Profiles in Supply Chain Enablement: Employing a global sourcing strategy, Alcoa is making goods on its CEO's pledge to achieve $1.2 billion in cost savings by 2007.
Company: Alcoa (Pittsburgh, PA)
Company Size: Large
Company Sector: Metals
Area(s) of Enablement: Sourcing, Procurement, Decision Support
Enabler: Ariba Inc. (Sunnyvale, CA)
Case Study: Alcoa is widely known as the world's largest producer of aluminum and aluminum products, with 350 operating locations in 41 countries, bringing revenue of $23.5 billion a year. However, staying at the head of the pack is not easy.
Like all heavy manufacturers, Alcoa has had to contend with increased competition and pricing pressures. But since the late 1990s, Alcoa has focused on driving continuous improvements in its procurement and supply management operations. Between 1998 and 2000 alone, the manufacturer achieved $1.1 billion in cost savings through productivity and supply management improvements.
Not willing to rest, Alain Belda, Alcoa's CEO, upped the ante again, telling investors that the company would save $1 billion between 2000 and 2003, and another $1.2 billion between 2004 and 2007. To drive the next round of savings, Alcoa would need to organize procurement into a globally aligned, strategic and highly efficient operation.
In addition to achieving these ambition cost reductions, Alcoa's sourcing and procurement team was challenged to decrease the overall spend profile on procured materials by initiating strategic sourcing initiatives, including online sourcing and low-cost country sourcing.
To meet their goals, Alcoa's procurement team partnered with Ariba to aid in the global procurement of their major spend areas: aluminum, energy, raw materials and services. The intent was to enable a center-led organization to leverage and align sourcing operations globally and to use strategic sourcing techniques to gain efficiencies.
Ariba's QuickSource and FullSource are the two primary solutions that form the foundation of Alcoa's strategic sourcing initiative with Ariba. Additionally, Alcoa utilizes Ariba Category Management (ACM), Low Cost Country Sourcing (LCCS), Assessment Services, Data Collection Services and Ariba Professional Training Services.
Sourcing its key spend areas in a truly global fashion, often from low-cost regions like China, Russia, Spain and India has had numerous benefits. Without compromising quality, safety or social responsibility, so far Alcoa has seen savings on labor increased by 80 percent, savings on direct materials increased by 30 percent and savings on R&M increased by 15 percent.
Building on its early spend management and e-sourcing success, Alcoa is now focused on continuous improvement and the next generation of spend management initiatives. The organization is undertaking a large-scale restructuring to pull sourcing governance out of individual business units and place it in the hands of a globally centralized professional strategic sourcing organization. They also will continue to identify additional sourcing opportunities and focus on improving its visibility and analysis of spending.
For more stories of successful supply chain implementation, read the "2005 Supply & Demand Chain Executive 100" article in the June/July 2005 issue of the magazine. Also watch the Today's Headlines section of SDCExec.com every Tuesday and Thursday for more in depth best practices drawn from this year's Supply & Demand Chain Executive 100.
