8 January 2009 | Interviews

As CPO of a FTSE-listed manufacturer, David Noble has transformed procurement into a diverse global team that has the chief executive's full attention. Here he tells Rebecca Ellinor how he did it

David Noble is one of those rare creatures in the UK: the CPO of a FTSE250 manufacturing business. Like all companies, his - IMI - is concerned about the downturn and is putting more emphasis on managing costs within the business as a result.

IMI has five businesses covering a wide range of areas: severe services (for example, pressure valves for use in the gas, oil and nuclear industries), fluid power (which includes braking systems), indoor climate (eg. radiator valves), merchandise (including point-of-sale racks and equipment) and drinks dispensers.

Noble is a big part of the drive to manage cost and risk and has "pushed hard" on big initiatives around low-cost country sourcing, a strong "make v buy" process, and he's put in place a financial hedging programme which, he says, is still quite unusual in the industry.

In addition to his work at IMI, he has been elected to the CIPS Board of Management and is very keen about the development of the profession. He hopes this position will help him impart his knowledge and experience of manufacturing and international sourcing in order that he might "give something back".

UPON ARRIVAL

So what might this wisdom include? What has Noble achieved since he arrived at IMI in 2005 and what does he plan to tackle next?

When Noble joined IMI, procurement was working on a reactive basis and almost seen as just a clerical function. "They were doing some deals, particularly on indirects, but they weren't leveraging on direct materials - the businesses weren't talking to each other effectively. It was also very reactive, a reporting function - every month it was 'give me your savings'.

"Our five businesses are quite diverse, but there are some synergies - they all buy plastics, they all buy metals. So what I've done primarily is to build a strong low-cost sourcing strategy that we didn't have.

"I've also made the function far more proactive in leading major initiatives. Low-cost sourcing, make v buy… I drive these projects from the centre with the blessing of the businesses." As group supply chain director, Noble has 50 direct reports around the world and, indirectly, a staff of about 200. He has brought together the operations heads of the five businesses, who got together for first time in Shanghai last year. He led sessions on how they could share ideas, best practice and take initiatives forward.

"We have a decentralised, federal structure. Each purchasing director reports on a hard line to the business president or operations directors. But functionally, they report to me." All of the indirect and logistics procurement is done centrally, with each business having its own procurement head. The purchasing directors now meet every three months and Noble collects information, which is fed into his board report.

MAKE V BUY

Like many businesses, IMI examines what it should make and what it should buy. Before it can reach that decision, it involves all stakeholders to get buy-in.

To do this, it has developed two tools with Cambridge University's manufacturing school. First, a strategic footprint package enables the company to map the market and where it wants to be in three years' time, before another tool helps with the make-v-buy decision.

"The key to 'make v buy' succeeding in any factory is ensuring cross-functional representation on that team. So, not only a manufacturing guy who is inclined to want it to stay in-house but a finance person, even a marketing or sales person, and most importantly there has to be an external facilitator, which is usually from my group.

"The tool has a lot of checks in it to stop people being overly protective or biased and the external facilitator ensures it is used correctly to reach the right decision."

It examines a factory line and all of its associated costs, such as supply chain efficiency, IT support - "everything associated with the decision you're making. It then gets you to score them all - so there is an amount of subjectivity - and comes up with a number of numerical calculations about what the solution should be."

The result, says Noble, is "a standard process. It's fair. One of the concerns the business had with making some outsourcing decisions before was the criteria used. This gives it a degree of objectivity and standardisation that we didn't have before."

IMI carried out 25 of these by the end of 2008. Of those, some resulted in the decision to insource. "That's an important point. I always say this is not an outsource tool, it's a make-v-buy tool."

The business is also conscious that if it takes one factory line out, it needs to replace it with something else: "If the make-v-buy tool says get rid of that line, you need to look at how to fill that space - that's why it's strategic as well as tactical. An inefficient factory is the worst thing in the world."

GLOBAL SOURCING

One reason why Martin Lamb, chief executive of IMI, hired Noble was to increase the company's low-cost country sourcing. When Noble joined, about 6 per cent of spend - now £800 million - was in low-cost economies of Asia, Eastern Europe and South America on a combination of direct and indirect goods and services. The target was to hit 30 per cent in 2008 (24 per cent was reached) and the plan is to reach 40 per cent in the next couple of years.

To achieve this aim, the company is setting up sourcing offices in India, Vietnam, the Czech Republic and Mexico, in addition to the existing Shanghai office in China. These offices then look after sourcing from nearby countries as well as their own.

Noble says that in doing so, the function can now be much more proactive. "We manage quality and we have people in the area with market awareness, so we can give the businesses feedback on what's happening in the markets, what's being developed. We're getting to the stage where suppliers are giving us ideas on our products."

IMI is a mid-sized company and deals with suppliers of 200-300 people, so it must be selective about who it does business with. "It's about getting the right match, but it is harder to identify good medium-sized companies. The key is to get a good sourcing office and people who know the markets, country and culture. Each of my sourcing heads is born and bred in those countries."

In China, IMI also has a quality team that ensures performance standards are met. The company has also run two supplier conferences to explain to vendors IMI's plans and give suppliers the opportunity to present new ideas. In addition to this, it ran a number of education sessions covering quality management, value engineering and hedging.

"Chinese suppliers are having huge issues with currency in metals and so on, so the message to them was 'you've had many years of being cheap, but now your costs have risen you need to get smart and here's some tools that will help you'. Educating our suppliers in efficient factories, how to hedge materials and how to manage their quality better, was a huge eye-opener for many of them."

SPREAD THE WORD

One of the benefits to IMI of this approach was to build on its own supplier relationships. "We're not a well-known brand: we wanted to spread the name because in China it's all about relationships. If they know who you are, what you're doing and that you're making time for them, you can gain advantage. Our businesses are not generally high volume, therefore it's about gaining respect from the supplier that's going to support you through difficult times."

And trust is key: "I've caught people operating with three sets of books. It happens and it will continue to happen because it's cultural. It underlines the fact that if you haven't got a relationship with suppliers where they trust you, you won't get the right set of accounts."

Investing in relationships extends to training and development, and Noble is putting a handful of the best talent through a CIPS corporate award programme. "They're very grateful and my personal view is the opportunities to educate in China can be driven strongly through the corporate sector."

In addition, he sees CSR as a crucial area. "We're a signatory to the UN Global Compact [the world's largest voluntary corporate responsibility initiative] and I've said to all our suppliers that working to professional ethical standards is my number one concern. We've had no instances so far of any problems in that area but we're pushing very hard on it."

HEDGING TACTICS

Financial hedging is a strategy that IMI began to employ following a huge rise in copper prices two years ago. "We had a situation where suppliers were ripping up contracts for base metals because they couldn't afford to supply at the price they were contracted to. Copper had gone from $4,000/tonne to $8,000/tonne within a couple of months and we knew we had to do something, so we took out financial hedges on the London Metal Exchange."

Decisions now take place monthly. "Every business has a representative who joins a conference call once a month. They are part of the team that comes to a consensus on how far out we should hedge a particular metal, timewise, within a predetermined profile. We never hedge 100 per cent, it's always within the profile that is preset for each metal in the business. It takes our volume requirements, what the market's like and we make a crude decision on what we think the risk is."

So if the metal price is going up, IMI hedges as much as it can, but if it's going down the company holds off. The intention is clear: "This is not a speculative activity. It's about protection - smoothing the impact of the markets on our own customer base. It's new for me, frankly it's a hell of a learning curve."

Noble believes the company will have to do more of this in time, given the volatility in raw materials markets. However, he issues a warning to others considering this approach: "It should not be entered into lightly, there's a cost to it. It needs a lot of discipline, a lot of attention and focus, and if it's done badly it could cost the company a lot of money."

CAREER PROSPECTS

Other plans for this year include building the capability of supply staff. He is working with IMI's HR department to set a career path for the supply chain, to attract people from other functions and stimulate those within it.

"We're planning a 'supply academy' approach to build a niche of high-calibre experts in the broader supply function," he says. This will include logistics and operations staff selected through tests and assessments.

Some of what procurement has done - hedging, make v buy and low-cost country sourcing - has helped to retain people but more can be done to pull in the best graduates and attract high-calibre professionals.

"It has helped having a direct line to the CEO and the knowledge that big initiatives will gain immediate attention. All has contributed to building a strong team."