Air Products takes fresh look at sourcing
Sourcing team's influence continues to expand across broad industrial gas producer.
By Rich Weissman -- Purchasing, 10/16/2008 6:00:00 AM
Ask Patricia (Pam) Mattimore how she gauges the success of her company's procurement and sourcing initiatives and she may quickly move from a discussion on traditional metrics to a more heartfelt one. "I know we are adding significant value when we are being asked to add more strategic supply management personnel," says Mattimore, the vice president of energy and materials for Allentown, Pa.-based Air Products. "We've made great strides in our acceptance across the company. Our organization is being pulled, not pushed."
With annual revenues of $10 billion, Air Products employs 22,000 people in more than 40 countries supplying industrial, medical and specialty gases to customers around the world. Its electronics and performance materials business provides specialty and bulk gases to the semiconductor industry, as well as the coatings, inks, adhesives, mining, oil filed, and polyurethane industries.
Mattimore, a 26-year veteran with Air Products, has been in her present role for three years. The group she heads up, the Energy and Materials organization, is 400 strong and is responsible for sourcing all raw materials, energy, corporate services, operating and maintenance parts for the company. It also sources the equipment, materials and services for the construction of its many onsite plants around the world. "We look at our business model as a triangle, with operations, supply management and the business itself occupying the three sides," says Mattimore. "At our company, supply management is considered an influencer, working with engineering and the supply chain to lower costs and increased operating efficiencies. We are viewed very positively and are heavy on talent."
And the increased acceptance of that group as a strategic function that Mattimore refers to at Air Products has produced some impressive results in the past couple of years. Air Products' costs have improved by 20% since 2005, a period during which the company has divested a number of businesses, says Mattimore. "Today, our buying and sourcing teams are annually producing cost improvements which exceed five times their fully loaded salaries."
Three keys
The key to the success is that Air Products' Energy and Materials organization is divided into three primary segments: strategic sourcing, operational purchasing and process enablement. By dividing the Energy and Materials organization into three focuses, Air Products has been able to develop a clear staff and vision for each focus area.
For example, when a strategic sourcing initiative was launched several years ago it had a concentration on low-cost country sourcing. Part of that low-cost sourcing drive has been driven by its increased sales. In many cases, Air Products will build a facility or onsite plant adjacent to or near a customer's facility to deliver industrial gases through a pipeline, reducing distribution costs. The onsite plant model is a unique and important part of company operations but one that adds a new wrinkle to the supply management job.
"We've built hundreds of these plants around the world," says Mattimore. "Much of our growth is in China and other low cost country sourcing areas and as these customers grow they need to add infrastructure."
As the company's presence expands in these new global regions, so does the opportunity for more low-cost supplier contacts, while the need for buyers expands in these regions as well. Mattimore's organization is truly global in reach but many in global sourcing roles have experience at the business unit level. Combining a familiarity of overall business issues with a strong procurement background provides functional expertise and a good organizational balance.
"Thoroughly understanding the nature of our business is critical to procurement's success," adds Mattimore.
The operational procurement group's activities are located at large plant complexes, often at customer locations or in regional headquarters. This staff buys construction services, chemicals, project oriented materials and set up supplies for on-site installations. These buyers also work closely with engineering and plant operations in a project management environment. Mattimore adds that this part of the organization also includes materials management of the inventory and non-inventory parts required to support production plants on a global basis.
"We are always trying to reduce transactional costs in the purchase-to-pay process," says Mattimore.
Mark Connar, director of process enablement at Air Products, says the third component of the Energy and Materials organization—the process enablement area—focuses on leveraging technology such as its SAP ERP system and the Ariba self-service procurement tool for indirect materials in streamlining the purchasing process. In addition, Air Products has implemented an extensive procurement card program in North America for small value purchases. The process enablement group also acts as a center of excellence for the development of sourcing and procurement training programs.
"Where feasible, Air Products actively promotes e-connections for both purchase order delivery and invoice receipt," says Connar. "We've developed a consistent sourcing process, identified learning and training opportunities around the globe, identified knowledge management tools, and continue to teach our staff how to use transaction tools."
Connar's role also includes driving Air Products' strategic sourcing process. In this process, the strategic sourcing team: identifies opportunities, takes an assessment of the opportunity for a global supply agreement, creates a cross functional team, assesses the opportunity for a global supply agreement, develops a procurement strategy, conducts a bidding event, evaluates the bid on a total cost of ownership methodology and executes and manages the contract.
Going long
Mattimore's long-term procurement philosophy is to establish and nurture long term relationships with suppliers, but the focus of late has been developing relationships with suppliers in low cost regions such as China, India, Asia and Eastern Europe. "We leapfrog traditional suppliers to find those that add the greatest value," says Mattimore.
Energy cost management is also a long-term focus for Mattimore as Air Products' largest spend is on power and natural gas. "The air is free but we need to buy the power," is how Mattimore puts it. She looks at the energy spend not as a relatively simple commodity, but as a critical component of the business. "We have energy experts on our staff who thoroughly understand energy markets and the differing issues from state to state and country to country." That also means analyzing the complex and specific energy needs for each manufacturing and customer site.
While there are traditional metrics to measure procurement effectiveness, Air Products' business model calls for some additional and creative criteria that may need to be measured differently, such as performance relative to executing projects to a specific on-site budget and schedule. "We focus on supporting the overall business and capital program at customer sites and we are directly involved in budgeting and estimating new project opportunities," says Mattimore. "We are part of the leadership team at these facilities and that includes getting deeply involved with engineering and into budget issues. Again, we tend to act as an influencer in these situations."
Looking forward, Mattimore's priorities include improving and increasing the supply management organization's influence at the business unit level and pushing more low cost country sourcing as more installations in China and Asia will require more local suppliers to support business activities.
"There will be continued pressures on managing energy and raw materials in a tight marketplace with a changing supplier community, especially in chemicals and capital equipment," says Mattimore. "We will be on a constant search for internal and external talent."
To read Purchasing.com's How To series on the seven-step strategic sourcing process,
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Also see: Purchasing.com's How They Buy archive of strategic sourcing case histories
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