W.R. Grace overhauls procure-to-pay
Before it could centralize its global procurement operations, W.R. Grace had to take a good look at how it managed procure-to-pay.
By Maria Varmazis -- Purchasing, 10/16/2008 2:00:00 AM
It's a problem familiar to many a procurement organization, large or small: disorganized procure-to-pay (P2P) processes. But when it comes to buying for a Fortune 1,000 company, the major differentiator always comes down to one thing: scale.
When Scott Campbell, vice president of supply chain at W.R. Grace, says there were inefficiencies in the company's procurement strategy, he is talking about serious money potentially tied up in those problems. The Columbia, Md.-based chemicals producer has about $1.7 billion in spend that it splits into direct, indirect and logistics categories and distributes over 70 plants in 40 different countries. Three years ago, Campbell and his team set a goal of shifting global operations from a distributed to a centralized model; however, they soon realized that with so many sourcing teams around the globe buying so many different commodities, they had an inherently inefficient procure-to-pay process that was bogging everything down.
"We were very distributed with many sites, so standardizing procure-to-pay would clean out the whole process and give more cash back into the business," says Campbell. "We had a lot of non-value added activity and inefficiencies in the plants that increased workloads." From there, Campbell planned on completely centralizing all global procurement processes, but first things first.
Last year, the W.R. Grace supply chain team started from the basics and worked its way up. First, Campbell looked at Six Sigma and Lean blackbelt basics to map out where exactly processes stood. There was a jumble of individual legacy processes with little common ground. From that point, supply chain gathered all the best minds in the company from a broad range of competencies to figure out a way to retool the P2P process. Plant buyers, finance, accounts payable and corporate auditors all sat down to draft up new policies and procedures for all future purchases. "We did a lot of up-front legwork first," says Campbell. Each brought their own unique perspective on the inefficiencies they saw.
Specifically, he says that buyers knew of a number of snag points that needed fixing—what to do if there was a mismatch on a receipt value, for example. The buyers Campbell brought in said they'd like the matching process to be touchless. In essence, the buyers wanted a traditional three-way match on purchase orders, receipts and invoices.
But in order to implement a touchless match system, the cross-functional team at W.R. Grace also needed to take a good look at how it handled transactions through purchasing cards (P-cards). The in-place system had a $1,000 purchase cap, which might be a reasonable limit in place at most companies, but in W.R. Grace's case, this limit was putting an unnecessary burden on purchasing teams. "We had to look at the number of transactions and types of transactions we had going through our sites," Campbell says. Upon further inspection, the team found that raising the limit to $5,000 greatly reduced the process times. "It ends up that we were spending too much time on smaller purchases that didn't really need to go through purchasing," adds Campbell.
Of course, once that purchasing limit was raised so significantly, the supply chain team had to take aggressive measures to make sure card holders were trained in how to responsibly manage their purchases. "We rolled out and trained every single site on the new policies and procedures on the new P-card, and rolled out the process discipline first across North America," he says.
As W.R. Grace decided to stick with its previous P-card provider even when raising the purchasing cap, it took extra effort when training card holders to emphasize that though it was the same card company, the policies behind that card were new. Procurement staff had to be drilled on the new, consolidated terms. While Campbell's team revamped the P-card system, they noticed that they had more than 900 terms distributed globally across all sites. "We went through a process of cleaning up our master data and agreeing on what the future terms would be, as well as what the new policies would be around terms and conditions, and that helped," says Campbell. He notes that by consolidating the old P-card terms and getting P-card holders to understand the new ones, W.R. Grace has been able to increase its days payable outstanding (DPO) by 17% since last year and aims to increase it by 44% in the long-term. "That's what's built-in to this whole process and education: Understanding the tradeoff between terms," he says.
By sticking with the same card provider, Campbell says the company was able to take advantage of historical data and supplier lists, which in turn gave P-card administrators greater control over general card use. "Though we did have to do a lot of training, we used to have a P-card for every cost center, and it's a P-card assigned to a different cost center at the end of every month," he says. With the transaction data they had kept from the previous iteration of the P-card, Campbell's team created a preferred supplier list from centrally negotiated and vetted contacts, which was then loaded directly into the P-card system. Though buyers now have a higher spend threshold, they can only purchase from the preferred supplier list.
Campbell emphasizes that the changes he and his team made to procurement and P-card terms had to be rolled out gradually and with heavy support from the executive level, otherwise there would be too much pushback for any program success. "To standardize functions globally we had to go site by site and train on the P-cards, train on the new terms and make sure that buyers see the endgame," he says. "People needed to understand why these changes were a good thing for Grace, but you can't just roll it out at once." Thus far, Campbell is happy with buyer adoption of the new P-card and terms. "P-card spend to date has hit 25% and I want it to hit 100%," he says.
Now that the P-card program is in full swing at W.R. Grace, Campbell says the company has made the first steps towards centralizing its receiving function—a goal made partially possible through P2P standardization. All of these improvements were only possible after taking a good, hard look at the old processes and scrutinizing what needed to change. "Buying is buying—you have strategic sourcing whether you're buying a widget or a specialty chemical, you always follow the same process discipline," he says. "With those process disciplines, engage the functions outside of your discipline that touch the process you want to optimize and follow rigorous methods to measure, define and implement control."
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