Smart Sourcing Summit: Adaptive purchasing works best
Best purchasing systems address global, local issues
Tom Stundza -- Purchasing, 10/14/2009 12:14:27 PM
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The creation of Rio Tinto Group into one of the world's largest multinational mining companies, and its takeover of major aluminum producer Alcan in Canada, has taught procurement management that "an adaptive and adaptable buying organization" is essential. "You can't have a one size fit" sourcing organization, Scott Singer, global head of procurement for Rio Tinto, tells Purchasing's Smart Sourcing Summit in Chicago.
Sheer size is an issue since the company has a $12 billion annual spend with more than 50,000 suppliers servicing 54 spend categories. The company generates 2.5 million purchase orders annually from eight business hubs-Brisbane and Perth, Australia; Shanghai, China; Singapore; Johannesburg, South Africa, Voreppe, France; Montreal, Canada; Salt Lake City, Utah-and business process outsourcing operations in Monterrey, Mexico, and Pune, India.
"The journey has been a wild ride and we have no idea what's really ahead of us" as the world exits the recession, Singer says. That's why he is stressing to procurement groups worldwide that "there's lots more to do on such issues as spend analytics, inbound logistics, intellectual capital and what he terms a ‘purchase to pay' mindset.
Singer says that "strategies for sourcing in uncertain times" really means there's a need for "organizational clarity with local credibility." He says that includes a consistent global message about a core set of procurement principles and vision, an adaptable purchasing/supply chain model, collection of meaningful information that is actionable, credibility across the worldwide supply base and recognition that client and supplier needs can vary from business unit to business unit based on geographic and cultural differences
Singer says Rio Tinto has found success in using Lean manufacturing techniques to connect various procurement cultures. A key example is a value stream-mapping event in March 2008 following the $38 billion Alcan takeover. "Since then, we have developed a common sourcing approach that harnesses best practices, many from the acquired company, without attacking each other." He says one key has been "the adaptation of category management that goes beyond sourcing and price points and the creation of a common lexicon for all forms of buying."
"The $38 billion integration is big by any standard, and, for purchasing, best practices on both sides had to be brokered to move forward," Singer says. The acquiring company doesn't always have better practices, he says, so a successful merge means taking the best from both. And the Rio Tinto/Alcan integration, the bringing of two cultures together, "was a defining moment."
Big spend areas to be addressed ahead are contract labor purchasing and a procurement card program overhaul. "Contract labor is a significant portfolio" with 43,000-plus contractors working at Rio Tinto sites in 2008, "so it is a big opportunity for us to manage the contingent labor spend." The firm annually generates more than 300,000 in credit card transactions for travel and entertainment and direct and indirect purchases transactions. So, the procurement card revamp will dovetail with the company's various supplier rationalization efforts, process simplification, spend data compatibility projects and other business-control reorganizations.
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