3 PROCESSES IN SAM PjS

“ Cost Of Sales Improvement ”

“ CR²P ”
“ Stategic Industry”

M. DANIEL 10/02/2011
 COS Improvement

To be able to evaluate in 2010 the COS improvement for PjS , 2 fields are
important in SAM PjS for Activity to must be well documented :

To include in the TIPS : If recurrent flag =

YES : Q1 = previous year average price / if
NO RPIS proposal field must be completed

1) Recurrent Flag :
If it’s YES (in accordance to the Policy Directive on Saving Calculation Rules) the
first Quotation Q1 must be the full previous year WAP ( Weighted Average Prices)

To include in the TIPS : If you don’t fill it for a non recurrent activity ( avoid
blanc or zero value) : COS improvement will be : 0 ; could also enter via
quotation screen : third round of negotiation Q3 : PRICE C )
2) RPIS Proposal :
For a non recurrent activity , the RPIS proposal field must be filled ,in this case
COS improvement = RPIS proposal - Q4 (final quotation = price on the PO)

PDC – Policy Directive on Saving Calculation Rules (1AA 00310 0126 ASZZA)

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CR²P

To be able to follow all the activity & YN linked to Complexity

Reduction Program we have a dedicated field name : « CR2P » .

CR²P SERVICES :

To identify the actions linked to CR2P services for Services external Purchases.

CR²P COMPONENTS :

To identify the actions linked to CR2P components : MAINLY FOR OEM

http://all.alcatel-lucent.com/wps/portal/iframe?LMSG_PAGE=http://esupply.web.lucent.com/staffpath/CRP_files/CR2P/index.html&LMSG_HEIGHT=1800

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 RECALL ON THE SCOPE

All the actions that have a 2010 SPEND must be updated with these
new processes :

1) Recurrent Flag (and RPIS proposal if Recurrent flag NO) must

be well documented.

2) CR2P flag : all Activites & YN must be updated

by YES, if they are concerned by CR²P SERVICES program.

For all A3 & A4 actions : an attached document to explain the TRANSFORMATION

(Efficienty improvement / Specification Evolution / Transfer in LCC / In(out)-sourcing
evolution / …) must be joined to be validated by Mangement control

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 STRATEGIC INDUSTRY

Mandatory field STRATEGIC INDUSTRY on “Activity creation

screen” : “other” per default

You must select one of the 3 segments if it’s an :

* Transport (for Mainline / Urban / Highway / Airport)
* Energy (for Oil & Gaz / Smart Grid)
* or Public Sector (for Defence / Public Safety /
E-Government)

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BACK UP

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SAM PjS User guide

http://alw.web.alcatel-lucent.com/group/corpurch/usercorner/attfiles/
user_manual_sam_pjs.doc

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PRO PR1 PR2 PR3 PR4 PR5
Go or Offer Bid or Project kick-Off Project Contract
No Go Strategy No bid meeting implementation close date
Review review

PPR1 PPR2 PPR3 PPR4

Purchasing Purchasing Purchasing Purchasing
Strategy Offer Kick-off Project follow-up
meeting Review meeting meeting

Q1 Q2 = IPIS PROPOSAL Q3 = RPIS PROPOSAL

Q4 = PO Price

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Example for NA

For PPM thresholds, NAR uses this:

Passed GO/ No-GO gate in RAC process

Level 2 Offer,
Bid Revenue >$5M (~4Meuro)
Passed thru PMA/NPI processes &,
Probability of Award > 50%,
At least one supplier with spend > 100k$
Total 3rd Party Spend > $1M and > 30% of Offer
1st application with large revenue potential
Offer with large vendor base
Outsourced deals

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The IPIS : Initial Project Income Statement is the Purchasing value it’s
elaborated during the offer preparation (when you send the offer to the client)

The RPIS: Revised Project Income Statement is re-calculated when the tendering
team transferred to the PM team. The RPIS constitutes the baseline for revenues
& Cost and cannot be changed until the achievement of the contract.

The ECPLS : Estimation Completion Profit & Lost Status is calculation at the end
of the Project (but there are Quarterly Outlook Estimation) . The delta between
ECPLS & RPIS constitutes the baseline of NON QUALITY COST.

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Different savings definitions … for NON RECURRENT PURCHASES

Pre-award Post-award
avoidance Cost reductions X+Y+Z = Procurement Savings
value
X+Y : Cost Reduction
Best Creditable Offer (Price A) = Q1 (Cost of Sales improvement)
Y: Cost Reduction in plan
Z IPIS (Price B) = Q2
X: incremental cost reductions
Baseline, set during bid phase
over and above the plan
 basis for offer submitted
 increase VM vs. plan
RPIS PROPOSAL (Price C) = Q3
( REFERENCE MARKET PRICE )
Y
RPIS OFFICIAL
X

Final negotiated Price (Price D) = Q4

time
Do we do a calculation on X
Assumed savings,
already included in RPIS

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Different savings definitions … for RECURRENT PURCHASES

Pre-award Post-award
avoidance Cost reductions
value
X+Y+Z = Procurement Savings
full previous year WAP(Price A) = Q1
X+Y +Z = Cost Reduction
(Cost of Sales improvement)
Z IPIS (Price B) = Q2

Final negotiated Price (Price D) = Q4

time

Assumed savings,
already included in RPIS

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 CALCULATION IN SAM PjS of COST of SALES IMPROVEMENT

COS Improvement « Validated »

If the status of the activity or YN is not Validated = 0 , If the saving is Validated :
if it’s a YN = Saving Validated
if it’s an Activity :
- if RECURRENT FLAG = YES : = Saving Validated
- if RECURRENT FLAG = NO
if RPIS PROPOSAL « > GROSS » or « = 0 » = 0
if RPIS PROPOSAL <= GROSS : [‘RPIS proposal spend KEur'] - [‘Quotation 4 in KEur’] ) X YEAR_x SPLIT_ %

COS Improvement « in the pocket »

If the status of the activity or YN is not Validated or not Approved or not in the pocket = 0 ,
If the status of the activity or YN is Validated or Approved or in the Pocket :
if it’s a YN = Saving in the pocket
if it’s an Activity :
- if RECURRENT FLAG = YES : = saving in the pocket
- if RECURRENT FLAG = NO
if RPIS PROPOSAL « > GROSS » or « = 0 » = 0
if RPIS PROPOSAL <= GROSS : [‘RPIS proposal spend KEur'] - [‘Quotation 4 in KEur’] ) X YEAR_x SPLIT_ %

COS Improvement « in the pipe »

If the status of the activity or YN is not Validated or not Approved or not in the pocket or not in the pipe = 0,
If the status of the activity or YN is Validated or Approved or in the Pocket or in the pipe :
if it’s a YN = Saving in the pipe
if it’s an Activity :
- if RECURRENT FLAG = YES : = Saving in the pipe
- if RECURRENT FLAG = NO : = COS Improvement « in the pocket »

COS Improvement « outlook »

if it’s a YN = Saving outlook
if it’s an Activity :
- if RECURRENT FLAG = YES : = outlook Saving
- if RECURRENT FLAG = NO : = COS Improvement « in the pocket»

In fact for non recurrent business : we take RPIS proposal

instead of GROSS = Best Credibable Offer
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EVOLUTION OF THE REPORTING STATUS IN SAM PjS

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 A new funtionnality is forecasted in October 2010 in SAM PjS

Due tho the difficulty to split the RPIS PROPOSAL of the external Spend of the
Project per activity we have create this field at PROJECT LEVEL

In this case we could calculate the COS Imprt. per project ; but we have the
impossibility to split it per Sourcing country and Council !!!

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Procurement Performance 1/2

We could easyly measure in SAM PjS 2 level Procurement performance :

* The first one Z : Pre Award Performance = PDC - COS import.

(only relevent for Non Recurrent activity ; For YN & Recurrent Activcity = 0)
* The second is the X + Y : the PostAward Performance = COS Imprt.

***************************************************************************************
And we could say that a part of this COS Improvement is the VM of the Cost
of Sales .

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 Procurement Performance - 2010 RESULTS 2/2
18%
Historical
Historical PjSperformance
18% PjS performance: :12,3%
12,3%inin2007
2007/ 13,8%
/ 13,8%inin2008
2008&&15,9%
15,9%inin2009
2009
16,2%
16,2%
16%
16%

Detail for AMERICAS : 14,0%

13,4% 14,0%
13,4%
14% PRE AWARD
14% NA : 15,2% COS & 15,3% PDC 13,0%
PRE AWARD
PERFORMANCE
13,0% PERFORMANCE
~6%
CALA : 18,4% COS & 19,8% PDC 12,3% ~6%
12,3%
11,8% 12,1%
11,5% 11,8% 12,1%
12% 11,5%
12%

10,2%
10,2%

10% 9,3%
10% 9,3%
8,6% 10,2%
8,1% 8,6% 10,2%
8,1%

8%
8%

WW COS Improvement : 10,2% A part of these

6% WW COS Improvement : 10,2% A part of these
6% 10,2% of COS is
WW Global Procurement Performance : 16,2% 10,2% of COS is
WW Global Procurement Performance : 16,2% in the MARGIN
EMEA COS Improvement : 7,7% in the MARGIN
EMEA COS Improvement : 7,7%
4% EMEA Global Performance : 10,5%
4% EMEA Global Performance : 10,5%
APAC COS Improvement : 11,1%
APAC COS Improvement : 11,1%
APAC Global Performance : 17,2%
APAC Global Performance : 17,2%
2%
2% AMERICAS COS Improvement : 16,1%
AMERICAS COS Improvement : 16,1%
AMERICAS Global Performance : 16,3%
AMERICAS Global Performance : 16,3%

0%
0% JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER
JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER

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Action Types

Definition Examples
Types
 Negotiation (new price) (same part code,  New price for the same part number
same approved suppliers)  A1 (already agreed prices excluded)

 Qualification of new supplier /part  New supplier for existing part number
number (same part code, new supplier)  A2
For Services: supplier rationalization.

 Material change / evolution (new part  Same function (same item), replaced by new
code, new or same supplier) (Redesign)  A3 item, new part number
For Services: Delivery transformation. For Services: Unbundle / Outsourcing / Off
Shoring.
 New BOM, new supplier e.g. new feature, new
 Product change (new design), product mix
architecture
change  A4
For Services: InSourcing.
 Supplier to be paid in $ i.s.o. €; claim on
 Currency split effects ; penalty claims; supplier
supplier claims.  A6
 Mfg value add (MVA) improvement, reduced
 Labor, Efficiency, EMS Savings installation cost, process improvement,
 A7 standardization , …

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PROCESS TO ENTER A CLAIM IN SAM PjS

Example : we want to enter a 3 M€ claim we receive to SUN .

Enter a YN : with flag « Re-negotitation » = YES

« CRP type » = A6

In Quotation screen : Q1 = 3000 K€ for SUN as supplier

Q4 = 1 K€ (because today impossibility to enter 0)
=> Join the file proving that we have really received this cash

(see detail screen next page)

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 DESTINATION explanation

Definition of the destination :

It is the physical destination of the goods or services purchased, i.e. the country
of the final ship-to customer. A geographical hierarchy (Destination region,
destination regional unit) can be deduced from this country.
In a nutshell, the following axes of analysis are needed:
Selling unit (reporting unit that carries the customer order)
Final customer (ALCR customer reference)
Destination (ship to)
Destination (sold to)
The complexity of this requirement is driven by the inter-house physical and
information flows : the unit that carries the final customer order can be different
from the one that purchases the goods or services.

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