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Spotlight shines on supply management at Unilever

Meeting a cost-savings goal sets stage for further integration into Foods and Home & Personal Care businesses.

by Susan Avery -- Purchasing, 9/5/2002 2:00:00 AM

In the global supply management war room at Unilever's North America Home and Personal Care headquarters building in Greenwich, Conn., Gregory F. Polcer, vice president, global supply management-Unilever, keeps a close eye on projects that could generate some 2 billion euros in cost savings globally over a three-year period.

Monitors lining the room indicate that closing in on the final months of an initiative that calls for a 1.75 billion euro reduction on an annual global spend of about 30 billion euros, the supply management organization is meeting its target. After ten quarters, it has saved 1.6 billion euros. Perhaps more important to Polcer and the supply management organization is the fact that over the past three years they have also put in place processes to ensure savings will be maintained and continue to grow over the long haul.

"It isn't about supply management delivering on its goals," says Polcer. "It's about Unilever businesses delivering on our overall goals and what we can do to help do that. Meeting the 1.75 billion euros savings target puts a spotlight on the capabilities of the supply management organization.

"The vision is supply managers as business partners. So, do we need a separate goal or should we be working to improve the company's growth and trading margins? We will leave cost-savings targets for the business heads and executive committee to decide. We are on our way to embedding supply management processes, competencies and skills in the business."

A global consumer products company with headquarters in Rotterdam and London, Unilever had sales of more than 50 billion euros ($49 billion) in 2001. Popular brands worldwide include Hellman's, Knorr, Lipton, Dove, Lux, Omo and Vaseline.

Recent efforts of the supply management organization are part of a larger corporate strategy to increase growth and profitability called "Path to Growth" announced early in 2000. The five-year plan is centered on a series of initiatives to focus on fewer, stronger brands. Among the initiatives: A world-class supply chain.

Part of having a world-class supply chain is having a world-class supply management organization, says Polcer, whose position was created under the Path to Growth strategy. He's responsible for ensuring that supply management best practices are shared between the company's two global business divisions: Foods and Home & Personal Care.

Previously vice president of finance for the Home & Personal Care business in the U.S., Polcer also has served as vice president of purchasing for Lever Brothers (before it was merged with Cheeseborough Ponds and Helene Curtis to form the Home & Personal Care business).

As Polcer assumed his new role, management recognized that the company had a fairly good buying organization in place worldwide. However, it was not taking full advantage of its purchasing power. "It isn't only about being a world-class supply chain," he says. "While clearly supply management is about connecting to the supply chain, it's also about scale, integrating with innovation processes (areas that generate revenue for Unilever) and strategically sourcing nonproduction items."

And to ensure that efforts of supply management in these areas are maintained over the long haul, the organization has put certain processes in place. These sustaining capabilities include hiring and retaining skilled supply managers, enhanced information and e-enabling processes and driving toward more executive supply management (accountability and responsibility for delivering against strategy).

A matrix

Unilever's supply management initiative is led by a steering team chaired by John Rothenberg, senior vice president, supply chain for Home & Personal Care North America. Polcer reports to him. "With John Rothenberg heading the steering team and holding a position in one of the businesses, we show the company that supply management is interdependent and led by an executive who will act on behalf of Unilever, with the Unilever First mindset." This means that ultimately sourcing decisions are based on what's best for Unilever as a company.

Polcer is on the steering team as are the heads of supply chain for Foods and Home & Personal Care divisions as well as heads of nonproduction item purchasing and Unilever IT (information technology). The steering team and supply management executives led by the two vice presidents of the Foods and Home & Personal Care businesses, are responsible for delivering results against the initiative. Rothenberg reports to EXCO , the executive management board of Unilever.

"It's a bit of matrix, but the organizational structure ensures the supply management initiative is collaborative across the businesses and has the support of the company's top executives," says Polcer. The steering team meets at least four times a year and communicates frequently via email, video conferences and telephone.

The two business divisions each have a senior supply leader responsible for leveraging purchasing, mainly of production materials. Reporting to a vice president of supply management for Foods are heads of supply management for Foods in each geographic region: Europe, North America, Latin America, etc.

How it works is like this: "If there is a trade-off to be made between two geographic regions, say Latin America and North America, a commodity team will decide the best solution for Unilever," says Polcer, whose role includes working with the two divisions to help with leveraging across divisions globally. "Take sugar for example. If we combine the purchase, Latin America may save $5 million, but it will cost North America $1 million. Net/net, however, Unilever is better." The teams must then ensure the proper profit reporting is worked out.

For nonproduction items, a global vice president has responsibility for the purchase. (Nonproduction items include all items for which the company writes a check, except production items, media and full-time employees. Some examples of nonproduction items: freight and distribution, travel and accommodations, professional services, temporary labor, machinery and capital equipment.) Reporting to the VP are heads of nonproduction item supply management for each geographic region: Europe, North America, Latin America, etc. Nonproduction items are purchased by the regions for both businesses (Foods and Home & Personal Care), with nonproduction items supply management considered by the company to be a shared service for several reasons: 1) purchase of nonproduction items is not consumer-related; 2) there is little involvement with Unilever's innovation processes and 3) it's easier to achieve economy of scale with nonproduction items buys.

For the company's production buys, there are more than 40 global commodity teams which are made up of supply managers working in the regions for the businesses. Sometimes the teams do the actual purchasing; at other times, they may determine after reviewing the supply market that the best way to manage the commodity is regionally. Again, the guiding principle is Unilever First.

"The teams ensure we extract the appropriate scale," says Polcer. "If scale is derived regionally rather than globally, the supply management executives in the region put together a regional team for the purchase." Corrugated packaging is an example of a currently regional purchase.

Responsible for generating cost-saving project ideas, of which there are now more than 9000 in the supply management database, the teams purchase production items for one of the two businesses, i.e., tomatoes for Foods, as well as production items across the two businesses, i.e., fats and oils. (Fats and oils is one of Unilever's biggest production purchases. Other global teams purchase such items as surfactants, plastic packaging, distribution services, marketing and sales services, tomatoes and tea).

"Sometimes, we may have both regional and global teams because while we may want to purchase the commodity globally, the reality may be that the supply markets are more regional in scope. There's quite a bit of synergy in packaging across Foods and Home & Personal Care."

1.75 billion euro target

Late in 1999, after a management meeting at which the company's top 150 executives agreed to financial goals presented by EXCO (double-digit earnings per share and increased trading margins), the supply management organization received its cost-saving target.

An initial target eventually became 1.75 billion euros. Since the meeting and the organization's setting of its strategic agenda, Unilever has made a number of acquisitions and divestitures. Among its acquisitions are Best Foods, SlimFast and Ben & Jerry (The latter two were on the same day). Unilever also has divested some of its businesses, i.e., the sale of Diversy Lever to Johnson Wax Professional.

Seeking input of the businesses, the supply management steering team determined how it would divvy up the target, which is being managed on a project basis.

(At the time, the company was not yet broken out into divisions; all heads of supply management were identified about one year later.) Project ideas developed by the global commodity teams are recorded in a supply management organization database and tracked regularly by Polcer and his staff in Greenwich. As such, supply management has two electronic tools for use by the organization—one is Web-based, the other is not. The tools aggregate information on all activities, which is formally collected each quarter for measurement against the organization's goals.

"With each project identified as to size, risk and resources, we have capability to share information and confidence when we report savings," he says.

Expectations are that the supply management organization is not going to deliver on all the projects. "We want people to take risks, " says Polcer. "An idea may be risky, but we can capture that and do some financial analysis to see what we think we can actually save.

With more than $2 billion in projects in the supply management database, the organization is delivering more cost reductions on purchases of production items than it had planned. Unilever had been doing some global supply management, particularly in the company's detergents and personal care products businesses, in the early 90s. "We were doing a good job, but the company didn't have a spotlight on the activity," says Polcer. "People were sharing information, but at the end of the day, they couldn't pull the trigger. Beginning in 2000, management let them fire the shot."

Some examples of commodities for which there are active global projects: alkalis, surfactants, oils, flexible packaging, plastic molding. One commodity team recently received one of the company's prestigious Path to Growth Gold Awards. The team earned the honor for developing a project involving the company's corrugated packaging buy in Europe. Corrugated packaging in Europe is purchased for and delivered to 110 sites. The project, which consolidated the buy significantly, reduced the supplier base as well as costs involved in purchasing the commodity. "That was a huge behavior change," says Polcer. The project involved working as an executive body while staying connected to the regional supply chain. As such, the team took the bold step of starting to purchase corrugated on behalf of Unilever for all of Europe.

An example of a global project: purchase of a chemical used in the production of detergent. "We have a team that is global and yet while the market is not quite global, the team has been able to work in China to develop a supplier to the point that it now has capability to ship to Latin America," says Polcer. "This truly changes the dynamics of the overall supply market."

As a result of the project activity, he expects Unilever to have a significantly smaller suppler base (optimal size will be better defined by each regional or global commodity team). The supply management organization is looking for suppliers truly engaged in the company's Path to Growth. In turn, Unilever rewards suppliers with success by scale, ability to help grow brands and innovate with and for the company.

"Clearly we will shake some of the markets as we put scale together working cross divisionally and cross regionally which changes dynamics," he says. "Some will win. Others won't. We want to engage the hearts and minds of our suppliers to help us on the path to growth and for that they will be rewarded."

Once the cost-saving target was divvied up and agreed upon, the supply management organization invited 25-30 senior managers, Unilever board members, operating company chairmen, business group presidents, senior vice presidents of supply chain, senior vice presidents, finance (along with input and assistance from human resources) to a two-day offsite meeting to set strategy for the supply management organization. The group established six strategic thrusts:

Implement executive buying.
Professionalize nonproduction item sourcing.
Attract, develop and retain world-class buyers.
Drive information and management.
Enable e-sourcing globally.
Accelerate and leverage simplification.
Polcer says these six thrusts best define work supply management operation is doing going forward.

"Clearly there is interdependence. As we start to develop and track activities and savings to the P&L that creates some space for building sustaining capabilities, such as attracting skilled professionals to supply management." As such, supply management started a training program: 170 people recently attended workshops at the company's Four Acres facility in the U.K.

Nonproduction items

For the purchase of nonproduction items at Unilever, change management is the key issue, says Polcer, explaining that it's about engaging people who use the services to help supply management with strategic sourcing.

"It's not about supply management coming in and saying, 'We will do your sourcing.' It's a different way to engage the business. Supply management wants the rigor of a process. Those using the services know the industry better than supply management. We want users on our team to help make strategic sourcing decisions, but we need to take emotion and personal relationships out without stopping creativity, innovation and speed. We can't tell a marketer what will sell, but we can help buy it better. It frees up time for people to get on with the rest of their jobs."

Customer satisfaction is key. The more inefficiencies supply management can remove from the purchasing process, the more money the company will have to invest in the consumer, says Polcer. Most successful nonproduction item buy to date for the supply management organization: marketing and sales (coupons and promotions), which it determined could be leveraged regionally.

To assist users with the ordering process, the supply management organization is implementing and currently rolling out the Ariba Buyer e-sourcing system for some nonproduction items (some MRO and office supplies), in North America, Europe, South Africa and Latin America. (The company has a global Ariba Center of Excellence in New Jersey.)

The supply management organization has a global team in place to evaluate its use of e-sourcing tools.

"We are using everything from self-service tools and suppliers to full-service tools and suppliers," says Polcer. Supply management has used such tools to gather information from suppliers (which it's done in most regions) for such buys as tallow and to hold reverse auctions (which it has done in almost every region) for several packaging buys, emulsifiers and tea. While use of e-tools saves time, he acknowledges that it takes time to set up such events. The organization's goal remains to e-enable many of its information processes.

Supply management assumes bigger role in product innovation

Under the Path to Growth strategy, supply management at Unilever is involved in innovation at the global, regional and, where appropriate, the local operating company level. In fact, it is becoming increasingly more involved at the global level as the company continues to focus on fewer, stronger brands.

On a regional level (i.e., North America), supply chain innovation managers are working with innovation groups for each product category. Supply managers become involved through the supply chain managers.

At the same time, supply managers who are directly involved with a category also are exposed to new innovation projects. Their role is to introduce appropriate suppliers (i.e., raw materials, packaging) to the process.

On a global level, the supply management executive governing body has appointed representatives to the different product categories: deodorant, skin care, hair care, oral care. Tony Chiafari, vice president, supply management, Home & Personal Care North America, is supply management's rep for deodorant. In his role (which is being developed), he provides suggestions of potential suppliers (raw materials, packaging, fragrance). As such, he has input into innovation projects through the global and regional organizations and back to the global innovation centers. "Our job is to balance all this innovation and keep it focused," he says.

Supply management becomes involved in the actual process almost immediately. "We have timelines for launching products and supply management is brought in at the very beginning," says Chiafari. Through discussions with colleagues in development in which they explain the concept, supply management provides a list of suppliers with capabilities to fill requirements.