Building a Successful Strategic Sourcing Program for Indirect Materials

In breathing life into its indirect sourcing efforts, medical devices leader Respironics is relying on internal change agents and external expertise


By Andrew K. Reese

Indirect spending historically has been a thorn in the side of many procurement organizations. Often comprised of high-volume, low-dollar purchases or specialized one-off items or services purchased locally across an enterprise, indirect spending can amount to as much as 50 percent of a company's spend, according to CAPS Research reports. Yet CAPS has noted that a large share of spending for indirect goods and services frequently takes place outside an enterprise's formal sourcing and procurement processes.

That was the situation facing the procurement team at Respironics Sleep & Home Respiratory Group a couple years ago, according to Tim Halloran, commodity manager for indirect materials and services with the Murrysville, Pa.-based medical equipment manufacturer, which reported 2007 fiscal year net sales of $1.2 billion. "There was no focus on indirect spend," explains Halloran. "As a result, organizations learned to fend for themselves in the indirect spend categories, and everybody was doing their own idea of what they thought sourcing was."

To address this issue, in late 2005 Respironics' procurement team began to ramp up its focus on indirect materials with two goals in mind: putting in place a formal strategic sourcing process for indirects across the company's U.S. locations and getting greater total value out of its indirect spend. Right away the team confronted two challenges: lack of internal resources and lack of expertise in specific indirect categories. That prompted Respironics to look for an outside consultancy that could bring both experienced personnel and deep category-specific knowledge to bear on projects targeted at particular areas of indirect spend. Halloran says that the company was looking for a "small-scale consulting engagement" with an "à la carte" menu of services rather than a full-blown consulting project.

Around this same time, Respironics' director of global sourcing, David Butler, met Robert A. Rudzki, president of Pittsburgh-based consultancy Greybeard Advisors, at The Conference Board's 2005 Spend Management conference in New York City, where Rudzki was a speaker. Rudzki had served as senior vice president and chief procurement officer for Bayer Corp. and previously as the senior procurement and transportation executive with Bethlehem Steel Corp. He founded Greybeard in 2004 to offer what he calls "light touch" consulting that involves bringing in senior-level advisors with specialized expertise to address procurement pain points and opportunities. Rudzki's consulting philosophy jibed well with Respironics' objectives, and that, along with the fact that Greybeard was local to Pittsburgh, near Respironics' home office, made the consultancy a good fit for the manufacturer.

Assess, Plan, Train

After engaging with Greybeard in early 2006, Respironics brought in the advisors for an opportunities assessment to identify potential areas of savings and to help define a sourcing process for achieving those savings. During this time, the procurement team also worked with Rudzki to create a roadmap for transforming sourcing within Respironics to become world-class and to initiate training for staff that would be involved in the transformation process. The training was cross-functional, involving procurement team members but also staff from other areas within the company who might or might not have ever been exposed to strategic sourcing concepts.

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