Philips 2007 Annual Report Download - page 90

Philips Annual Report 200796
Outsourcing strategy and guidance: this initiative supports•
industrial strategy decision-making, addressing the shift
in resources required to manage the change to an
outsourcing relationship. The Company’s total OEM/
ODM outsourcing spend has almost doubled in the
past three years to EUR 6.5 billion. To encourage
development of more strategic relationships, the number
of preferred EMS suppliers has been reduced from 61
in 2004 to 8 in 2007.
Supply Management set a target in 2005 to achieve
two-year cumulative savings of EUR 1 billion in the
‘One Philips’ spend categories. This target was met in
the 2006/2007 time frame and has helped to improve
Philips’ competitiveness.
Transforming toward strategic supply management
Strategic suppliers
Philips can realize more value by working closely with
a strong network of strategic suppliers. The ‘Partners
for Growth’ strategic supplier relationship management
program brings Philips together with its top 30 suppliers
to identify and exploit concrete business opportunities.
Philips’ business with ‘Partners for Growth’ suppliers
has increased by 29% since 2004.
More than 50% of total product costs are dened
in the early development stages. Therefore, early
supplier/supply management involvement in the product
creation process is essential in realizing quality plus
time- and cost-saving initiatives. This priority has led
to an increased involvement of supply management
and strategic suppliers in the creation process, also via
a wider application of tools like design-in workshops.
Supplier Performance Measurement
A Global Supplier Rating System (GSRS) is now operational
in all businesses, resulting in a more professional and
structural supplier performance measurement and
subsequent improvement actions. In 2007 the rating
system covered 84% of the total spend.
Investments in the global brand campaign are expected
to be lower in 2008 at about EUR 95 million as the
corporate campaign will be largely phased out over the
coming two years. Pension and postretirement benet
costs are expected to be broadly in line with 2007.
Supply Management
The Company’s mission for supply management is to
create value by leveraging the power of One Philips
and transforming the transactional purchasing function
into strategic supply management.
2007 marks the fourth year of a comprehensive change
program. Supply Management plays a key role in value
creation, and 74% of Philips’ spend is now centralized
or center-led. From 2003 until 2007 the total number
of active suppliers was reduced from more than 50,000
to less than 20,000. 80% of spend on Bill of Material (BOM)
is now concentrated on 255 suppliers, and in Non-Product-
Related (NPR) on 670 suppliers.
Leveraging the power of One Philips
Leveraging the company’s spend and resources in key
areas and negotiating as One Philips improves time-to-
market, reduces total cost of ownership and increases
quality. Strategic priorities are:
NPR spend: Philips has centralized its NPR spend. In •
addition to enhancing negotiating power, this organization
initiates cost-saving projects together with operational
units and suppliers, in the areas of cost avoidance and
efciency enhancement. During 2007 the transactional
shared service centers for NPR purchasing were
outsourced, together with the Finance Shared Service
activities, to Infosys.
Cross-divisional BOM opportunities: ownership of some •
EUR 3 billion cross-divisional spend is concentrated
centrally. Cross-divisional teams led by divisional Chief
Purchasing Ofcers are active in ten commodity areas,
including metals and electronic components. Centralized
‘One Philips’ leveraging of this spend with fewer, more
strategic suppliers has resulted in signicant value creation.
8 Financial highlights 10 Message from the President 16 The Philips Group 62 The Philips sectors
Group Management
& Services