
    • Judge offerings‘ attractiveness
    • React towards competitors‘ product offerings and strategies
    • Picture market dynamics
  3. Control team
    • Structure and monitor wargame
    • Invent external shocks and calculate implications, KPIs and financials, based on quantitative model developed

At the end of the process, the approach provides fundamental input for top managers: on the one hand clearly defined strategic options depending on strategic breakpoints derived from market dynamics and, on the other hand enabling actions to strengthen the organization’s capabilities to react.   Strategic Business Wargaming leads top managers to a clear picture of how to act in uncertain strategic situations and to a trained management team able to react to changes in competitors‘ behaviors. The investment for this stays very limited both in human resources and time. Our experience shows that both the clear picture of strategic options and the trained management team are essential in the current fast moving business environment and lead to a sustainable competitive advantage.   Burkhard Wagner, Senior Partner, Advancy Further information at www.advancy.de

How top managers focus on SG&A to create competitive advantage

SG&A has been investigated for three decades in detail now and might well look a little boring but still some companies are doing a much better job here than others. Recent research confirms SG&A optimization remains one of the decisive levers to create competitive advantage: a European-wide study with 1.254 companies has shown that poor performers (3. quartile) lose around 8% EBIT-points on good performers (1st quartile) and average performers (mean) still around 5%.

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Knowing that SG&A have been addressed over the years with multiple projects on headcount reduction, management span, etc. and that transparent benchmarks are publicly available in order to set reachable targets, the performance gaps seem totally incomprehensible.

In fact there are three reasons explaining why performance gaps are still existing:

  • Top performers address SG&A external cost with effective demand management (travel, fleet, IT, office equipment, office material, etc.) and not only headcount costs (management span, shared services, etc.). Answer first is: the indirect procurement department takes care of it. Second look shows that unit costs are an indirect procurement topic but total annual spend and thus the organizational demand is a financial budgeting topic. Analyzing traditional financial budgeting top performers have found an answer to fix organizational demand at best-in-class benchmarking standards and keep employees from emptying their budgets at year-end. To provide an almost caricatured example: top performers also address the number of pencils used per capita and not only the cost of one pencil.
  • Top performers address SG&A optimization even in sound economic times. Usually, SG&A is a typical stormy weather candidate with unpopular head-count reduction programs and standardized budget cuts (“-10% on everything”). Nevertheless, especially in these good times SG&A tends to increase heavily. Effective demand management does not encounter organizational resistance even in good times and guarantees additional savings even when the weather is good.
  • Top performers create a motivational cost consciousness culture. The cultural aspect has been largely underestimated when it comes to SG&A optimization. Traditional headcount reduction programs have a huge negative cultural impact and savings effects have generally been compensated few years later. On the contrary, optimizing SG&A costs by adapting the organizational demand to its real needs is a positive action with positive cultural impact.

Hence, even though the SG&A topic might look boring and totally explored from the outside, there are still important savings potentials which most companies have not tapped as they concentrate on traditional levers. As the SG&A leverage is really important, it might be thoughtful to spend a little time even after all these years of optimization to investigate the potentials that still exist in your organization.

Marc Staudenmayer, Senior Partner, Advancy

Further information at www.advancy.de