Any transformation is about far more than the basic revamping of existing processes – it’s also about altering mind-sets, attitudes and ensuring that any changes don’t just improve performance but align procurement’s aims and ambitions with those of the wider business.
Few companies know this better than Volvo, one of the world’s largest automotive companies and a firm where procurement has established itself as an influential presence.
That though wasn’t always the case.
Until relatively recently, the company’s buying organisation was a peripheral presence, lacking a profile, particularly in the indirect space.
“We were an organisation that was somewhat cumbersome with bureaucratic processes,” says Chris Sandford, global purchasing director at Volvo.
“We didn’t work with fact-based negotiations and we had a traditional mind-set where suppliers needed to share our pain and give us the savings.
“This type of thinking was common place within our Indirect Purchasing (IDP) organisation. We just felt that our current processes, our organisation structure, the lack of strategic competence and the overall set-up wasn’t going to help us to reach our goals.”
Creating an organisation that was fit for purpose, strategically savvy and able to support the business to a greater extent, required a radical re-think. It was a transformation in every sense of the word, with the development of the company’s Strategic and Operational Excellence department within IDP playing a fundamental role in turning the firm’s procurement fortunes around.
“We systematically started addressing things,” he says. “That was the starting point. We are clearly in one of the most competitive and dynamic industries in the world, it’s very fast moving and if you want to compete in that area you need the right tools in place and the right people in place.
“We wanted to revitalise the organisation and reinforce our presence. Instead of becoming an administration function, just doing what people asked us to do, we wanted to take control of the business, be proactive and work more closely with our stakeholders and with the total value chain.”
The aim, understandably, was to build a world-class procurement organisation capable of thriving no matter what was thrown at it. In short, it was imperative for Volvo’s indirect procurement organisation to ensure that its processes not only matched the company’s strategic goals but also understood the latest trends and technologies that were shaping the automotive industry.
“We wanted to know the key things we needed to be on top of and just look at the opportunities that we had. We wanted to capture the opportunities, we wanted to be known as ‘best in class’,” he says.
The main thrust of the transformation was the challenging of stakeholders and the need for procurement to show its worth by illustrating the value that it could bring, both in terms of negotiation and the impact it could have on the value chain and total cost of ownership. An essential element of this was the formation of a ‘sourcing decision board’, and the introduction of a weekly supplier choice meeting.
“The people that sat in on this meeting were the executive management team of the indirect purchasing organisation,” says Sandford.
“Our buyers had to come up there and work within a specific template relating to what they were buying, what the budget was as well as some internal and external analysis and the strategic direction they wanted to take with sourcing. They could also bring in any other stakeholders that they wanted to support them. They basically went through the whole process in 20 minutes, it was then approved or turned down.”
Focusing on deals above 4m kronor (roughly £400,000), these meetings gave procurement a huge sense of control over expenditure. For an organisation which placed 110,000 orders with a supply base consisting of around 6,600 suppliers, that was crucial. In addition, though, it also provided a positive environment in which individual buyers could flourish.
“It not only gave us an element of control, it allowed our buyers to showcase their skills and their thinking, which is very important,” says Sandford. “It’s a really positive environment – there’s no criticism, just advice and support.”
A transparent structure that defined the roles and responsibilities of both procurement and its stakeholders also provided a clear delineation of the reach of both parties.
With the aims of the project defined, Volvo implemented a seven-step process to try and ensure success. The whole department was briefed and trained in each of these key areas and they were tied in with strategic KPIs, such as sustainability requirements, diversity targets and quality developments.
In addition, Sandford’s organisation also converted 10% of its buyers into what it called ’strategic buyers’, removing the burden of operational responsibility and giving them the freedom to take a holistic view of the company’s entire sourcing operation and business – a move which allowed them to identify opportunities which were otherwise being overlooked.
At the core of the project, however, was this seven step process.
“The first step is identifying opportunities, we then do some commodity profiling, which is step two,” he says.
“Once you have all that information, you can start to build your strategy, which followed with supplier screening, conducting RFQs (request for quote), or online auctions, whatever it is you want to do. Step six is then a fact based negotiation followed by step seven, which is implementation.”
This new has completely altered Volvo’s approach to indirect procurement, bringing it greater influence and delivering the kind of results that are making the rest of the business sit up and take notice.
“We implemented this process with a very strategic mind-set and it’s already beginning to have a very big impact on our end results, on our savings and on the value we’re generating for the company.”
The results of Volvo’s transformation can be measured in far more than just monetary figures. Such has been the impact that other high profile companies are seeking to learn and understand how such a fundamental shift has been possible in a relatively short space of time – perhaps the biggest pat on the back any buying organisation can receive.
Sandford joined the company in 2013 and he acknowledges that the current organisation is almost unrecognisable from the one he inherited.
“In 2013, when I joined, we had already saved about 1bn kroner (hard and soft savings) but we hadn’t worked with our transformation strategy at the time,” he says.
“We started to take some very baby steps in 2013 and got up to 1.5bn kroner and then in 2014, when we started to implement more of the things we wanted to we started to see the savings go up to above 2bn kroner. It was the same last year.”
The main result, though, has been procurement’s increasing involvement in key decisions across the entire business.
“Everyone is now reading off the same page and were starting to realise the true value a modern Indirect purchasing organisation can have on a large global company,” he says.
Indirect Purchasing (IDP) in Volvo cars is made up of approximately 125 people globally, managing a spend of around 30bn SEK (Swedish Kronor). The company has a global supply base of more than 5000 active suppliers. The Strategic and Operational Excellence department within IDP is made up of nine people and is responsible for all the strategic development and operations of IDP globally.
Name of the company
Volvo Car Group
Nature of the company
Established in 1927, the Gothenburg-based firm now employs over 15,000 people worldwide. In 2011, Volvo sold almost half a million cars globally.
Volvo reported revenues of 103.9bn SEK in 2014.
Image: Dizfoto / Shutterstock.com
This article is a piece of independent writing by a member of Procurement Leaders’ content team.