[From iSource Business, December 2001] For purchasing to be effective, executives from the "C" level all the way down to front-line associates must be committed to the planning that is necessary to achieve and maintain a supply chain strategy that ultimately saves money for the enterprise.
At Dun & Bradstreet, we are in the interesting position of promoting as well as practicing money saving techniques. For both us, as the enabler, and the customer, one of the biggest techniques we encourage is better data management, a process that simply answers what and from whom a company is buying. It's not enough to know, for example, that purchasing buys $3 million in office supplies. Supplier rationalization brings a higher level of knowledge. Having data that shows toner cartridges are being purchased from 20 different manufacturers is important when deciding which one or two manufactures will win that business in the future. Additionally, such intelligence can open the door to new ways to save money by enabling better-leveraged buys.
New Economy, Old Data
Another way to save money comes from the use of digital-procurement and supplier-management tools. These new technologies can make it easier for a supplier to enter an enterprise's supply chain. The value proposition in the new technology is the amount of time and dollars such tools can save.
Time saved, of course, can therefore be viewed as an asset that purchasing managers can "reinvest" in value-added activities, such as conducting a spend analysis, negotiating better contracts, developing improved supplier relationships and reducing risk posed by dependency on weaker suppliers.
Unfortunately, what's ignored in the rush to new technology is the old data that's gone unnoticed and has sat stagnant for so long. Before a significant e-procurement or other technology implementation is launched, the enterprise must step back and examine the data that will ultimately be integrated into the new digital solution.
Supply Chain Collaboration - Are We Succeeding?
At Dun & Bradstreet, many of the cost saving measures mentioned earlier can be realized through the tools we build and the data management solutions we provide. However, the question remains, "How much of this knowledge does D&B actually utilize, and how has the company saved time and money?"
In 1994, D&B had a 70-person purchasing department with a $4.2 million operating budget. Additionally, every business unit had a purchasing department that had its own individual standards and practices. On the accounts payable side, D&B had a similar situation with more than 19 separate payables locations, each with a separate supplier master file, which inevitably resulted in supplier duplications across the business units. To make matters worse, D&B had more than 36,000 suppliers to manage. In just one area - PC and software purchases - the company was spending $53 million annually with 491 suppliers.
D&B issued more than 55,000 purchase orders annually, 48 percent of which were for amounts less than $500. In short, the company was spending nearly half of its buyers' time tracking the small-dollar purchases, eating up valuable time that could have been better spent negotiating the larger, strategic contracts that presented greater cost-saving opportunities.
A New and Improved Supply Chain Strategy
D&B remedied its supply chain in exactly the same way it offers cost savings guidance to its clients. The first thing that needed to be assessed, company-wide, was what D&B was buying, how much it was spending, and, most importantly, from and with whom. Armed with that information, it was a much simpler task to aggregate spend with each supplier across the multitude of supplier master files.
Next came supplier evaluation, based on performance, capabilities and risk. In addition, the supply base and spend was further rationalized by business unit, geographic area, commodity category, socio-economic status, and other useful criteria. Taking a more strategic look at D&B's supply chain structure provided a sharper focus on the need to negotiate more aggressive contracts with stronger, less risky suppliers and to better gauge their capacity to supply D&B over the long term.
The results this process achieved were dramatic, although they were not accomplished overnight. During the five-year period from 1994 through 2000, Dun & Bradstreet's purchasing team was able to:
" Reduce the number of suppliers from 36,000 to 12,000*
" Reduce the number of purchase orders from 55,000 to less than 1000*
" Achieve cost savings of $55 million
For those whose livelihoods depend on the ability to save money for the organization, solid supply chain management is more than a value-add it's a necessity. They say knowledge is power, but in supply chain management, knowledge powers success.
* The number of suppliers and purchase orders at the beginning of this period equaled an aggregate of all D&B companies at that time. Due to a subsequent spin-off of some of those companies, we no longer tracked their supplier or purchase order counts; therefore, the end-of-period statistics only represent the number of suppliers and purchase orders attributed to the new D&B companies.
My Turn: Practice What You Preach
It's difficult to take procurement advice from a company whose purchasing department is a paragon of inefficiency. One enabler learns to practice what it preaches, and automate its processes.
December 1, 2001
