A major industrial gas company’s North American Procurement Organization transformation journey highlights the importance of proper alignment to achieve significant and sustainable results.
A major industrial gas company’s North American business aimed to significantly increase savings from their strategic procurement activities. The company understood that in order to achieve their goals, they needed to re-align and optimize the Procurement Organization to fully harness its capabilities. They hired a small team of consultants led by OnDemand Professional Network member Steve Strickman to significantly upgrade the function.
The company had a centralized transactional procurement team but lacked spend transparency and strategic sourcing skills. Procurement was not seen as a value-added leader that could bring critical Sourcing and Cost Management expertise, which caused fragmented and localized execution of procurement activities across the company. Driven by the new cost reduction mandate Senior Management’s goal was to upgrade Strategic Procurement across-the-board by building out a new organizational structure and strengthening its capabilities.
The Consulting Team first performed an assessment of the Procurement function, and the company graded poorly along seven high-level Procurement “success dimensions”:
- Change readiness/willingness
- Staff motivation and empowerment
- Structural alignment
- Spend transparency
- Measurement and reporting
- Business process management
- Procurement data capture and tools
Understanding the current state was important in the successful re-design of the organization. Among other things, the Team uncovered significant “Shadow Procurement” activity – procurement being executed by non-Procurement staff – that was causing significant downgrade in opportunity to save money and increased cost by excessive use of personnel resources (several dozen FTEs).
The approach followed a proven concept – Current State Analysis/Gap Analysis/Future State Design across People, Process and Technology in Procurement. The Steering Committee and the Team agreed that they should jointly work toward an end-state where:
- Procurement would have the personnel, skills and bandwidth to execute Strategic Sourcing events as well as tactical buys
- They would manage strategic categories centrally
- The company would reduce maverick spend
- Procurement would be seen as a value-added partner by the Business
The Gap Analysis outlined a number of areas for improvement. For the Organization, it was clear that if the new Procurement was to increase preferred vendor/contract compliance (with 100% compliance goal), save money via strategic sourcing, and provide greater customer service, it had to align itself better, increase the number of staff and significantly upskill through training and new hires. It also became clear that several key processes need to be re-designed in order to be more effective and efficient.
Critical Success Factors:
- Senior Management Buy-In: Whenever a company is going to embark on Organizational changes, it needs Senior Management that have a clear “why” as well as a willingness to clear obstacles
- A Clear Picture of The Starting Point As Well As The Destination: Before embarking on a transformation journey, it’s imperative to know the baseline, the most acute needs, and “what good looks like”.
- A Business Process Focus: If you want superior results, you must understand and improve your business processes.
The Company adapted the new Procurement Organization design that was centered around key best practices including Category Management, Technology Enablement, Skills Development and Process Improvement. This transformation set the Company on the path toward:
- 100% spend through Procurement
- 100% Spend Transparency
- Leveraging spend across the entire enterprise and the use of technology sourcing platform to deliver $14M savings over the first three years, with a target of $6+M by the third year
- Maintain the $3M in annual savings just captured via a Sourcing Wave
And perhaps most importantly, the new organization was positioned to become a value-added partner to the business that was viewed as an important component of the overall sustainable savings strategy
MEET STEVE STRICKMAN
OnDemand Professional Network Member Since 2005
Steve has over 20 years of industry and consulting experience in the areas of Expense Management, Organizational Design, Strategic Sourcing, Project Management, and Process Implementation. He has strong analytical and solutions development skills and significant negotiations experience. Prior to embarking on an independent consulting career, Steve was a consultant with the Mitchell Madison Group. He is a Certified Lean Six Sigma Master Black Belt and has also received PMP certification. He holds a BSE in Materials Science and Engineering from the University of Pennsylvania, and an MBA from The Wharton School.