When discussing Waste Management's strategy for procurement, Brad Holcomb, chief procurement officer, likes to use the phrase "pick suppliers on purpose." The deliberate selection of suppliers by the newly centralized procurement function lies at the heart of the Houston-based waste management services company's procurement strategy.

With revenues of approximately $11 billion annually, Waste Management serves municipal, commercial, industrial and residential customers throughout North America. The company's network of operations includes 302 active landfill disposal sites, 16 waste-to-energy plants, 66 landfill gas-to-energy facilities, 190 recycling plants, 300 transfer stations and 467 hauling companies.

Holcomb was hired in the fall of 2000 by Maury Myers, chairman, president and CEO, to pull together the procurement operation (until that time buying had been largely decentralized) and develop a world-class structure, organization and process. At that time, there were about six people in the purchasing department at headquarters who were focused on buying garbage trucks. In a nutshell, the buyers were taking orders from the field and fulfilling them through suppliers selected by the field.

"Maury has a vision of the power of world-class procurement based on his previous experience at a number of different companies," says Holcomb. "So, we immediately came in with a top-down mandate to organize the procurement function and to leverage the size of this company, and this support continues. Early last year, Maury identified four key initiatives. One of the four is procurement. It has great high-level visibility and everyone understands its strategic importance in the corporation."

Holcomb, who worked in procurement for many years at Eastman Kodak and Praxair and has two masters degrees in engineering, began his new assignment by first conducting a "spend diagnostic" of all the goods and services the company was purchasing: He soon learned the magnitude of the company's leverage: Waste Management's purchasing tab comes to between $4 billion and $5 billion annually.

"Because procurement wasn't centralized, we found we had a big opportunity to reduce costs over a period of time. We saw that moving to leverage the size of this company, reducing our number of suppliers, and working on standards provided a big opportunity for us. Since then, we have started to make some inroads against these goals."

Holcomb expects the procurement strategy now in place to reduce costs by about 10% annually.

More important, "procurement will be delivering value for this company for years to come. The company is being extremely receptive because all the benefits flow into the field, which is exactly where they ought to be. We are simply trying to create success for the field. I think they really appreciate that and support us with their resources and help with implementation at the other end."

Once the spend diagnostic was completed, Holcomb created an organization comprising 48 procurement professionals. Forty-two work in corporate procurement in Houston. In the field are six procurement group directors, who formerly held senior procurement positions at other companies (including one from Waste Management). Responsible mainly for implementation of procurement strategy, these directors report to Holcomb as well as to group senior vice presidents in the field. The corporate staff includes several knowledge directors, a finance director, an e-procurement director, a supplier development/quality director, a supplier diversity director, two strategic sourcing directors, a card services manager and a communications manager.

A team of recruiters helped staff the posts. "We sat in a room together and looked at the organization concept that I had and we divided it into three areas so we could go out into the marketplace and make it happen as quickly as possible," he says. His criteria included hiring seasoned professionals with proven track records of success. Those recruited have a diversity of backgrounds and former affiliations with a number of Fortune 500 companies, including Case, Verizon and Pennzoil. Staff was largely in place by the end of the second quarter, 2001.

Holcomb measures performance of these professionals against a variety of objectives, with the most important being responsiveness to the field. Other factors include some financial measures in terms of cost reduction and individual professional development goals.

At the heart of Waste Management's procurement organization lies a group of professionals with responsibility for strategic sourcing. Reporting to the directors of strategic sourcing are

Ten strategic sourcing managers, five buyer/planners and assistant buyer/planners. These 10 groups are organized around different portfolios or product/ service categories all related to the company's annual spend. "Now we are working through these groups and prioritizing all of the spend in categories and sourcing it," says Holcomb.

Categories of goods and services are selected based on potential cost savings and expected ease of getting new suppliers on board. "In time, we will attack all our spend in all categories, both traditional and nontraditional," he says. To date, about 25% of the company's annual spend has been put through the strategic sourcing process.

It should be fairly obvious to anyone familiar with Waste Management that the company's largest purchase is collection vehicles, or garbage trucks. It has, in fact, the fourth largest trucking fleet in the country and the largest in its industry. "We have a fleet of some 28,000 vehicles on the street on any given day," says Holcomb. "We replenish that fleet with about 2,000-2,400 new vehicles every year. It's a large, very visible area of our spend."

Other large spends are the vehicle parts, needed to maintain the fleet, and fuel needed to power it.

Another is heavy equipment used at the company's landfills. "We own 302 landfills and maintain a fleet of about 7000 pieces of heavy equipment that includes bulldozers, compactors and wheel loaders," says Holcomb. "It is one of the largest heavy equipment fleets in the country. We replenish this fleet annually and service it as well."

The procurement operation strategically sourced collection vehicles first. That was in November 2000. "We developed a strategy in which we would reduce the number of suppliers," says Holcomb. "Also, we planned to develop more rigorous standards for the products we put on the street." Realizing the culmination of these activities in February 2001, procurement consolidated the supplier base from 21 to six, and reduced the number of vehicle variations from 65 to 15 platforms. New agreements with suppliers are for three years.

The procurement operation at Waste Management bases its supplier selection process on a bedrock principal—total customer satisfaction. In selecting suppliers, procurement looks first at a supplier's product and technology leadership position.

Then, "we look for service and support leadership," says Holcomb, who poses these and other questions to potential suppliers: What is the company's track record for servicing its accounts? Is there significant management attention paid to its customers? Does this attention run through the organization, especially in the important disciplines of engineering and quality? Is the company responsive to Waste Management's account? Are they responsive to the field?

Other criteria are: quality, delivery and leadtime and total cost.

Once on board, suppliers receive a report card that measures their performance in all five dimensions on an ongoing basis. Procurement also asks suppliers to develop continuous improvement plans.

Responsible for supplier selection at Waste Management is a multifunctional team made up of representatives of procurement as well as members of the field organization who are familiar with equipment specifications. To select the company's collection vehicles suppliers, a group of 23 people met in Houston for a couple of days. This group included maintenance mechanics, district managers, fleet directors from the field and two truck drivers, all of whom had a lot to say and contributed very much to the outcome.

Says Holcomb, "this is typical of the approach we take, to get field involvement up front so that we get it right in the first place. When we finish, it's much easier to implement."

Once a team is formed for a category of products (i.e., collection vehicles, truck parts, office supplies), members gather spend data and survey the landscape of potential suppliers.

"Next, we send out inquiries (RFIs, RFQs) to gain some basic information from suppliers," says Holcomb. "Then, we evaluate suppliers on pricing, service, support and other dimensions of 'total customer satisfaction' and invite leading candidates to Houston to tell us how they would serve Waste Management. Finally, we negotiate agreements with suppliers with whom we chose to do business with long term. Latter steps involve implementation into the field."

Looking again at the collection vehicle purchase, the procurement operation worked with the company's standardization team to determine "the true needs of the field," Holcomb says. "We knew we wanted to reduce the number of suppliers as a pure objective. But, we also wanted to establish stricter standards so we could simplify the process and get additional costs out, not just now, but long-term. We know that having standards helps our suppliers so that they are not just having to build 'one offs.' With standards, they can get more into the rhythm of production." The standardization committee helped procurement determine which collection vehicles would best get the jobs done effectively, efficiently and safely. As such, the buyers were able to reduce the number of vehicle configurations.

For collection vehicle parts, the procurement operation determined from its analysis that the company had been doing business with more than 200 suppliers nationwide. Through the strategic sourcing process, the buyers identified six companies from which procurement will purchase parts. "It's a huge win for these six suppliers because they are getting the business that 200 suppliers used to get," says Holcomb. "It's good for us because now we are developing strong relationships with these suppliers. They understand our business. We understand them. We've got management's attention in both directions and it helps with implementation, to say the least."

Looking ahead, the procurement operation is beginning to apply its sourcing strategy to some nontraditional purchases, including several projects already underway with the company's human resources, legal and real estate functions. It also is working on an e-procurement initiative.

For now, procurement is using a Web site that hosts catalogs of 50 suppliers. Through "1 ProcurementPlace," which punches out to suppliers, requisitioners can place orders via the Internet for such goods and services as office supplies, express delivery services and some spare parts. Meanwhile, the organization's e-procurement director is building a long-term solution based on the company's PeopleSoft ERP software platform.

"At the end of this process all of the company's goods and services will be purchased through this one system," says Holcomb. "By so doing, we will have simplified the total procurement process for our end users, and we will have reduced costs of all goods and services across the board."