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22 April 2013 | Paul Snell
The decision to outsource procurement at Zurich has given the function greater credibility in the business, according to the head of UK procurement.
Simon Ellis also said the process of outsourcing purchasing had also helped the insurance group clarify its policies and processes.
“The sign off from the global executive that we were going to outsource [means] we are taken seriously now within the organisation because we have met the challenge and we have also signed a long-term partnership deal with this provider. So it is really being taken seriously at a global and local level,” he told delegates at the ProcureCon Indirect event in London last week.
In 2010, the company announced it aimed to save $500 million (£328 million) by 2013, with procurement making a significant contribution. Ellis said at the time that purchasing was a tactical function, with a savings methodology referred to internally as ‘monopoly money’ that had ‘no credibility’.
“The business realised something needed to change and we had a burning platform – we needed to deliver a hell of a lot more than we had previously,” he said.
The function was reviewed at the end of 2010, with the options of boosting the in-house capability or outsourcing the activity. For Zurich, it was not about reducing the cost of the function, but delivering the required savings quickly.
It was forecast the company would need to employ 70 to 100 extra procurement staff, on top of the 270 employees to deliver the savings, if the in-house option was selected. “The difficulty in recruiting the depth and level of expertise would be time consuming and difficult, and once we got them in, the difficulty in keeping them up to speed, making sure that they had an ongoing expertise and their skills remains fresh and dynamic would be a problem,” Ellis said.
Procurian was selected as the outsourcing provider, and the transformation, dubbed ‘project London’, is up and running in the UK, North America, Spain and Switzerland. In 2013, it will be expanded to other locations in Europe, Latin America and Asia-Pacific in 2014.
Zurich has retained around 50 procurement staff and has 600 savings projects underway, completion of which will meet purchasing’s contribution to the $500 million target.
Ellis added that the process of outsourcing had forced the company to map processes. “It also drove Zurich to make decisions and clearer policies and practices, particularly around due diligence, around contracting – it forced us to write these things down and be clear to people,” he said.