07 January 2010 | Allie Anderson

The downturn has signalled a new dawn for purchasers. Allie Anderson reports from ProcureCon

A positive air pervaded the recent ProcureCon conference in Brussels. Despite the turbulence of 2009, buyers at the event in November said the difficult times had resulted in a transformation in procurement and supply chain.

One presenter, Les Ball, vice-president of supply chain management for EMEA at power management firm Eaton Corporation, described the global recession as a “burning platform” for change.

He said: “People are looking for opportunities of improvement for this year, beyond all others, there has been a willingness to change. We need to focus people’s attention. Many organisations have to continue to reinvent themselves to make sure they are relevant in their marketplace.”

Procurement has a pivotal role to play as cutting spending becomes more pressing. At National Grid, it has meant a radical overhaul of its global buying function, implemented almost two years ago to increase efficiency and save up to £350 million a year.

Global procurement director Jon Carlton told delegates: “We had to create a whole new organisational structure that included everything from upskilling the workforce to becoming more strategic than transactional and bringing in new IT tools. There was no single aspect of procurement that was fit for purpose at the start.”

Engaging stakeholders

Working with internal stakeholders was crucial to making changes at National Grid. Previously, business units developed product and service specifications with little involvement from purchasing. Now, procurement is engaging with stakeholders so its impact in terms of savings and efficiency is more transparent. Support from the executive board was also fundamental, said Carlton.

Eaton, meanwhile, has redesigned itself to bring key business areas closer together. It created “One Eaton”, a set of tools, values and philosophies that bind the company together and make “people feel like a part of the same team”. And according to Ball, the most important relationship for procurement is with the finance function.

He said: “Whether in operations or corporate activity, whether you’re looking at the procurement of materials, logistics or services, the collaboration with finance can be a make-or-break relationship. If you have an arm’s-length relationship, it’s really not going to help your results or how you position procurement in the organisation.”

In the opinion of Bas Burger, CEO at BT Benelux, procurement is in a good position as companies tighten their belts. Speaking at ProcureCon’s executive board summit, Burger said: “CEOs don’t like to be challenged by procurement. But procurement can do really well by pointing out how our costs can be cut. It really has very good ideas about what is going on outside. Procurement should be a challenger and I’m happy to be challenged.

“In return, what finance can do is give some transparency on the budget and information on what to do with savings. It isn’t just about what procurement can do for finance, but also what finance can do for procurement.”

Supplier collaboration

As well as leading to increased collaboration internally, the downturn has caused many purchasing departments to reassess relationships with suppliers. Shell has adopted a long-term, sustainable approach to reducing spend rather than merely squeezing vendors to drive down costs. This has led to a 10-15 per cent reduction on maintenance contracts alone, said Stijn van Els, the firm’s executive vice-president of contracting and procurement.

John Henke, president of Planning Perspectives, a US firm that provides research and analysis on buyer-supplier relationships, said his research of some US suppliers and their relationships with the six major original equipment manufacturers – Chrysler, Ford, GM, Honda, Nissan and Toyota – found there was “real value associated with good, strong supplier working relations”.

“Although we’re in a recession, most companies are trying to take costs out of their supply base in a reasonably adversarial manner. Obviously the best way when dealing with suppliers, no matter what the economic circumstances are, is to do it in a manner that treats the suppliers more fairly yet does not let them off the hook.”

Henke commented that the economic climate “has created some good” because it has led companies to work with suppliers in a collaborative rather than an antagonistic manner. Yet still, too few organisations are recognising this need. He said: “Those companies have tended to become even more adversarial because they want to cut as much cost from their suppliers as they possibly can because that, they perceive, will help the bottom line.

“But when things start getting better and suppliers have to start making a choice between whose needs to meet first, they are going to meet the needs of those customers who have treated them better.

Those who have not been good customers will start paying when things turn around.”

Spending power

As well as changing procurement’s outlook on working with stakeholders, in some organisations purchasing has used its power to take greater control over spending, which can result in resistance from other departments. Ball said: “Sometimes it’s based on past experience where people have not had success doing things differently, or having a central procurement team taking more responsibility or input over decisions. It’s about how you can strike a coalition with your internal stakeholders to make that work.”

Carlton said the transformation at National Grid has so far exceeded expectations, but there was still more to be done. “All the transformational aspects are OK in isolation,” he said, “but the fact that we are doing it all at the same time is very difficult. We still have a long way to go, perhaps another 10 months until it is all finished. It is then that we will really see the benefit of what we have done.”

Ball added: “It’s hard from a benchmarking point of view to be sure, but I think we’re in a good place going forward. We can’t be blasé or complacent. We have to make sure we’re ready for the rebound – which is inevitable.”