At Dow Chemical, purchasing is vital link in helping sales force deliver
By Susan Avery -- Purchasing, 11/16/2006 2:00:00 AM
Ensuring that a company's plants have materials they need for production is on top of the list of priorities for a good purchasing operation. At the Dow Chemical Co., they take that responsibility a step further.
“We help Dow's businesses and customers run better, faster and safer,” says Ian Telford, director of strategic sourcing and director of global trading. “We are a vital link in helping our sales force deliver products to our customers.” Telford works at a Dow facility near Zurich, Switzerland, company headquarters for Europe, the Middle East and Africa. He reports to George Biltz, global vice president of purchasing, who is based in Midland, Mich.
With Dow for 22 years, Telford is responsible for sourcing raw materials, packaging, external manufacturing and corporate services, a $6-$7 billion buy. Of these sourcing responsibilities, raw materials is the largest group and consists of 10,000 products—mostly chemicals for making plastics and derivative chemicals. Telford also manages the global trading group. He has a colleague in Houston with similar strategic sourcing responsibility who manages logistics and MRO/capital purchases. All told, Dow's global spend is $13 billion.
For raw materials, purchasing's internal customers are Dow's businesses—product managers, business directors and vice presidents.
The businesses communicate their needs to purchasing through a formal process called Value Based Sourcing. Although purchasing has been using VBS for two years, it put increased focus on the tool beginning in June, when the organization took a more strategic direction.
Value Based Sourcing is a sophisticated methodology to analyze the chemicals and plastics industries, suppliers to the industries and what's going to happen in the future, explains Telford. Dow typically enters into 2-3 year contracts with raw materials suppliers. Purchasing conducts VBS on critical materials when contracts in the range of $50 million to $100 million are up for renewal. Their target for 2006 is to use VBS for 25 contracts.
Together with the business—and representatives of R&D, supply chain and finance—purchasing analyzes supply options put forth through VBS. Then, the group does a robust financial analysis on the options and selects one that it will deploy. From there, they draft a supply strategy looking out three or four years. Finally, they produce an annual plan that fits on one sheet of paper that includes target pricing and major actions agreed upon through VBS. “What you have then is a stakeholder who's completely bought into what purchasing is doing,” says Telford. Purchasing relays information relating to business requirements directly to suppliers.
To assist with research, Dow has an internal group called the Business Intelligence Center (BIC) from which Telford and his team pull data for their analysis. They also use internal tools to forecast prices.
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How Dow buys: • Do research and analysis before developing a sourcing plan. • Include internal customers in the process. • Measure customer satisfaction with purchasing. • Tie results to annual compensation. |
Another purchasing initiative that helps Dow's businesses is the Global Trading group which addresses short-term tactical issues such as those related to inventory. For instance, when Hurricane Katrina hit last year, the global trading group, which consists of 70 individuals responsible for purchasing $300 million annually, was bringing in products the next day from the West Coast of the U.S., Mexico and Europe to replace those Dow could not get from Louisiana and Texas. “It's not just doing a deal,” says Telford. “It's the logistics, shipping and import duties. These people are experts. They really create value.”
Each year, purchasing surveys 200 managers globally for input on performance of the organization. Results of these customer satisfaction surveys are communicated back to the individuals who complete the questionnaire. Purchasing follows up with those who request it. Survey results are linked to compensation.
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