30 September 2010 | Paul Snell

A transformation at the Co-op has seen its procurement function become a high performer with an excellent internal reputation

CATEGORY: Most improved purchasing operation – step change

"Ineffectual.” No purchaser would want to hear their company’s procurement function described in such a way – especially if that verdict comes from the chief executive.

But after a two-year transformation project, Peter Marks, group chief executive at the Co-operative Group, now says: “The team has established credibility across the business while delivering financial results that have contributed to continued profit growth. Some £66 million savings in two years is a fantastic achievement.”

When the Co-operative Group merged with United Co-operatives in 2007, culture and strategy changes followed. The aim of achieving profitability through greater control of costs seemed tailor-made for procurement to show its value. But the existence of the function, viewed as an overhead, was in question.

Waqas Butt was hired to lead the function at the start of 2008 and set goals to overhaul the approach to purchasing. These included the creation of a strategy that would encompass all the group’s businesses, improve the team’s battered reputation, and save £50 million over three years. Four areas were targeted: pan-group procurement strategy; best-practice sourcing; people, culture and structure; and financial/results credibility.

The strategy involved drawing up a mandate and policy for goods-not-for-resale across the whole group. Category management was introduced, three-year strategies were implemented for each spend area, and sponsors were appointed from the executive board for each. A sourcing-management framework was brought in to guide best practice. A team dedicated to reverse auctions was also set up. It ran 52 auctions over the year, saving £25 million as a result.

Developing the skills of the team has also been critical. Additional negotiation, legal and finance training was provided. Staff also undertook CIPS training and the team is looking to complete its departmental accreditation this year. The department has also developed a relationship with the group’s graduate scheme. Perhaps the most dramatic turnaround has been in procurement’s internal reputation.

The team’s achievements are even more impressive in the context of the five mergers and acquisitions that took place during the transformation project.

Also on the short list

AXA UK; Department for Work and Pensions; National Grid; Network Rail; Premier Foods; PZ Cussons International; Serco Group; Thames Water