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While large technology companies today are keen to implement an effective procurement strategy by streamlining key elements in the end-to-end, source-to-pay processes, many face roadblocks because of supplier partners in multiple regions. There is complexity involved in integrating different teams and processes into the supply “value” chain and the skills and experience needed to leverage supplier partner relationships. One of the major reasons for complexities in procurement is the failure to implement a cross-functional strategy throughout different departments where everyone is accountable and bring in your top supplier partners to develop the strategy and execution plans.

During my first 30 days at a large Technology company as the Chief Supply Chain Officer, we conducted a supplier portfolio analysis. The analysis revealed that 15 out of 3000+ suppliers made up 75 percent of the $2.6 billion supplier spend portfolio, and 19 percent of the total was with one supplier. We uncovered through the analytics that we were buying the same or similar products from multiple suppliers and at different pricing and lead times. We had many different payment terms ranging form pay 100 percent upfront to net 45 days, but there was no consistency by supplier tiers. It was very clear that we had many opportunities to not only consolidate the supply base but leverage cost, pay terms, and lead times. Additionally, after conducting a one-day workshop with four of the top 15 suppliers, we quickly concluded that our processes were fragmented, accountability was questionable, and my team lacked the experience to manage and leverage the supplier relationships to our advantage. The teams rarely had strategic discussions with partners as they were focused on daily execution of securing supply.

We needed to quickly decide how we could reduce cost and impact working capital. To do this we would have to influence our top suppliers and leverage the spend portfolio without tearing apart the internal structure. There were two levels of procurement team members, Global Commodity Managers “GCM” and Global Supply Managers “GSM.” Each team had their own managers, their own set of responsibilities and they did a poor job in communicating and aligning on the end-to-end activities and goals. Rarely did they ask suppliers for their input into our strategy or bring them together to discuss how we can be successful together. We set a new strategic direction on 3 key Initiatives. Restructure the internal procurement teams and accountability, create a supplier alliance council with the top $ spend partners, and establish an internal senior leadership steering committee. 

  

​We needed to quickly decide how we could reduce cost and impact working capital. To do this we would have to influence our top suppliers and leverage the spend portfolio without tearing apart the internal structure

   

First, internally we decided to give the GCMs full end to end authority of the suppliers within the portfolio that they would manage. They would be accountable for all supplier activities end-to-end, source to pay. The GCMs would now have stake in the relationship vs passing over the daily tactical aspects of the relationship to the GSMs. And, the GSMs would now report directly to the GSM. All the supplier knowledge and experienced lied between the GCM and GSM.

Second, we knew we had to leverage the top $ spend suppliers to be successful. We created the Strategic Supplier Alliance Council strategy to leverage the supplier relationships. We included the top 15 suppliers in the development of the new strategy and crafted it together! Our goals were simple, leverage the relationships for favorable contractual terms, improved volume-based pricing, rebates and market development funds, and drive future growth opportunities for both teams. The alliance cadence included, monthly face-to-face/virtual operation reviews, quarterly business meetings, and bi-annual senior executive growth sessions.

Third, we wanted to ensure our internal peers were 100% aligned with the new strategic direction and had input to the sourcing and cost initiatives we would work towards. This led us to creating a new internal steering committee that consisted of my cross senior functional peers. The committee met monthly, they provided recommendations and input on the sourcing strategy, supplier selections and participated in discussing future opportunities and policy guidance.

After 12 long months of transformation, we reaped significant growth opportunities, cost, and working capital benefits. Not only did we communicate more effectively internally, we worked alongside our top supplier partners developing growth strategies and improving daily supply chain execution. We could not have done this without the new alliance council.

We reduced $175 million total cost from consolidating materials from 1000+ suppliers into the top 15 spend partners, renegotiating new unit prices based on higher volumes and reducing lead times significantly across multiple commodity categories. Included in the $175 million savings was $35 million in rebates and $22 million of Market Development Funds to utilize in support of net new business opportunities.

On top of total cost savings initiatives, we kicked off a new strategy with the top 15 suppliers on how we can receive extended pay terms and improve our working capital measurement.We introduced the top 15 suppliers to IBM Global Finance team “IGF”. At the time of the proposal, our pay terms with the top 15 suppliers ranged from net 15 to 45 days. As a result of the IGF accounts payable proposal, we received extended payment terms to net 120 days with all 15 top suppliers. For another 1000+ suppliers, we negotiated increasing the payment terms from Net 15 to 60 days. The positive results of the IGF proposal significantly impacted our working capital measurement by 13 average days.