Alcoa purchasing delivers lower costs and lower overhead
Supply Strategies
Staff -- Purchasing, 11/6/2002 2:00:00 AM
Alcoa has presented a challenge to its procurement group: Deliver a very large piece of a $1 billion cost savings promise, while at the same time reducing the cost of the procurement function. “We need to cut a fairly significant amount from our procurement costs without jeopardizing our ability to deliver on the savings target,” says Christie Breves, vice president of procurement for Alcoa Business Support Services.
Meanwhile, Alcoa’s management team made a decision to roll out its new information technology platform starting with the procurement and accounts payable groups.
Alcoa’s Enterprise Business Solution Team figured that a common information platform would enable the procurement group to leverage the company’s purchases worldwide and cut overhead costs very quickly, explains Breves. “It had been difficult getting the information needed to do strategic sourcing and was virtually impossible to develop one common process with 40 different procurement systems in North America alone. No matter how well our com-modity managers understood the supply chain, we knew we could not hit our efficiency goals without a common platform.”
What the common platform inspired procurement to do, according to Betsey Harrington, director of procurement solutions, was develop a menu of 18 “optimized process flow paths” for various types of buys.
“The original intent,” she says, “was to implement the ERP system ‘out of the box.’ But we had gone through a major cost benchmarking effort and we realized that simply implementing out of the box was not going to get us to the level of internal cost efficiency that we wanted to achieve.”
At that point, Harrington says, Alcoa’s North American procurement, IT and Financial Shared Services leaders made a decision to delay their implementation for three months so they could design new requisition, procurement, receiving and payment processes that could be implemented with the lowest possible number of transactions or human interventions.
“The optimized processes balance controls with risks,” Breves explains. Where risk is thought to be high, Alcoa maintains some manual controls or human interventions in its ordering, receiving, document matching, and payment processes. Where the risks are deemed low, lower, or lowest, Alcoa has developed plans for automating traditional financial control activi-ties, creating dramatic reductions in its overhead cost structure.
Common features of the optimized processes include:
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No paper purchase orders and, in many cases, no POs at all.
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Extensive use of the Alcoa Mall, which simplifies the requisition-to-pay process.
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Limited receiving.
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No paper invoices and, in many cases, no invoices at all.
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Significant use of Kanban signals.
To push use of the new optimized flow paths throughout Alcoa, Harrington’s group conducted extensive training and a Web-based e-learning tool, which is basically an Internet site containing detailed content about how to apply and implement the optimized process flows.
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