Greif navigates an indirect procurement transformation
Industrial products firm establishes preferred supplier contracts across indirect spend categories.
By William Atkinson -- Purchasing, 7/17/2008 2:00:00 AM
When you have a company the size of Greif with 75 plants in the U.S. and 200 worldwide in more than 40 countries, opportunities for spend leverage are enormous. And for many years, the Delaware, Ohio-based industrial packaging maker did a good job of leveraging its spend with direct materials suppliers, including steel, resin and paper providers.
But when Ron Brown took over as Greif's senior vice president, global sourcing and supply chain in late 2004, he saw the value in expanding the spend management efforts to the indirect materials side by establishing preferred supplier contracts across major indirect categories both domestically and internationally.
“We want this many plants, because we want to be close to our customers,” says Myron Gramelspacher, vice president, global logistics and indirects. “When we started looking into it, we found that with the exception of a very few categories, most of our indirect spend was negotiated and managed at the local plant level, many of which are smaller facilities overseas. We had very little leveraging of our indirect spend across the plants” even though many were buying the same things such as office supplies and maintenance materials.
In mid-2005, Greif initiated an indirect procurement transformation project and one of the first decisions procurement had to make was whether to handle the indirect program internally or externally. “At the time, our staff was basically me and one other person,” Gramelspacher tells Purchasing. Rather than hire an internal team for indirect, the company elected instead to partner with ICG Commerce, a third-party procurement services provider in King of Prussia, Pa.
To begin the initiative, Greif targeted 19 traditional indirect spend categories, including travel, energy, general industrial supplies, safety supplies, office supplies, and relocation services. The first challenge was gaining spend data visibility from all of the plants around the world to determine what they were spending in each category. “Since we had gone through a lot of acquisitions, we had a lot of disparate systems,” explains Gramelspacher. “We had to pull data from as many as 15 different systems.”
While this information was important, it wasn't comprehensive because it only told Greif what it had spent in the past. “We needed to visit the plants to get specifics from invoices, and in some cases even meet with suppliers to find out what we were currently spending,” Gramelspacher says. The results were encouraging. While each of the categories taken separately didn't tend to add up to a lot of spend, when they were added together, the total amount was clearly significant enough to justify the work.
As Greif began to negotiate and implement regional and national agreements with indirect material suppliers, it also began to put some of the spend categories on an e-procurement tool, hosted by ICG Commerce. “In that way, we could download a catalog from a supplier, and people at the plant could order online via the e-procurement tool,” he reports.
Despite the obvious cost benefits, it took some time to get users to understand the need for the changes, as well as to become comfortable using the new system. “A lot of people in the plants had 'coffee cup' relationships with local suppliers and really hadn't quoted or benchmarked the relationship in quite some time,” Gramelspacher says. In addition, their belief was that each spend category didn't amount to much, so why focus on it? “We had to explain that, combined together, all of the indirect categories did represent a lot of money,” he says.
One way the company was able to encourage involvement was to arrange for representatives from some of the largest plants to be part of the transition team and serve as a sounding board for ideas. Initial results were impressive. “By early 2007, we were saving anywhere between 5-15%, depending on the category,” he states.
Still, management knew there were even more opportunities. In 2007, it launched an indirect benchmarking initiative with ICG Commerce. First, it benchmarked to compare its spend in North America with other manufacturers with which ICG Commerce did business. “Benchmarking helped us identify where we were doing very well, and where there was room for improvement,” Gramelspacher says. Second, the company conducted an internal “best in class” benchmarking study, where it evaluated itself on a plant-by-plant basis, grouping the plants by the different products they manufactured (steel drums, fiber drums, plastic drums, etc.). As a result of the information it has gathered from these benchmarking studies, Greif plans to take even more spend out of the process in the next couple of years.
It is also in the process of expanding its spend management to other areas of indirect materials, including some categories that affect the corporate facility, such as auditing, legal services, consulting services and healthcare benefits. Greif recently created a team to look at this spend, and the team is now working upfront with the engineering group, and working around the world to get competitive bids, to develop agreements, and to negotiate up-front capital expense, as well as maintenance service fees.
And Gramelspacher says Greif will expand the geographic scope of its work to expand the indirect program to more overseas plants.
To track compliance at the user level, Greif has created a Preferred Supplier Utilization Report which measures the degree to which plants and other users are ordering from preferred suppliers. Top management sees who is using preferred suppliers and who is not, so it is bringing more visibility to the process. “If there are valid reasons why someone is not using a preferred supplier, we want to know about it, so we can address it,” explains Gramelspacher. For example, if a plant is not using one of the company's preferred suppliers for temporary labor, it may be because that supplier doesn't have an office close enough to that plant. In such a case, Gramelspacher's team can go in and negotiate a temporary labor deal for that location with another supplier.
As Greif adds more plants to the program, adds the corporate offices, expands worldwide, and adds more spend categories, it is saving even more money. However, besides just saving money as a result of being able to leverage spend, Greif is reaping additional benefits from the indirect program. For one, it is gaining increased visibility and importance from suppliers. “We are able to get more value and service from the suppliers we focus with,” Gramelspacher says. “They are paying more attention to us. For example, if a supplier is not serving one of our plants very well, they know that could have an impact on their business with a lot of other plants.”
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