At HP, indirect procurement takes more of a leadership role
By Susan Avery -- Purchasing, 5/25/2006 2:00:00 AM
Click here to hear a portion of Larry Welch’s presentation at the 2006 AribaLive conference.
Click here to watch a video clip of Larry Welch's presentation.
Asked for an update on activities of indirect procurement since Hewlett-Packard received
Purchasing’s Medal of Professional Excellence
for 2004 (
http://www.purchasing.com/article/CA451858.html
), Larry Welch, vice president of indirect procurement, ticks off four areas that his group is concentrating on now: leverage, compliance, culture and policy.
But first he recalls the role his team, as well as the team led by Dick Conrad, senior vice president, global operations supply chain, played in HP’s recent earnings report. For the second quarter of its fiscal year, the company’s earnings increased by 51%. “I can say with confidence that much of that improvement has come from cost-cutting, with procurement across the board at HP making a substantial contribution to the results, Welch says. “We have a CEO, Mark Hurd, who is very focused on procurement and a strong supporter of procurement as a critical function at HP to help achieve objectives. He also takes us to task in terms of helping to identify opportunities.” Welch adds that he and Conrad meet often with the CEO to discuss the company’s relationships with suppliers and their progress toward meeting HP’s cost-cutting goals.
For Welch and his team that’s translates into a series of initiatives as well as a more strategic approach to the global indirect buy. For one, the team reduced costs by 50% on the company’s multimillion dollar buy with outside consultants, using detailed spend data gleaned from the general ledger and purchase orders and statements of work. They cleansed the data, reduced unnecessary spending and set targets for the buy based on their understanding of what it entails. “It’s always been our holy grail to set business-driven targets that procurement would then work towards achieving,” he says. “In this particular case, we did it.”
Welch and his team are responsible for the company’s $13 billion annual indirect spend at HP. He was a keynote speaker at the Ariba Live conference held recently in Las Vegas.
E-procurement update
Ninety-five percent of HP’s indirect spend now flows through the Ariba Buyer platform, which is up and running in 50 countries. With the spend data Welch and his team garner through the e-procurement system, he says they are able “to get a real march on compliance” to contracts they’ve negotiated with preferred suppliers.
Again, working with Ariba, the team now is putting in place a single integrated enterprise strategic procurement platform across HP. In other words, the company is using the Ariba platform for all its purchases—direct, indirect and services. Already, it is used the sourcing platform for more than 1,000 events; it’s also implementing Ariba’s contract management and compliance modules, which will be followed by the spend analytics and other tools. This year, HP has used the sourcing tool for such buys as contingent labor, IT, telecommunications services, factory operations (fuel and other services) and the survey process the company uses to conduct its Total Customer Experience survey. With the tool, they’ve been able to reduce costs by up to 60% on some buys.
Implementing the contract management tool ties in nicely with HP’s search for an end-to-end integrated way to manage indirect spending, Welch explains. With it, the team can ensure that the invoice matches the PO and that matches the contract price and terms and conditions. Right now, that’s a manual process in many cases. “By eliminating the maverick or rogue spend and buying through our preferred suppliers we’ll be in compliance with negotiated rates,” he says. “It’s critical for us to close the loop which began with strategic sourcing and contracting.”
Other areas indirect procurement are focused on now include ensuring that the company is leveraging its spending in areas in which it has a service business such as IT (it has both an internal IT function as well as an IT outsourcing business). Welch and his team also are taking a more assertive leadership position in the company in terms of changing culture and policy surrounding its relationships with suppliers.
Related article:
HP was named a top 10 e-procurement user by Aberdeen Research in 2005
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