When weak procurement practices impede growth
A prominent big-box retailer was struggling to learn how much it spent and where. It wanted to pare more than 10% from its indirect spend (on non-merchandise products and services) so it could fund strategic growth initiatives that would fend off mounting competition. But the company’s procurement strategy had a number of operational shortcomings: Spending was highly decentralized. Management of much of the billion-dollar procurement budget was weak. The generalists who staffed the procurement department lacked the specialized expertise needed to negotiate favorable deal terms. Senior management had only limited visibility into spending. Implementation of strategic sourcing was poor. There was little discipline in the area of contract management. And compliance with spending policies was lax.
On top of that, the retailer’s procurement technology was outdated and inadequate, and there was no centralized control of outsourcing. The company’s senior leaders asked AlixPartners to improve their capabilities and provide interim leadership while they searched for a permanent replacement for the chief procurement officer (CPO).
A new leader drives a comprehensive savings campaign
We quickly applied our operational improvement strategies to the retailer’s procurement problem. One member of our team stepped into the role of CPO for a four-month term, working with AlixPartners colleagues to assess the procurement organization and develop a plan of action. We mapped the company’s current procurement processes and designed an organizational and operating model for a new-look function. And we led procurement workshops for every department and function head.
To beef up the organization’s capabilities, we partnered with HR to develop job descriptions for the procurement staff and to start recruiting a new team. We led the effort to select new technology and new outsourcing providers, establishing rigorous processes for soliciting and evaluating competitive bids. Finally, we recruited a permanent CPO as well as two other category managers to support the new hire.
When it really matters
The new procurement organization has already begun to deliver tangible benefits. The formal procurement policies and procedures we developed have centralized and strengthened the management of spending. Category managers now have full visibility into expenditures across the organization, thereby enabling them to capture significant year-over-year savings. The company’s new procurement outsourcing and technology partners are effectively supporting offshore sourcing and purchasing execution. Most important, the procurement function is well on its way to hitting its annual savings target.