By Susan Avery
Bold is a good word to describe leaders of procurement teams at such companies as Campbell Soup, Flextronics and Intel. Members of the teams are no shrinking violets either.
As finalists for the 2015 Excellence in Purchasing Categories (EPIC) Team Award, the leaders participated in a webcast, Procurement Teams for the 21st Century, hosted by My Purchasing Center. The webcast is now available for viewing on demand.
Procurement as Business Partner
At Campbell Soup, Vince Borzillo, Vice President, Global Indirect Procurement, is responsible for a $2.2 billion annual spend. In 2010, his team managed about half that and their duties were mainly tactical.
Since then, Borzillo and the team have turned indirect procurement on its head. Now, they manage more than 90% of Campbell’s global indirect spend. “Based on 12 years experience, our team has achieved best-in-class status across all tenets in indirect procurement including savings, stakeholder influence, strategic thought leadership, business solutions and negotiation,” he says.
“How do we know we arrived? When our stakeholders look at procurement as business partners.”
Borzillo began by recruiting people familiar with the company’s businesses and experienced at global strategic category management. He recalls that the business units and regions were doing much of their own purchasing; Campbell’s had more than 20,000 suppliers in North America and this figure was growing by 50 suppliers each month, he says. The time was right for procurement to step in and leverage the spend.
“We wanted to build trust through transparency with stakeholders and key suppliers,” Borzillo says. “We needed standards that applied to all suppliers, to drive effectiveness and efficiency through consistent processes and clear process ownership and performance management.”
Next he turned to integrating procurement with the business units. First up: Finance. A relationship with finance, Borzillo reasons, creates an ally to support procurement as it goes further into the organization.
Indirect procurement at Campbell’s had to redefine itself as to what it can provide the organization, he says. Finance helped spread the word. “We wanted to partner with our stakeholders in a collaborative and transparent spirit to provide best value based solutions to the organization.”
Borzillo assigned team members to the staffs of functional vice presidents; they became involved in the business planning process and built and aligned procurement strategies to business objectives.
“The organization was ready for us to play a bigger role,” he says. “We brought market trend analysis and total cost analysis to the table, and became a key driver of top and bottom line growth.” Through a Supplier Relationship Management program, suppliers helped drive value to the top line as well.
The team built an operating model consisting of process, policy, structure, governance and metrics. A procurement engagement policy stipulates procurement must be engaged up front and early in the sourcing process to affect positive change for the organization. If procurement isn’t engaged, the team can reject a PO. The CEO and CFO support the policy.
Now, Borzillo says that each category has a sourcing strategy that’s refreshed annually; the strategy helps procurement and its stakeholders understand the category and its opportunities.
“We will always deliver 3% hard savings and 5% total procurement value each and every year, while sustaining value delivered in years past,” he says. The team does more than that. “We’re at the table, taking budgets down in accordance with guidance we’re provided even before the initiatives begin.”
Travel Procurement is Complex
At Flextronics, Taro Matsumoto, Senior Director, Global Procurement, is responsible for managing about half of a $2.2 billion annual spend on indirect: HR services, professional services and travel.
When Matsumoto joined Flextronics two years ago, one of the first categories he looked at was travel. He recognized that travel is complex and unique--it has to be about more than managing costs, procurement’s usual bailiwick. His approach: to equally balance four pillars of policy compliance, cost management, risk management and traveler satisfaction.
Matsumoto keeps the company mission--to enable talented people to create powerful supply chain solutions that transform industries and companies--close as he brings a strategic focus to the category. Taking a regional approach to managing the travel spend, he developed roles and responsibilities for each team member that align with the four pillars.
A close look at the travel spend at Flextronics finds a $100 million annual spend; 80% of air travel is with four airlines; travelers--there are 10,000-- stays at 250 preferred hotels; there’s one auto rental company.
During his webcast presentation, Matsumoto shared three problems facing his team at the beginning of their journey and how they’ve since resolved them.
The first is familiar to many in indirect procurement: Internal functions were working in silos and travel team was reactive, not proactive. Understanding that travel has a big customer component, Matsumoto forged an alliance with finance and IT, and developed an executive steering committee to provide corporate governance for travel made up of procurement, finance, internal controls, HR, legal and IT. "Knowing and listening to your clients will make life much easier," he says.
A second problem: Five travel agencies, no online booking tool deployment outside of the U.S. and a decentralized air-booking structure. The procurement team consolidated suppliers; now, the company uses a single provider platform for the entire process, from booking to expense to reporting. “the One Rule, One Tool program drives efficiency and effectiveness in what we all do as travelers,” Matsumoto says.
Third, a legacy program that relied on manual traveler profiles lacking data that could be used for analysis. The team collaborated with HR to have HR IS integration to the travel platform tying employee ID, cost center, etc., to a traveler’s records to enable procurement more detailed analysis of compliance. This helps with supplier negotiation.
“With integration, we are able to help manage the budget more carefully at any level,” Matsumoto says. “We can produce reports that meet the client’s needs to understand the spend, and practically manage their budget for the future.” An added benefit: The travel reporting concept can be extended to other areas such as global mobility in HR.
“In a nutshell, the reporting structure helps us manage things that are important,” Matsumoto says, adding that the team has helped reduce the travel spend to $80 million for the last fiscal year. “We are moving the needle in the right direction.”
He says that the team has transformed the travel operation and the category. For the problems and solutions he shared, the team “bounced each against one of the pillars.” The result, he adds, “was not because of any individual effort, but was truly a collaboration of members across the company.”
Procurement Disrupts the Supply Chain
Frank Sanders, Vice President, Technology and Manufacturing Group and Director, Corporate Strategic Procurement at Intel Corp., manages a team that’s responsible for sourcing 147 spend categories. Says Sanders: "We strive to deliver excellence in everything we do."
Like his colleagues in the My Purchasing Center webcast, Sanders says that five years ago indirect procurement “was not very relevant. Our goals and our metrics weren't aligned to those of our internal partners, and, as a result, our employee morale was low.” The team set out to change that by creating a new vision of becoming a powerful competitive advantage valued by their partners.
"First thing we had to do was move from a should-cost mentality to a must-cost mentality in alignment with our partners' business objectives," he says. "We had to be comfortable calling our shots. It required a lot of risk taking. We recognized that we didn’t have clear paths to deliver what the business needs. We had to innovate to generate value to increase our relevance to the business.”
The team also saw that they had to redesign their metrics and the organization. Moving to a structure that encouraged integrating with partners, Sanders put a person on the staffs of the CIO, CMO and the VP of HR.
“Not only did we gain a seat, but we put things in place that allow us to relentlessly execute,” he says. “That’s critical.”
The team built forecasting and analytical capabilities.
“To achieve our partners’ goals, we have to drive supply chain disruption and do things that hadn’t been done,” he says, pointing out that there wasn’t a “blue print” to manage sourcing for such categories as healthcare.
Sanders says the team is showing value differentiation in helping their business partners meet their goals, including delivering savings. Five years ago, the team had a cost-savings goal of $55 million. In the past year, they’ve taken that to $650 million. Organizational health, or employee morale, is well above the corporate average.
As important, procurement now is attracting talent, Sanders says. “Five years ago, we would not have been able to recruit from our product business groups to enable our business acumen so we could be more competent at managing and influencing expense related to R&D.”
The team also takes a lead in innovation in the organization. Sanders sees procurement's role as one of putting “things in actionable terms and normalizing the conversation.” Procurement drives a standard language, viewing innovation as more than a opportunity to reduce pricing.
Procurement now considers consumption reduction and design when looking at ways to add value. The team uses value-based compensation to help drive accountability in its marketing spend. Sanders says the tool also can be used to manage the contingent workforce, consulting and healthcare categories. It's helped deliver nearly $500 million in savings.
By delivering on business objectives, the team can speak with our partners about ways to enhance value suppliers bring beyond sourcing such as enabling growth in new markets and geographies, Sanders says.
Using a spend analytics capability the team developed, they've increased spend under manageent, or influence, from 53% five years ago to 72%, and increase savings as a percentage of spending from 7.2% to nearly 19%.
“By going beyond pricing and focusing on consumption and design, we delivered $1.6 billion in five years,” Sanders says.
In the webcast, he shares examples of procurement influence. Using spend analytics, the team determined that the organization was spending more than twice the industry average on consulting services. Working with their business partners to better understand their requirements, the team developed a segmented supplier strategy that could meet their needs.
Now, 100% of the spend is under procurement management. The team reduced the supply base, applied value based compensation and better aligned payment to outcome, which enhanced ROI and the value business partners receive. They put spend guard rails in place and developed an internal capability called guided shopper that directs users to preferred suppliers. In 12 months, the team delivered $124 million in savings, or a 38% year-over-year reduction.
My Purchasing Center presented the 2015 EPIC Team Award to Intel’s Sanders at ProcureCon Indirect East. My Purchasing Center and ProcureCon will begin accepting nominations for the 2016 EPIC Awards in September 2015.
See the My Purchasing Center article on the 2015 EPIC Award recipients, EPIC Award Recipients Tops in Procurement
See the My Purchasing Center article on ProcureCon Indirect East, Procurement Positioned as Leader.
View the My Purchasing Center webcast, Procurement Teams for the 21st Century.
Susan Avery is Editor-in-Chief at My Purchasing Center. She writes articles, blogs and white papers and manages and creates other content for the online procurement and supply management publication. She produces and moderates roundtable discussions, podcasts, webcasts and video interviews. Susan has 30 years experience covering procurement and supply management for Purchasing magazine and Purchasing.com.
George E. Krauter
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