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Marconi reinvents itself; changes supplier strategy

By David Hannon -- Purchasing, 2/22/2001 2:00:00 AM

The times are changing for Marconi Plc.

The London-based firm is shedding its reputation as a defense contractor and is reinventing itself as a networking, Internet infrastructure and telecommunications company. And along with that change, Marconi is adopting a new supply chain strategy that better suits the new model.

In 1999, Marconi sold its Marconi Electronic Systems defense business to British Aerospace, creating the second largest defense contractor in the world. The move marked Marconi's formal departure from the defense industry.

"The legacy company of Marconi was a defense contractor and much larger than the business we are today," explains Chris Efstathiou, vice president of global procurement at Marconi. Efstathiou joined Marconi less than a year ago, in the midst of the transition. "Our focus now is to build a scaleable organization, which is growing as our business grows."

Marconi began to develop a global commodity management strategy two years ago to better manage its changing supply base. As a defense contractor, Marconi was a heavily decentralized company with little focus on company-wide commodity management functions. But now, Marconi finds it needs a centralized procurement group to identify best practices across the company.

The challenge with a transitioning business is the procurement operations of each acquisition have to be integrated into the overall business. Efstathiou says some of Marconi's recent acquisitions had commodity management organizations, but they were really set up to be corporate procurement organizations for smaller companies and didn't integrate easily into the much larger Marconi.

"Some had commodity management functions in place and some just had old-fashioned tactical purchasing," he says. "So now, we're bringing the commodity management concept across the world of Marconi." The company's new supply chain management strategy emphasizes flexibility and scalability to control supply across the changing face of the Marconi enterprise.

Think locally, buy globally

To solidify the commodity management concept, Marconi created the Marconi Global Procurement Council, a group of about 10 representatives from all major Marconi business units to discuss best procurement practices. Efstathiou co-chairs the council, which meets monthly and focuses on two areas: direct and indirect materials and services. Co-chairing the committee with Efstathiou are Philadelphia-based Jim Vespoli of Marconi Communications, who oversees procurement of direct materials, and Lou Vodopivec of Marconi Data Systems in Chicago, who spearheads the indirect materials effort.

The goal of the Global Procurement Council is to share best procurement practices across Marconi and combine its spending power where possible to negotiate the most favorable position for Marconi as a whole. Marconi has tried to centralize what functions it can, but also keep supply chains short where sensible. And with 49,000 employees and sales in over 100 countries, that isn't always easy to do.

"There is some synergy across the businesses on direct materials sourcing, but the major focus is on indirect procurement," Efstathiou says. "In this case, we have global commodity management teams focused on products and services that are used by every Marconi location worldwide."

The commodity management group that focuses on sourcing strategy, contracts and product development reports centrally. But it is a small group and is deployed geographically to support product development groups in different regions. The majority of the procurement personnel still report to their respective factories with strict responsibility for the business at that site. At the same time, they have carefully coordinated links to the central group and contribute to the development of the overall sourcing strategy through those links. For example, Marconi Communications, the largest Marconi business, has centralized its strategic sourcing activity, but factory-level procurement activity still reports directly to its plant management to support the individual site and its day-to-day activities.

"That's because of the complexity of the business and the different companies that have been put together through acquisition," Efstathiou says. "We've put together an organization that's scaleable with our growth."

Under the new supply chain strategy Marconi is also bringing its purchasing and procurement staff into product design earlier than it has in the past.

"You might say we're there when the bar napkins are being scribbled on," Efstathiou says. "We've tried to push that further into the development communities and we will continue to do that. One of the things I found when I came to Marconi was commodity management was really viewed as an aggregation of spend-pooling the numbers and having more negotiating power."

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