Akzo Nobel N.V.

Executive Committee

Guidelines
Procurement - An AkzoNobel Process
Source document

Directive 2.02 AkzoNobel Processes

Content Owner

Strategy

Signed off by

Date

Effective Date

Executive Committee

May 22, 2014

2014

Purpose
These Guidelines explain the Procurement Process in detail.

Scope and definitions

This Procurement Process applies to all processes and all parts of the company.
A process is simply a set of actions that build on one another.
An AkzoNobel Process is a set of standard actions, carried out by everyone in the same way, which
helps us to achieve better financial and/or non-financial results.

Table of contents
1.

Introduction..................................................................................................................................... 2

2.

The AkzoNobel strategy ................................................................................................................. 2

3.

The AkzoNobel Processes ............................................................................................................. 2

3.1.

What is an AkzoNobel Process? .................................................................................................... 2

3.2.

The six AkzoNobel Processes ....................................................................................................... 2

4.

Overview of the Procurement Process .......................................................................................... 3

5.

Business processes of the new Procurement Process explained ................................................. 5

5.1.

Strategic Sourcing Process ............................................................................................................ 5

5.2.

Key Supplier Management Process ............................................................................................... 5

5.3.

Purchase-to-Pay (P2P) Process .................................................................................................... 6

5.4.

Raw material index and price forecasting ...................................................................................... 7

6.

Expected outcomes and how this will affect you ............................................................................ 7

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Guidelines

1.

Introduction

In 2013, we announced a new vision, strategy and targets focused on delivering leading performance
in terms of organic growth and operational excellence. We also initiated a set of core principles, values
and behaviors that will support us in realizing that leading performance.
This document explains how the AkzoNobel Processes one of the building blocks of our strategy
will support delivery of both our vision and our targets.

2.

The AkzoNobel strategy

The vision for AkzoNobel is to ensure that our leading market positions deliver leading performance.
We have set short-term (2015) targets to help us measure and monitor progress towards our longer
term vision. These targets incorporate both financial and non-financial targets.
To help drive our progress towards achieving this vision, we have defined a strategy that consists of
four main building blocks.

1. Strategic focus areas: We have defined five main areas for strategic action during this
strategy period. We believe that by making improvements in these areas, we will achieve our
short-term targets, thereby making progress towards realizing our longer term vision, which
goes beyond the 2015 targets.
2. Processes and capabilities: To help bring about improvements in our Strategic focus areas,
we have established six AkzoNobel Processes. Individual businesses and functions have also
identified capabilities that are more specific to their own success.
3. Actions: A set of high level Actions has been defined and are being implemented across the
company. Again, parts of the AkzoNobel organization are defining more business-specific, or
function-specific, Actions to drive improvement consistent with the overall approach.
4. End-user segments: In order to achieve our targets and make progress towards our longterm vision, our Actions must result in market success in our four main End-user segments.
Everything that we do in terms of strategy is underpinned by our core principles and values,
which will remain in place for the foreseeable future. To help everyone in the company better
understand how to bring these values to life, we have defined a set of behavioral dos and don'ts.

3.

The AkzoNobel Processes

3.1. What is an AkzoNobel Process?

A process is simply a set of actions that build on one another. An AkzoNobel Process is a set of
standard actions, carried out by everyone in the same way, which helps us to achieve better financial
and/or non-financial results. In other words, once we have created and rolled out these Processes in a
disciplined way across the entire company, an AkzoNobel Process will be one that will differentiate us
from our competition.

3.2. The six AkzoNobel Processes

The six Processes that we have identified are:
1. People, Product and Process Safety

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2.
3.
4.
5.
6.

Operational Control Cycle

Continuous Improvement
Innovation
Procurement
Talent Management

We already have versions of these processes currently running in AkzoNobel. However, all six are
being carried out in different ways, so it isnt possible for us to create best practice in any of these
areas.
Each AkzoNobel Process will be identical, wherever you work in the company. By defining a
consistent approach to each of these AkzoNobel Processes, it will be easier for individuals to
understand what is expected, as everyone will be speaking the same language and using the same
tools. Longer term, once these Processes have been rolled out and implemented throughout the
company, it will be easier for us to continuously improve them in a way that will bring us closer to bestin-class levels. Eventually, these Processes will become our true strengths and help us to achieve,
and even go beyond, our leading performance vision.

4.

Overview of the Procurement Process

Procurement is not just about price. Raw material and indirect spend are a significant component of
our cost base. There are also situations whereby the same company can be a supplier, competitor and
customer of our businesses. Careful management of the Procurement Process is therefore very
important. It will make doing business across the company simpler and more efficient as we will
speak the same language and avoid wasting resources on reinventing the wheel.
The AkzoNobel Procurement Process is a way of working. It is not a project. It a holistic approach
underpinned by four pre-defined elements business processes, organizational infrastructure,
business enablers and culture that will help drive us towards operational excellence.
Key elements underpinning the AkzoNobel Procurement Process

A precondition for the Procurement Process is a strategic framework and process architecture. This
framework which includes the four pre-defined elements outlined above describes the recourses,
tools, methods and enablers that will determine performance, identify gaps and create improvement

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plans.
The most relevant business processes in this framework are highlighted on the next page.
The Procurement strategic framework and process architecture

Selected procurement
processes described
in this document
Strategic sourcing
process

Description

Key supplier
management

Jointly drive value from innovation,

sustainability, procurement, sales
and supply chain improvements
while balancing supplier/competitor/
customer relations
Purchasing requisition, creating
purchase order, receiving goods or
services and (by finance) paying the
supplier
Share the index of current and
forecasted price movements with
business and margin management.
Analyze value chains to act on future
supply risks or opportunities

Purchase to pay

Raw material index and

price forecasting

KPIs

Spend and market analysis, supplier

selection and negotiation, signing

and implementation of contracts

Spend reduction
Working capital improvement
% spend covered by strategies to
support security of supply
Number of plans internally and
externally aligned and in place
Value driven from joint projects
(financial and non-financial)

% no PO no pay
Number of transactions through
SRM

Monthly price indices/ forecasts

delivered on time
Forecasting accuracy
Number of value chains analyzed

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5.

Business processes of the new Procurement Process explained

5.1. Strategic Sourcing Process

The Strategic Sourcing Process forms the backbone of the commercial Procurement Process. It starts
with the requirements defined by the company, business unit and functional strategies. For example,
when we grow in a market, we first define the requirements of the business units to then select
suitable suppliers that meet these specific requirements.
The Strategic Sourcing Process includes four steps:
Analyzing spend and market data to develop sourcing strategies
Assessing our suppliers
Negotiating and implementing contracts
Reviewing the results periodically
The Strategic Sourcing Process

The Strategic Sourcing Process is carried out for each of the important raw material groups or
services. It can be done on a global level across all business units, on a regional or business unit
level, depending on the spend group and supply market dynamics. When applicable, sourcing
strategies also take into account our in-house production options and toll manufacturers to ensure
decisions in the best interest of the whole company.
From an IT perspective, the Strategic Sourcing Process is enabled by spend data from Business
Warehouse, eSourcing to compare different offers to facilitate the negotiation phase and the Contract
Lifecycle Management system to store the signed contracts and trigger contract renewals. Training
and template documents are available on SharePoint to further support the process. The Project
Tracking Tool (PTT) is used to track savings results for each activity. The overall P&L impact of these
activities, including upward or downward market movements, is tracked as spend reduction.
The sourcing strategy is measured against agreed, annually defined KPIs:
Spend reduction tracked by activity-based savings, as defined in savings convention
Working capital improvement through improved payment terms
Percentage of spend covered by sourcing strategies to support security of supply

5.2. Key Supplier Management Process

This enables AkzoNobel to make balanced decisions on a company level, taking into account that
many of our key suppliers are also key customers and competitors.
Key supplier management includes four elements:
Identifying the full scope of the relationship is this company a supplier, competitor and/or a
customer of each of our business units?
Establish joint value drivers on which of the following topics do we think we can drive the

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most value with this supplier: innovation, sustainability, sales, procurement or supply chain?
Align governance externally and internally on which levels should we meet, discuss the
strategic intentions and define joint plans?
Ensure delivery of results with standard frameworks to formally underpin our joint plans and
track progress and capture results

From an IT perspective, the Key Supplier Management Process is enabled by spend data from
Business Warehouse. Training and template documents are available on SharePoint to further
support the process. Benchmarking of suppliers against each other, or against ourselves, is a powerful
enabler to identify best in class performance
The Key Supplier Management Process is measured against agreed annually defined KPIs:
Number of key supplier plans fully aligned with all internal stakeholders (sales, innovation,
sustainability, supply chain, procurement for all relevant business units) and with stakeholders
on the supplier side
Potential value (financial and non-financial) identified in joint projects with suppliers
Value captured (financial and non-financial) from identified projects in time and in full

5.3. Purchase-to-Pay (P2P) Process

This aims to increase the efficiency of our transactions, first-time-right orders, compliance with
AkzoNobel policies and the quality of our spend data to support reduction of external spend.
It starts with creating a purchasing requisition, continues with receiving the goods or services and ends
with the supplier being paid by our finance department. A purchase requisition can be driven from a
1
production plan and material requirement plan in the case of a product related (PR) order. In the case
2
of non-product related (NPR) goods and services, there are two main channels:

Non-product related spend needs a purchase order and is channeled through our SRM
system, except for the agreed and authorized exceptions which are listed in Purchase
Instructions. Many standard goods and services can be bought through online catalogs, and
for other items there are special requests, advice requests and a couple of other workflows
available in SRM.
4
Travel and expenses are reclaimed in Concur , a purchase order is not needed, but travel is
approved by your manager in the pre-trip approval process

Continuous improvement is used for all our processes, but is especially powerful for the P2P Process,
because it physically brings the raw materials, goods and services to our sites and offices.
The Purchase-to-Pay Process is measured against agreed, annually defined KPIs:
% of payments linked to a purchase order (No purchase order no pay)
Channeling of transactions through SRM system as part of P2P
Reduction of cost of the total function
Want to know more about this process? Watch this video online.

Product related (PR): all items that are part of the finished products, such as raw materials and packaging
Non-product related (NPR): goods and services that are not part of our products, such as equipment, logistics, marketing, temp
labor, laptops etc.
3
SRM: our system for non-product related purchases, with the exception of Travel & Expenses, Logistics and Energy (SRM is an
abbreviation for Supplier Relation Management).
4
Concur: our system to approve travel and expenses
2

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The Purchase-to-Pay (P2P) Process

5.4. Raw material index and price forecasting

Informing the business about expected movements in the supply market is crucial to ensure that
factories keep running and the margins of our products are managed effectively. Buyers are typically
the first to pick up intelligence from the market about raw material prices moving up or down. These
price forecasts are collected and shared with our business and finance leaders, who can choose to
adjust our sales prices accordingly, or keep more margin in our pockets.
We also structurally analyze the supply chains we are part of, to understand which risks and
opportunities lie ahead of us. We obviously track oil price movements and global shale gas, which
both have major implications for our energy bill and the raw materials we buy,
Less obvious, but equally interesting, is the following example. We hardly buy any cotton, but we do
keep track of cotton prices. Most of the raw materials for the resins that are critical for our coatings do
not end up in coatings. They are used for polyester fibers that go into (cheaper) clothing. If cotton is
expensive because there was a bad harvest, more polyester fibers are used for clothing, and less
feedstock is left for the resins that are critical in our coatings.

The raw material index and price forecasting process is measured against agreed, annually defined
KPIs:
Up-to-date value chain analyses in place for all critical supply chains
Sharing supply market intelligence on time with the right stakeholders (monthly frequency)
Raw material price forecasting accuracy

6.

Expected outcomes and how this will affect you

In the future, we will work in a company which is less complex and more efficient. We will be
experienced in managing interdependencies with business units and other functions. The process of

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defining requirements with business units and cross-functional stakeholders will be more transparent
and documented in sourcing strategies and key supplier plans. Decisions, trade-offs and potential
escalations will be clear to all key stakeholders.
Sourcing strategies will be updated and available for all PR and NPR spend areas. Key
account/supplier plans will be available for all key suppliers for which we have identified sufficient
opportunities. We have fully implemented our Purchase-to-Pay Process and supporting IT landscape,
which allows us to have shared services for the remaining transactional work and information
processes. For product related, we will have significantly reduced the complexity of our raw material
portfolio, as well as in the number of suppliers we work with. On the non-product related side, this will
be achieved by channeling standard purchases through catalogs.
The processes in the field of raw material price forecasting and sharing intelligence will be fully
standardized, available online and automated wherever possible. The output will be used by business
unit and cross-functional leaders and stakeholders. It will be a key part of the input for margin
management and other decision-making processes.

Related documents
Directive 2.02 AkzoNobel Processes
Directive 10.01 Procurement
Guidelines on Continuous Improvement Process
Guidelines on Innovation
Guidelines on Operational Control Cycle
Guidelines on Safety Process
Guidelines on Talent Management Process