Team approach to buying improves process efficiency

To improve purchasing efficiency at John Hancock, Roy Anderson, director of corporate purchasing (foreground), and Bernie Regenauer, contract manager, developed an online ordering system using software from Netscape.

By Susan Avery -- Purchasing, 4/22/1999

That's exactly the thinking behind recent efforts of Roy Anderson, director of corporate purchasing, John Hancock Mutual Life Insurance Co., to bring together buying activities that until recently had been largely decentralized at the Boston-based insurer.

Over the past 15 months, Anderson and his staff have negotiated corporate purchasing agreements with suppliers of personal computers, software, office supplies, and such "non-traditional services" as contract labor that cover some $110 million in annual spending. What's more, purchasing's efforts at centralizing buying of these products and services have cut costs at John Hancock by $17 million in 1998.

Anderson attributes this success to the selling of the value of purchasing, both within John Hancock and outside to the insurer's suppliers. He has beefed up skills of the purchasing staff, adopted aggressive sourcing tactics, and put in place an electronic order process that has significantly improved the operation's efficiency.

Improving purchasing efficiency is key, Anderson says. The newly installed electronic order process, which makes use of software available from Netscape, is being used by requisitioners throughout John Hancock to buy PCs, software, office supplies, and contract labor from primary suppliers selected by purchasing.

Perhaps more important to Anderson are purchasing's efforts to drive efficiencies within operations of John Hancock's suppliers. In fact, he wants to be suppliers' "best customer." By centralizing purchasing with primary suppliers and using the electronic order process, the insurer also is helping to reduce costs for these suppliers. In turn, Anderson reasons, the suppliers are more apt to provide quality products and services and timely delivery at competitive prices.

"The best suppliers have their best people supporting their best customers," says Anderson. "Our doing business together can be mutually beneficial."

Take contract labor, for example. "Thirty pockets of people buying the same product or service is not cost-efficient," says Anderson. "Plus, we used to buy contract labor through 109 suppliers. This meant we had 109 salespeople wandering around our building. Now, we're doing business with four primary suppliers, who are providing us with top quality service at low cost."

By year-end, Anderson plans to have centralized $200 million of John Hancock's $350-million annual buying tab. This, he expects, will reduce purchasing costs by $26 million, helping to ensure that the company is "a competitive force" in the industry. John Hancock currently is the fifth-largest mutual life insurer in the country, with more than $116 billion in assets under management.

Before taking his new post at John Hancock, Anderson had responsibility for the purchasing operations at Fidelity Investment Co., where he oversaw automation of the buying process. He's also worked in purchasing at such manufacturers as Textron and Raytheon.

One of Anderson's first tasks was to evaluate the strategic purchasing expertise of his staff. He hired some new buyers with negotiating and contract management skills; others already on board when he arrived were given opportunities for training in the same areas.

"Aggressive sourcing" is how Anderson characterizes standardizing and consolidating purchases through "primary suppliers." Primary suppliers, he explains, are not necessarily a single source of supply to the insurer, rather the "optimum" number of suppliers reached through extensive market research and evaluation.

For computer equipment, John Hancock is centralizing its purchasing with one OEM and one value-added reseller. For contract labor, a commodity for which Anderson says diversity is paramount, the insurer has corporate agreements with four primary suppliers, each of whom manages a sub-tier of suppliers.

Supplier-selection decisions at John Hancock are based on supplier capability to meet rigorous requirements of purchasing's internal customers for quality, delivery, price, and service. Buying teams, guided by purchasing's expertise in negotiating with and managing suppliers, make selection decisions after extensive evaluation of proposals submitted by suppliers.

The buying team for computer equipment was made up of representatives of purchasing, information-technology, finance, and end-use departments. After working with two computer OEMs in the past, the team chose "to strategically align John Hancock with IBM," says Anderson. "CompuCom was a reseller we had worked with and selected as a primary supplier for its outstanding service level.

"Primary suppliers need to be progressive," says Anderson, pointing to the electronic capability of CompuCom. "They have a robust home page on the Internet that we intend to maximize use of with our new BuyerXpert system. We will link the two so that requisitioners can track the purchase of their systems from order through configuring and building to shipping."

To measure supplier performance, purchasing has developed a set of auditing and record-keeping tools. Performance of the PC supplier is monitored quarterly. For contract labor, requisitioners keep supplier monthly report cards.

For office supplies, purchasing has put together a list of standard and alternative products; adherence by cost center is reviewed regularly. "Sometimes we can reduce costs by tens of thousands of dollars by switching to a recommended product," says Anderson. This measure has been in place for about one year.

To further improve efficiencies of the purchasing operation, Anderson along with Bernie Regenauer, contract manager, developed and implemented an electronic ordering system using the BuyerXpert software from Netscape. "We made the decision ain June, says Anderson, selecting "Netscape for its vision and the BuyerXpert product for its usability." By August, John Hancock was involved in a pilot test of the product.

By developing the process using the Netscape product, purchasing has opted to manage catalog data provided by its primary suppliers, rather than outsource the activity to a third-party consolidator. "Hosting a catalog provides purchasing with a better handle on the needs of their internal customers," says Anderson. This way internal customers see a unified catalog when they log on to the BuyerXpert product. For more detailed information, they have capability to link directly to the supplier's home page.

Because prices of computer equipment are declining, Regenauer updates catalog data on PCs and peripherals using daily information garnered via the Internet. For other commodities, such as office supplies, with more stable pricing, data is updated less frequently.

When ordering a PC, requisitioners may select equipment from a list of standards developed by John Hancock's IT operation. This, Anderson says, helps to ease installation and maintenance, further reducing internal costs. Roughly 70% of orders for computer equipment are now being processed via the BuyerXpert system. Back-end processing for orders through CompuCom are OBI compliant, another process efficiency.

For contract labor, the catalog provides requisitioners with information on 27 different contract-labor types--technical, legal, office, maintenance, etc. Once the requisitioner selects the type of position he or she needs to fill and responds to questions that appear on his computer screen relating to necessary skills, hours worker is needed, etc., the program builds a template of information, which is sent via e-mail to the appropriate primary supplier.

Eventually, Anderson expects to add to the electronic system capability for contract-labor employees to submit time cards online, which should further reduce a supplier's cost of doing business with John Hancock. "Cash flow is important to contract-labor suppliers. Paying suppliers promptly helps to further cut costs of the service."

Anderson also expects to add online ordering of business cards to the system, linking purchasing's home page directly to the plate at the supplier location, with no human intervention.