Purchasing Strategies Case Study: The sweet smell of outsourcing success comes to fragrance maker
In late November 2005, fragrance maker Coty of New York signed a five-year contract with IBM for procurement services across 14 countries in North America and Europe.
William Atkinson -- Purchasing, 3/16/2006 2:00:00 AM
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In late November 2005, fragrance maker Coty of New York signed a five-year contract with IBM for procurement services across 14 countries in North America and Europe. The move came as part of a Coty efficiency initiative called "Spiral of Success," aimed at achieving cost savings by optimizing business processes. The goals were to leverage IBM's global economies of scale and optimize Coty's procurement processes. In addition, by outsourcing procurement, Coty is able to free up capital to invest in product development, new acquisitions and other business strategies.
As one of the world's largest fragrance companies, Coty sells 35 different brands. "We have grown a lot internally, as well as through acquisition, which has led to a fair amount of complexity in our organization," says Lee Kornfeld, vice president of purchasing at Coty. "That growth also led to a lot of disparate spend."
For example, the recent acquisition of Unilever Cosmetics International provided a particular challenge. "We had to integrate the business into ours," says Jonathan Pridmore, former vice president of purchasing and now vice president of planning and new product development. "We found that, on the indirect purchasing side, we ended up with a number of different systems around the globe. In addition, we didn't have any professional purchasing involvement in this indirect spend."
As a result, the company elected to bring in IBM, which was able to offer an infrastructure designed to pull together a comprehensive and coordinated global procurement process for Coty. "This made a lot more sense than trying to create our own infrastructure for indirect, especially since we really needed to devote our time and resources to the actual business integration," adds Pridmore.
In some cases, IBM is adding Coty to its existing agreements. In other cases, it is resourcing Coty's existing agreements. "In areas where we already have internal expertise, such as logistics and point-of-purchase displays, we are leveraging IBM's commodity expertise to work alongside us to optimize our purchasing," reports Kornfeld.
To date, Coty is very happy with the results. "Since we didn't have this expertise in place, it didn't involve any job losses," emphasizes Pridmore. "Instead, it was an incremental service that we added."
"As a result of this arrangement with IBM, we are able to manage a much broader portfolio of projects by leveraging their expertise," adds Kornfeld. "For example, they are providing us with a lot more meaningful data and commodity knowledge."
Pridmore admits that it is still too early in the process (three months) to quantify specific savings, but he reports that Coty is already seeing some "pretty quick wins" in certain areas, such as stationery.
In perspective: "Looking back at just how fragmented we were and how many different decision makers were involved, we are very confident that we will see some significant savings as a result of this outsourcing initiative," concludes Kornfeld.
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