16 January 2003
The high-street chemist has vastly improved purchasing since it found staff had 37 ways to buy a kitchen mop. Robin Parker traces the advance
Seasoned Boots shoppers take comfort in its continuous cycle of discounts and multiple-purchase promotional offers on everyday and luxury items. Regular purchasers are rewarded for their loyalty by accumulating collectors' points on their store cards.
So it comes as some surprise that until only two years ago, buyers' power within the organisation was muted and, by its own admission, procurement was a mess.
The professional approach taken since has thrown up a litany of purchasing horror stories. Buyers had 37 ways to buy that most basic of supplies, the kitchen mop. And one store was found to have paid for an air conditioning unit 27 times over.
This was discovered not by employing any complicated technical cost model but by a bright spark picking up a new one from the local B&Q and comparing its price-tag against three years' rental invoices.
Part of the problem was purchasing's place in the pecking order, as Julian Coles, director of procurement services, explains.
"Boots traditionally focused on sales generation rather than managing the cost base. The career structure for procurement was virtually non-existent.
"We had a very amateurish set-up, in which people were largely untrained or had been doing it for many years, but weren't recognised for their contribution and had lost sight of the questions to ask or ways to challenge the business."
The turning point came in late 2000, when Boots took a long look at its internal business to help it manage the bottom line as it invested in a set of new ventures, whose benefits would not be immediately translated into profits.
The open invitation to Boots' business units proved the ideal time to get serious about what procurement could deliver. With the help of consultancy giant Atos KPMG, Coles got the go-ahead to set up a procurement services unit (PSU) with a basic remit to cut costs by becoming more rigorous and professional.
Recruiting and retaining quality staff proved the key to transforming a submissive and reactive function into a proactive one.
"It used to be that if you couldn't hack it as a product manager you were shipped off to supplies and services where you could do less damage," Coles says.
"From the start, we wanted to be famous for our people, so in recruiting them, it wasn't just about their technical skills. We looked for those who would put themselves about a bit and who weren't afraid to bang on a few doors. And for anyone coming into the company, there's now a formal programme of training to go through, whether they come with existing knowledge or not."
And so far it has delivered. The 45-strong team picked up a Kelly's CIPS Award in November for shaving £34 million from Boots' £450 million purchasing spend, £4 million more than the target.
The staff also cut Boots' supply base from 18,000 to 8,000. Buying channels have been simplified to a single entry point on the company's intranet with several clearly labelled purchasing options.
This has been helped by a frank approach to the PSU's limitations and its demands of suppliers, explains Karen Budin, head of people services.
"We're unearthing really quite antiquated supply chains that involved an awful lot of work that we won't need to do if we get our suppliers to manage them for us, rather than doing every single element ourselves. We're consciously taking a step back and admitting we're not experts at every part of the supply chain, and that we don't need to be."
Internally too, the PSU has made itself known to the rest of the business, largely by putting category managers full-time in the logistics, IT, marketing, human resources and property departments.
But joining up business units that traditionally gave procurement a wide berth created its own problems.
"Specialist areas such as logistics and IT were separate functions in their own right and we had to convince them that what they thought of as 'buying' was actually the logistics of moving products from A to B," Coles says. "It's also been hard to work with those areas that find it hard to specify what they want to buy, such as people services."
Budin agrees. "If the business can't articulate what to do or where it's going as a functional area, it's very difficult to map a purchasing strategy on to it. It's hard to take a long-term view when the function doesn't have the strategic vision itself."
Chris Lovatt, who joined the company as head of best practice and process development last year, says that helping marketing to negotiate with creative agencies over the past year has put this method of performance assessment - and its associated lateral thinking - to the test.
"Procurement often doesn't spend long enough understanding what marketing and communications wants to buy. If we hammered an agency on a purely cost basis, all they would do is take off their best creative people, who are the most expensive, and we'd have a substandard marketing campaign. Having poor, which is to say cheap, people on the account would have helped nobody."
The learning curve was made steeper as some areas of the business, such as property, did not originally fall under the PSU's remit.
"We did get things wrong in the early days by not having a robust enough process of signing off savings," Coles says. "We had to develop clear rules to spell out that a saving was not just a wishful quote from a supplier. We're also often having to invent new rules because we move into areas we'd never even thought of."
Budin says that, as a result, the transition threw up some unforeseen, if ultimately welcome, surprises.
"The pressure really comes from managing the success, because you build up credibility. We don't have to push ourselves on the business any more. We're a small, focused department and we get ever more calls asking us to get involved in new projects. Juggling all these demands is, I guess, the right pressure to have, but it does build up."
Given that Boots has charged procurement with producing £40 million of its projected £100 million savings in the next two years, this pressure is unlikely to let up. The PSU's focus in this time will largely be on e-enabling its processes and further whittling down the supply base.
Coles freely admits that luck has played a major role in procurement's transformation. But at a time when the profession as a whole is focusing urgently on influencing the chief executive's agenda, the PSU's experiences offer a salutary lesson.
He says that, to date, the unit has only scraped the surface of what procurement could achieve, but he believes the franker you are with senior management, the more support you will have from the outset.
"Pick your time and find one or two key statistics that people haven't cottoned on to, that you think you can deliver. Keep it simple, and don't try to blind everyone with the science of strategic category management.
"Now we can start talking about those things, because there's a chance that people might start to understand and trust what we're saying. It teaches you that you've just got to pick your moment."
SMjan2003
