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Building a Supply Chain Organization from the Ground Up
Commercial Metals Company started with a clean slate in creating a shared supply chain group, but in less than a year it already saw tens of millions of dollars of cost savings
Andrew J. Houser
Vice President of Supply Chain Management
Commercial Metals Company
Vice President of Supply Chain Management
Commercial Metals Company
If you had the chance to build your company's supply chain function from the ground up, what would that organization look like? And more importantly, how would you go about designing the function, where would you find your staff, and how would you roll the organization out to the rest of the company?
All these questions faced Commercial Metals Company in 2008 when the Irving, Texas-based global metals firm opted to begin moving to a centralized supply chain organization model. The ambitious goal: create a shared supply chain group that could drive savings per year per supply chain employee at a rate double or triple the industry average – in just the first year of the initiative.
"Starting from Scratch"
CMC manufactures, recycles and markets steel, other metals and related products. The company, which reported 2009 fiscal year revenues of about $6.8 billion, has operations in Poland, Croatia, Australia, Germany and Mexico in addition to its U.S. operations. It also has several trading offices, including in China and Singapore. A vertically integrated steel company, CMC has grown through acquisitions, bringing scrap yards, mills, fabrication shops and other facilities together under its various divisions.
With diverse operations spread across recycling, mills, and fabrication and distribution groups, it made sense to set up a shared services organizations to handle functions like accounts payable (A/P), human resources, payroll, safety and environmental engineering, and supply chain. The move to create shared services coincided with a rollout of an enterprise resource planning (ERP) system from SAP, with IBM acting as system integrator on the deployment.
The plan for implementing the ERP system envisioned significant supply chain benefits, says Andrew J. Houser, vice president of supply chain management at CMC. As a result, as CMC was putting together the business case for the SAP solution, it also put out an RFP for consulting services to help the company ensure that it realized the best return on investment on the SAP implementation by looking at how the company should structure its supply chain organization. "We were starting from scratch in figuring out how to run our supply chain, looking at what tools to use, what processes to use, what people were going to be in the organization," says Houser. "We had a completely blank sheet of paper to start with as we designed the supply chain."
Based on the RFP, CMC brought in consulting firm Greybeard Advisors, founded by Robert A. Rudzki, a former Fortune 500 chief procurement officer. Houser says that CMC went with Greybeard from among a total of eight consulting firms that the company looked at because the firm did not offer an "off-the-shelf" approach. "They genuinely got to know the business and the operation, including the culture and the people, before they put together their proposed solution," he says, adding, "At CMC, we have a very rich, defined company culture, and new initiatives are only going to be successful if you get people to participate." The consulting firm's approach also focused on communicating with senior management as well as with supply chain staff, and on transferring knowledge and skills to the client's organization to build in-house capabilities quickly.
Ambitious Goals
Greybeard's charge was to help CMC craft a roadmap for how the company should put in place its supply chain organization and business processes, and then assist in the rollout by providing training and experienced team coaches during the first few waves of sourcing projects. Rudzki, who led strategic transformation initiatives as a supply chain executive before moving to the consulting side, says that Greybeard's approach to creating a "transformation roadmap" begins with an objective assessment of the "as is" state of the company's supply management and procurement performance against "best-in-class" organizations not only within the company's own industry, but across all sectors. That evaluation serves as the basis for a gap analysis to identify and quantify opportunities, and to assess which specific initiatives to pursue first, second and so on, in a way that builds results over time. "This is part art and part science," Rudzki says. "Done poorly, it can be the reason for 'evaporating results.' Done well, the roadmap will create sustainable results and momentum, and build organizational capabilities that drive superior performance."
All these questions faced Commercial Metals Company in 2008 when the Irving, Texas-based global metals firm opted to begin moving to a centralized supply chain organization model. The ambitious goal: create a shared supply chain group that could drive savings per year per supply chain employee at a rate double or triple the industry average – in just the first year of the initiative.
"Starting from Scratch"
CMC manufactures, recycles and markets steel, other metals and related products. The company, which reported 2009 fiscal year revenues of about $6.8 billion, has operations in Poland, Croatia, Australia, Germany and Mexico in addition to its U.S. operations. It also has several trading offices, including in China and Singapore. A vertically integrated steel company, CMC has grown through acquisitions, bringing scrap yards, mills, fabrication shops and other facilities together under its various divisions.
With diverse operations spread across recycling, mills, and fabrication and distribution groups, it made sense to set up a shared services organizations to handle functions like accounts payable (A/P), human resources, payroll, safety and environmental engineering, and supply chain. The move to create shared services coincided with a rollout of an enterprise resource planning (ERP) system from SAP, with IBM acting as system integrator on the deployment.
The plan for implementing the ERP system envisioned significant supply chain benefits, says Andrew J. Houser, vice president of supply chain management at CMC. As a result, as CMC was putting together the business case for the SAP solution, it also put out an RFP for consulting services to help the company ensure that it realized the best return on investment on the SAP implementation by looking at how the company should structure its supply chain organization. "We were starting from scratch in figuring out how to run our supply chain, looking at what tools to use, what processes to use, what people were going to be in the organization," says Houser. "We had a completely blank sheet of paper to start with as we designed the supply chain."
Based on the RFP, CMC brought in consulting firm Greybeard Advisors, founded by Robert A. Rudzki, a former Fortune 500 chief procurement officer. Houser says that CMC went with Greybeard from among a total of eight consulting firms that the company looked at because the firm did not offer an "off-the-shelf" approach. "They genuinely got to know the business and the operation, including the culture and the people, before they put together their proposed solution," he says, adding, "At CMC, we have a very rich, defined company culture, and new initiatives are only going to be successful if you get people to participate." The consulting firm's approach also focused on communicating with senior management as well as with supply chain staff, and on transferring knowledge and skills to the client's organization to build in-house capabilities quickly.
Ambitious Goals
Greybeard's charge was to help CMC craft a roadmap for how the company should put in place its supply chain organization and business processes, and then assist in the rollout by providing training and experienced team coaches during the first few waves of sourcing projects. Rudzki, who led strategic transformation initiatives as a supply chain executive before moving to the consulting side, says that Greybeard's approach to creating a "transformation roadmap" begins with an objective assessment of the "as is" state of the company's supply management and procurement performance against "best-in-class" organizations not only within the company's own industry, but across all sectors. That evaluation serves as the basis for a gap analysis to identify and quantify opportunities, and to assess which specific initiatives to pursue first, second and so on, in a way that builds results over time. "This is part art and part science," Rudzki says. "Done poorly, it can be the reason for 'evaporating results.' Done well, the roadmap will create sustainable results and momentum, and build organizational capabilities that drive superior performance."
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