Purchasing Strategies Case Study: Outsourcing since day one
Five-year old telecom company Avaya in Basking Ridge, N.J. made a conscious decision from the start...
William Atkinson -- Purchasing, 3/16/2006 2:00:00 AM
Five-year old telecom company Avaya in Basking Ridge, N.J. made a conscious decision from the start—outsource whatever can be outsourced. And from day one, that has included the procurement function.
Joe Siciliano, senior manager of global procurement operations at Avaya, says the company began operations with a procurement outsourcing partner, but, "When that contract expired three years ago, we ran a sourcing event for procurement services." As a result of that event, Avaya has been working with ICG Commerce ever since.
Avaya focuses most of its outsourcing work in nonstrategic spend categories, such as office supplies and indirect materials. But it has outsourced some strategic spend areas.
"For example, since we are a telecommunications company, telecom is strategic to us, but it has been completely outsourced to ICG," states Siciliano. ICG handles activities such as sourcing, commodity management, market research and data analysis.
ICG personnel actually work on-site at Avaya, in the company's procurement center managing transactional activity such as creating purchase orders and updating supplier databases.
But ICG also adds strategic value. "For example, when one of our internal customers says it wants to buy from Company A, but Company B is our preferred vendor, ICG will have a discussion with the customer to drive them to the appropriate vendor," Siciliano says.
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ICG personnel also handle reporting duties, such as analyzing data, as well as providing new ideas and opportunities for sourcing and commodity management.
Finally, as new events come up in areas that ICG does not cover, it may begin to provide complete sourcing in these spaces. "There is a lot of flexibility here, which is the way I like it," emphasizes Siciliano. "If they begin to provide sourcing in a new space, we may pull resources from other areas." For example, if there is nothing of value that needs to be sourced in the telecom space, Siciliano may arrange to move the ICG person who is responsible for telecom purchasing to handle a sourcing event in training, especially if that person already has some experience in the sourcing of training.
Early in the relationship, Avaya and ICG created a strategy for each commodity. "We went through a series of sourcing events, commodity by commodity, to show [ICG] what our expectations were in each commodity as part of a three-year plan," he explains. "We also created service level agreements for the transactional piece, making sure they were ambitious for both sides."
Avaya and ICG have created a strong relationship, both on the macro and the micro level—strong enough that ICG is part of every issue Avaya has with its supply base.
"[ICG's on-site employees] are part of the organization," Siciliano says. "I don't look at them as a third party. They are my partners."
The relationship with ICG started out with positive results—double-digit savings from the outset. Subsequent savings have been the result of the partnership formed.
Currently, while Avaya sources globally, most of what it does with ICG is in North America. "We now want to look at stretching this relationship out globally, because my peers in the other regions of the world want to start reaping some of these benefits too," Siciliano says.
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