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Winning Business Cases: How to Develop, Structure, and Present Them

Conference Paper · April 2004

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 Winning Business Cases: How to Develop, Structure, and Present Them

Thomas A. Crimi, Category Manager

ChevronTexaco Overseas Petroleum Corp., Houston, TX 77010, 713-752-7839
crimita@chevrontexaco.com

Ralph G. Kauffman, Associate Professor

University of Houston-Downtown, Houston, TX 77002, 713-221-8962
Kauffmanr@uhd.edu

89th Annual International Supply Management Conference, April 2004

Abstract. To be effective as a purchasing and supply chain professional, the ability to develop
robust business cases is essential. This paper provides a step-by-step approach to building
persuasive business cases to support strategic, tactical, or operational purchasing, sourcing,
and supply chain activities. The focus will be on suggesting an approach, identifying key
elements, and discussing challenges that must be overcome, particularly in a global setting.

Current Business Processes and Needs. Top management at public and private
organizations have rising expectations that purchasing and supply activities can lower costs,
improve leveraging, capture synergies, reduce cycle time, drive down inventory carrying costs
and improve the bottom line. The increasingly competitive environment, enhanced by
globalization, makes business case development an imperative. Prepared business cases
must be compelling to win stakeholder support necessary to implement any new cost savings
programs in purchasing and supply. Many organizationa l cultures favor individual bottom line
performance as opposed to overall organizational bottom line performance. Many
organizations also struggle with the favored lowest price paradigm versus lowest total cost
measure. Supply chain optimization has moved from becoming a goal to becoming an
expectation. Leaner supply chains with supporting business cases are a requirement. A
higher degree of integration of purchasing and supply activities is necessary to effectively
manage costs.

Organizational Mandates. The starting point for business case development is the needs of
the organization as prioritized by management. A strong managerial mandate to undertake a
purchasing or sourcing activity supported by a viable business case must first have the
guidance and visible support of key managerial players in the organization. Otherwise, cross-
organizational support will be insufficient to even develop, let alone implement business case
recommendations. Developing a business requires timely information and data from business
units who in the absence of a managerial directive would be less inclined to give their time and
resources to gathering data and communicating the nuances of their business needs.

Spend Analysis. Once the cooperation of all the relevant stakeholders is accomplished, the
next step would be to scan the purchasing and supply chain domain, searching for
opportunities that improve leverage, capture synergies, and/or reduce total cost of ownership.
This involves collecting data regarding major spending activities and segmenting them by
categories and sub -categories. It also requires further segmentation of spend by geographical,
organizational and market areas to improve analysis. Spend data from key suppliers should
also be collected for comparison purposes. A reasonable approach is to then rank spending
activities by the amount of spend by product or service category. Then an additional analysis
is required to determine addressable spend versus spend that is too difficult to either capture
or address due to poor data quality, time constraint or organizational “buy-in” issues. Then the
addressable spend must be reviewed with stakeholders for validation purposes. The spending
activities must be ranked with consideration for customer requirements.

Market Analysis. Market trends impacting spending activities should be analyzed. Exchange
rates, inflation, deflation and other economic measures need to be evaluated to understand
spend in each market. Governments, restrictions, logistics, and hidden cost considerations
characteristic of each market should be noted. Price trends should be captured. The
competitiveness of each market should be assessed. Supplier versus buyer negotiating
leverage should be determined. What factors in the market analysis impact your business
case? How can they be captured or mitigated? Do you have a sufficient market intelligence
capability? Porter’s Five Forces analysis demonstrated below could be helpful. The following
chart was adapted from Porter, 1980.

Threat of New Entrants

Regulatory Environment
Purchase Direct from Wall Street
Anti-Dumping Mfrs Expectations
Regulations – US Government Owned
Tariffs – South America Higher
Companies
EU – Competition Law Performing for
Local Content Issues Past 5 yrs

Supplier Power
Long Term Relationships
US Near Capacity
Intensity of
Competitive Forces
Buying Power
Law Margins
Competitive Pricing Long Term Relationships
Value-Added Services Lack of Operational
Planning
Available
Fragmentation of Spend

Threat of Substitutes
Rent vs Buy
Low Quality Substitutes

Category Analysis. An analysis of your material, product, service, or program category

should be undertaken. Savings or value-added opportunities should be identified and linked to
alternative category strategies. These proposed opportunities need to be clarified with a solid
cost-benefits review with pertinent stakeholders in order to prioritize them. A category SWOT
analysis as illustrated below would be beneficial.
Supply Market Strengths
• Large Distributor Base
• Quality Control
• Focused Distribution Base
• Good Network
Supply Market Opportunities
• Excess Capacity Worldwide for
Production/Sales
• Technology Improvements can Drive
Costs Downward
• Consortiums
Supply Market Weaknesses
• Cycle Dependant on Oil Market
• Rig Availability
• Low Margin Business the Past 5 Years
Supply Market Threats
• Lack of Inventory
• Pressure to Stop Dumping Tariffs in
US
• Smaller Players in the US Market
• Use of Integrated Supply Companies

Supplier Analysis. Best-in-class suppliers should be sought. A list of major suppliers should
be obtained from your organization’s database rank ordered by spending levels with your
organization. This list should be augmented by supplier lists obtained from business units in
these effected markets. Manufacturers, consulates and an internet search can yield additional
suppliers. A concise RFI (Request for Information) can be sent to suppliers from these lists to
ascertain interest, capability, and “fit” for your sourcing requirements. This can be followed by
an RFP (Request for Proposal) which is sent to a subset of the suppliers rationalized from the
RFI analysis. The RFP can ask for more detailed information and should contain a “market
basket” of key spend items to determine competitiveness of responding suppliers and savings
capture against some current spend baseline. The RFP and market basket responses should
be scored, perhaps with a 50-50 weighing to develop a short list of suppliers you want for
negotiation purposes.

Supplier Negotiation and Selection. The short list of suppliers should be identified along
with negotiation (1) objectives, (2) targets, and (3) terms of agreement. The supplier who best
satisfies all three should be selected. This is usually an iterative process taking several rounds
of negotiation.

Implementation and Monitoring Plan. Savings captured and value added opportunities
need to be documented and presented to stakeholders in an acceptable format. “Hard” dollar
savings should be emphasized but “soft” savings need to be noted. A communications plan to
“roll-out” the benefits should be developed with a written business case distributed followed by
a face-to-face presentation to discuss tangible and intangible benefits and issues that may
arise. A transition plan and scorecard of key measures needs to be developed along with a
system to track the savings and value identified in the business case.

Structuring Business Cases. Structuring a business case should be clear, concise and
focusing on the benefits that are measurable a nd valued by stakeholders. The following model
is a useful illustration.

Table of Contents
1. Executive Summary and Supplier Recommendations
2. Specific Business Cases to the Organization’s Business Units
3. Additional Total Cost of Ownership (TCO) Opportunities
4. Service Levels/Non-Price Evaluation
5. Implementation
6. Request for Concurrence to Proceed
Note, the Executive Summary and Supplier Recommendations take place after business unit
needs assessment, a supplier’s capabilities evaluation and several rounds of negotiation.
Supplier selections are designated and savings are summarized.

Net Annual Savings

Preferred Supplier Net Annual Savings
Category: Widgets to Buying
Recommendation %
Organization in $$
Sub-Categories
Supplier A • 1 20% $2.3 mill
• 4
Sub-Categories
• 2
Supplier B 12% $1.4 mill
• 3
• 7
Sub-Categories
• 5
Supplier C 16% $1.6 mill
• 6
• 8

A further breakdown of savings could look like this example of Supplier A:

Components Supplier A Proposal
1 mill = 1%
Tiered Volume Discounts 2 mill = 2%
5 mill = 3%
Order Volumes:
Ø $25,000 = 1%
Order Size Discounts
Ø $50,000 = 2%
Ø $100,000 = 2.5%
Pay Terms 2% / 10 / Net 30
Buyer – Pick-up 3%
Cost plus 10%
Buyouts
FOB Shipping Point
Project Orders Additional 5%
Electronic Order Discounts 0.5%
Price Protection One Year
Return Material Policy One Year for Standard Stock Items
Terms of Agreement Jan. 1, 2003 – Dec. 31, 2005
No Charges if Volume Exceeds $3 mill per
Consignment Terms
year. Otherwise, 1.5% per Month.

Business Unit Savings.

Specific Organizational Business Unit Savings (Assuming 20%)
Buying Company
(Thousands of
Business Unit R Business Unit S Business Unit T Business Unit Z
Dollars)
Gross Spend $3,000 $4,000 $5,000 $6,000
Addressable
$2,000 $3,000 $4,000 $1,000
Spend
Gross Savings
$600 $800 $1,000 $1,200
(Potential)
Net Savings for
Addressable $400 $600 $800 $200
Spend
Additional TCO. Additional Total Cost of Opportunities could be as follows:
• Material Substitutions for Specification Changes
• Transaction Cost Savings for e-Commerce
• Inventory Savings through Vendor Stocking
• Value-Added Savings for Process Improvements

Service Levels and Non-pricing Evaluation could include:

• Geographic Coverage
• Logistic Advantages
• Lead Times/Cycle Time Improvements
• Quality/Reliability
• Technology Advantages
• Supplier Dive rsity
• Dedicated Manpower to Alliance

Implementation. Implementation plans and issues should be outlined with a timeline

identifying who will do what, when, where, and how. Business unit interfaces between team or
persons presenting the business case as well the suppliers should be noted with action items.

Request for Business Unit Concurrence to Proceed. Finally, a request to review the
business case should be made with a specific response by time. The business case should
ask if the specific business unit will be a full participant of if they would like additional
information for evaluation. You should ask for any questions or proposed modifications.
Finally, the business case should request a single point of contact for implementation activities.
The business case should conclude with the person and address to respond to or call for
communication purposes. In conclusion, we have suggested a viable business case
development and presentation process. Applications of the framework will vary but we believe
it is pertinent to public and private organizations.

SUMMARY OF BUSINESS CASE PREPARATION

Be thorough. A written case has to be comprehensive. This means developing a problem

statement and training assumptions. It is imperative that you furnish back-up for your
arguments with specific facts and supporting data. The data should have benchmarks
associated with it for added meaning and context.

Synchronize team efforts. Before committing your ideas in report form, review with other
team members to ensure you have agreement on the presentation, approach, issues and
responses. Your proposal, analysis and plan of action will need a smooth, integrated flow of
thoughts.

Focus on the Salient. Do not restate material or points that people are familiar with
previously. You should restate information only if it is critical to your analysis. Your focus
should be on the key points that are more salient which will enhance the persuasion of your
business case. Leveraging, synergies, value streams, cost savings, resources, improvements,
technology sharing and process improvements, etc., should be highlighted.
 Present information using graphs and charts. Charts, graphs, tables and other supporting
exhibits are very quick ways for others to judge the appeal and viability of your business case.
Some types of information are best presented graphically such as trends, savings over time,
production and process improvements, financial ratios, sensitivity analysis and return on
investment. It is easier for others to use their own “internal benchmarks” in judging your
business case when they can visualize the value representation you are making.

Exercise good form. Leave out unnecessary materials and make your business case as
concise and coherent as possible. “Less is more” is a good rule. Focus on making the
presentation as professional as possible. Appearances matter. Make it “reader-friendly” and
eye appealing with well organized and labeled sections easy to follow. Have other team
members and stakeholders pre-read for quality control and improvements.

REFERENCES
Dess, Gregory G., and G.T. Lumpkin, Strategic Management: Creating Competitive
Advantages, McGraw-Hill, New York, NY2003.

Porter, Michael E. Competitive Strategy, Techniques for Analyzing Industries and Competitors,
The Free Press, New York, NY, 1980

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