IBX Capgemini Executive Summit
Day 2 - October 8th, 2010
13:45 to 14:30 Merger and Acquisition: Procurement Integration at Thomas Cook AG
Overview:
In a prcenter.de article titled "CPO Dialog Procurement Excellence: Chief Buyer Exchange Globalization Strategies," Thomas Cook CPO Nikolaus Kirner made the following statement regarding the introduction of an eSourcing strategy as a "CHANGE" process; "If the coworkers do not pull-along, it can happen easily that the hoped for efficiency gains are missing." Kirner, went on to report, "how he transferred" the company's coworkers to an eSourcing integrated platform, maintaining a high level of motivation."
How important is effective internal collaboration in terms of motivating coworkers during an M&A integration? Just ask a candy company in the U.S. mid-west. As the manufacturer of a number of leading brands, this organization grew dramatically in a very short period of time through a series of acquisitions.
Unfortunately, the degree of collaboration between the different purchasing organizations was not clearly established from the beginning. This only served to fuel rather than douse the internal division fires resulting in both a practical and operational lack of cohesiveness and coordination. The end result was a “territorial” struggle that manifested itself in a divided supply base. This is hardly the ideal environment for a successful consolidation.
2. Introduction
to Thomas
Cook
Page 2 Thomas Cook Group plc
3. Six travel facts you didn’t know about Thomas Cook
1 Thomas Cook personally conducted the first round-the-world
tour in 1872/73. The tour took 222 days and cost £300
1
2 In the late 19th century the Nile was known as "Cook's Canal"
4
3 Thomas Cook published its first winter sports brochure in 1908.
It did not feature skiing!
2
4 Thomas Cook's monthly European Rail Timetable, still
published today, was first issued in 1873
5 5 Thomas Cook started a register of people interested in
travelling to the moon in 1950
6 For half a century (1889-1939), Thomas Cook owned a
3 6 funicular railway at the top of Mount Vesuvius
Thomas Cook Group plc
4. Thomas Cook is the 2nd largest travel Group worldwide
1 Revenue £ 9.3 billion
2 EBIT (margin) £ 415 million (4.5%)
3 Source markets 21
4 Customers 22 million
5 Retail outlets 3,200
6 Aircraft 94
7 Destinations 2,000
8 Employees 31,000
Thomas Cook Group plc
5. We are present in 21 source markets
Canada UK Germany France Poland Sweden
US Ireland Austria Belgium Hungary Norway
Switzerland Netherlands Czech Rep. Finland
Slovakia Denmark
Egypt India
Note: 1Sweden Norway, Finland, Denmark
Lebanon
Thomas Cook Group plc
6. We have a leading portfolio of travel brands
Global umbrella brand
Major local brands
Other local brands
Thomas Cook Group plc
7. We’ve developed a strategy for long term growth
Vision
Strategic objectives
Strengthening our business and investing for growth
Growth drivers
Maximise Become a Become Capture
value of leading the leading growth and
mainstream independent travel-related value through
travel provider financial M&A and
services partnerships
provider
Enablers
Product Technology Customer insight Brands Financial rigour
Values
P R O U D
Pioneering our Results Obsessed with United as one team Driving robust
future orientated customer service decisions
Note: Version shown is strategy as of FY09, this has not materially changed since 2007
Thomas Cook Group plc
8. Main acquisitions completed June 2007 – Sep 2010
Acquisitions¹ Country Date
Neckermann Urlaubswelten Germany May 08
Mainstream
Oeger Tours Germany Sep 10
Travel:
Jet Tours France Aug 08
Independent Hotels4U.com UK Feb 08
Travel Elegant Resorts UK Apr 08
TriWest Canada Aug 08
Med Hotels UK Feb 09
Gold Medal UK Apr 09
Emerging Travel Plus Czech Aug 07
markets TC Egypt Egypt/ ME Apr 08
TC India India Mar - Jul 08
Note: ¹ Other acquisitions completed: Wasteels, Airtrack, neckermann.de, urlaub.de; 65% of Iberoservice acquired in 2008
however not included as an acquisition
Thomas Cook Group plc
9. Procurement
Transformation
‘a global category management
approach giving a flexible
operating model for a growing
organisation’
Page 9 Thomas Cook Group plc
10. Large cost base for Procurement to challenge
£8.9b Commission & Other £0.6b
Commission/ Other • Greater control of distribution and commission rate reductions
Fuel • Reduced agent costs in-destination
Aviation excl. fuel Aviation and fuel £3.3b
• Better buying of aviation services across the Group
• Best practice sharing between airlines e.g. on fuel efficiency
Accommodation costs £3.1b
Accommodation
• Better buying process and use of Group buying power
• Co-ordination of activities and best practice sharing
Other Opex Operating expenses £1.8b
Personnel • Operating leverage; spread fixed costs over higher volumes
• Adopt a common approach to airline, personnel, IT etc.
FY 2009 Group Costs
Cost of providing tourism services Operating expenses
Thomas Cook Group plc
11. Targets new group procurement function
• Implementing a global category management organisation and processes
• Realizing any bundling opportunity within the group
• Use chances of global sourcing
• Standardise within the group where ever appropriate
• Reduce no. of suppliers substantially and deliver more value w. strategic partnerships
• Implement a global supplier management to our strategic partners
Leveraging our position through a world class procurement approach
Thomas Cook Group plc
12. What will change?
•The move from a vertical BU Orientation to a Horizontal Group Orientation in relevant categories
•Coordinated approach to strategy, demand management, category management, sourcing, SRM, contract
management and business service and support
Current Procurement Structure
Scandana North
Group UK & I Germany Condor East West
via America Vertical BU Orientation –
BUs each perform category
Strategy & Strategy & Strategy &
Direction Direction
Tyres
Strategy &
Direction
Strategy &
Direction
Strategy &
Direction Direction
Tyres
Strategy &
Direction management process, have
Tyres Tyres Tyres Tyres Tyres
Spend &
independent strategies, varying
As Is
Spend & Spend & Spend & Spend &
Spend & Spend & Spend & Spend &
Spend & Spend & Spend &
No Market
Intelligence
Market
Intelligence
Intelligence
Market
Market
Intelligence
Market
Market
Intelligence
Market
Market
Intelligence
Market
Market
Intelligence
Intelligence
Market sourcing procedures and execution
Intelligence Intelligence Intelligence Intelligence
Intelligence
formal
Tyres Tyres
Group Tyres
Category Category
Commodity Tyres
Category
Tyres
Category Tyres
Category Category
Commodity Tyres
Category
Commodity Mgt Commodity Commodity Commodity Commodity
Purchasi Mgt
Mgt Mgt Mgt Mgt Mgt Mgt
Mgt Mgt
Mgt Mgt Mgt Mgt
ng
Operational
Operational Operational
Operational Operational Operational
Operational Operational Operational
Operational Operational
Operational
Tyres Tyres Operational Operational Tyres
Procurement Procurement Tyres Tyres
Procurement Tyres Procurement Tyres
Procurement
Procurement Procurement Procurement Procurement Procurement Procurement
Procurement Procurement Procurement
Future Procurement Model
Thomas Cook Procurement
Group Group UK & I Germany East / West Etc. Supply
CFO Proc Horizontal Group Orientation -
Strategy & Strategy &
Strategy &
Direction Glbal Cat Mgr
Direction Local Procurement Centrally led Group Procurement
Direction IT
Tyres Tyres
Strategy, direction setting,
To Be
Strategy &
Category B
Direction
Glbal Cat Mgr
Category B Local Procurement TC Group
Suppliers
governance and decision making
Marketing
& Service
Delivery
Strategy & Glbal Cat Mgr
Category C
Direction
Category C
Traded Goods
Local Procurement
Business Demand & Requirements
Page 12 Thomas Cook Group plc
13. Procurements 3 Year Transformation Plan
2010 2011 2012
Procurement Organisation Design (Group & Local) Supplier Management
Group Procurement Roles Filled Strategic Supplier Days
Achieve Vision
Best in Class
Group Policies Defined & Agreed SRM Toolkit – UK Pilot
Strategic Business Partners
Group Procurement Vision, Plans & Policies Communicated Agreed Group Category Plan
Centre of Excellence
Stakeholder alignment (Group & Local) Top Talent Program
Leading Edge Technology
Category Landscape Defined Development Plans & Succession Planning
Sourcing Teams seen as the
Group Category Planning Defined Common Category Management Processes Norm
Group Spend Analysis Complete Group E -Sourcing solution in Place
Management of Strategic Suppliers Defined and Agreed Group Contract Management Solution
Skills & Competency Assessments Improved Procurement Intranet Usage
Common Target Setting Best in class realised
On -line Group Savings Tracker in Place Common
Procurement Benefits Tracked & Finance Sign of Obtained Processes
across TC
Design, Build
Define & Implement
Operating
Set Vision Model
Mobilise, Define, Design & Build Implement Refine
Group
Phase 1 Phase 2 Procurement
1 –
Page 13 Thomas Cook Group plc
14. We have started on the transformation journey…….
The commonly agreed transformation map leads 2011
2010
Procurement towards its targets Status Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Organisation
Complete
-New Organisation in place
In Progress
-Clearly defined Roles & Responsibilities – Global v Local
Systems
-Group Wide Savings Tool Complete
-Group Wide e-sourcing solution & Group Spend In Progress
-Improved P2P platform in all markets Under Review
-Group Wide Contracts Database Complete
Processes
-Group Procurement Guidelines & Policies in Place In Approval
-Group Category Plans in Place In Progress
-Group Cat Management defined In Progress
-Common Processes in place Under Review
People
-Org chart & functions clearly defined & aligned In Progress
-Define competency requirements In Progress
-Full development program implemented Not Started
In Progress
-Implement common target setting
Communication & Governance
Stakeholder Engagement & Regular Meetings
Page 14 Thomas Cook Group plc
14
15. Supplier &
Market
Consolidation
Page 15 Thomas Cook Group plc
16. Procurement Integration Activities – Airline Synergies
• 6 Airlines
• UK Merger – Thomas Cook Airline & MyTravel Airlines in 2007/8
Initial Situation: • Condor merger talks with Air Berlin in 2008
• Regular individual cost cutting programmes but priority in each airline
• Synergies realised in an opportunistic way
• Best practice sharing
Target • Use of group buying power
• Supplier consolidation
• Lead joint tenders for global catering supplier, in-flight entertainment etc
Procurement • Joint negotiation for ground handling contracts
Action • Supporting role in harmonising IT systems
• Reduce hotel accommodation contracts for travel
• Million pounds of savings (up to 40%)
• Group Procurement Director part of Airline Synergy Board together with Airline CEOs
Results
• Agreed within project to centralise fuel, maintenance, ground handling under group procurement
Page 16 Thomas Cook Group plc
17. Procurement Integration Activities – IT Systems & Suppliers
• More than 1100 IT Suppliers
• >100 different desktop images
Initial Situation: • >30 data centres
• Approx 500 IT projects
• Industrialise Infrastructure and deliver savings in excess of 25%
Target • Reduce no of IT-suppliers by 50%
• Deliver synergies with global suppliers
• One managed global infrastructure tender incl; networks, data centres, desktops and service management
Procurement • Global mobile tender
Action • Supply chain quick-win initiative with common suppliers
• Assessment of further offshoring opportunities
• Shortlist of two global infrastructure providers forecasting >25% savings
• New global contracts with Oracle, SAP, Microsoft
Results
• Started assessment of Application Management & Development outsourcing
Page 17 Thomas Cook Group plc
18. Procurement Integration Activities – Brochure Production
• 55 printers producing Thomas Cook Brochures
Initial Situation: • Various paper suppliers
• Different paper quality, sizes etc
• Reduce no of printers to 5-10
Target • Find single supplier for paper
• Further standardise quality where feasible and useful
• Tender paper volume to one single supplier
Procurement • Organise strategic partner days to communicate strategy, drive innovation and seek proposals
Action • Organise ‘look and feel’ board meetings to drive standardisation and downgrading of material
• Global paper supplier delivered savings of 8%
• Reduced no of printers to 16 as a first step
Results
• Drove out costs of up to 24% due to change of specification
• Agreed on future global tender process
Page 18 Thomas Cook Group plc
19. Lessons Learnt after 12 months transformation
• Create common vision and jointly develop strategy
• Stick to your strategy but remain flexible
• Do your stakeholder management
• Communicate successes
• Don’t underestimate cultural differences
Page 19 Thomas Cook Group plc