When James Kilts took over as chairman and CEO for the Boston-based Gillette Co. in early 2001, he found a company with "incredible strengths" as well as "serious—but fixable—problems." High costs relative to the competition ranked high on Kilts' hit list, so he quickly set about creating an organization that could harness the purchasing power of a company with five business units either selling, operating, or buying goods and services in virtually every corner of the globe.

Mike Cowhig, senior vice president of global supply chain, has responsibility for three substantial pieces of Gillette's global operations: purchasing, supply chain management (which covers finished goods planning, factory scheduling, inventory management, and warehousing and distribution for all Gillette products), as well as the company's global packaging operations (see sidebar). While the three groups were first aligned organizationally in January 2000, Kilts has been the prime mover behind Gillette's transformation from a highly localized purchasing structure to one of true global sourcing, according to Cowhig.

"Jim Kilts has taken global procurement from a clerical, necessary function to one that is a key component in Gillette's financial turnaround," he says. For kickoff meetings to the company's Strategic Sourcing Initiative (SSI), he says Kilts delivered the opening addresses (in person in North America and by video in Europe). "He made it very clear," Cowhig says, "that SSI was a central part of his plan for turning the company around."

For purchasing, this meant pulling together all of the various organizations around the globe that shell out a combined $4 billion a year for Gillette. "If we pay for it, it's in that number," Cowhig says. But with five product lines and five geographies, it also meant finding a way to mesh twenty-five business processes, twenty-five information systems, and sometimes greatly differing skill sets in purchasing and supply management. "For example," Cowhig says, "our Braun appliance business has customer and supply-chain dynamics that are very different from the dynamics in our fast-moving consumer goods businesses."

Cowhig's objective is to take a "global category management" approach to the company's yearly outlays for things like plastic resins, packaging materials, marketing services, and temporary labor. "We found that, in some cases, we had two or three Gillette organizations buying similar items from the same supplier."

Product standardization, according to Cowhig, forms a big piece of Gillette's SSI. "Say we're buying Braun packaging materials in Germany, Blade & Razor packaging materials in North America, and Oral Care packaging materials in Ireland. We might be buying packaging material A for blades and razors and packaging material B for oral care with only slight differences between the two. We're looking for opportunities to take a hundred part numbers down to fifty, which will allow us to offer more attractive RFQ packages to global suppliers."

But to achieve product and/or service standardization, "it's really the users who have to do it," Cowhig says. So while purchasing professionals lead the company's cross-functional strategic sourcing teams, it is mostly direct users of goods or services who staff them.

Cowhig notes that Gillette's SSI teams are instructed to concentrate on maintaining product performance above all else. "Our standardization work has been very focused on making only the types of changes that will not affect product performance and our process incorporates all of the decision makers—people from R+D, product development, engineers. With all the right decision makers involved, it has not been very difficult to win agreement on small changes to specifications."

And starting small has been a good approach, adds Cowhig. In the first year of its Strategic Sourcing Initiative (2001), he says Gillette was able to bank some $90 million worth of savings without involving a great many substantial changes to parts or materials specifications. "The standardization process often requires qualification and product performance testing activities and we didn't want to do a lot of that in the short term because we wanted to put savings on the books really quickly. We tried to look for small, aesthetic changes where everyone could stay focused on how much we were going to save."

More complex standardization work, he suggests will lead to bigger savings in years two ($150-$200 million) and three ($250 million) of Gillette's strategic sourcing initiative.

Using RFIs, RFPs and RFQs (as deemed appropriate to the category), Gillette has made a point of including its incumbent suppliers in the SSI, but also of opening its sourcing opportunities to new suppliers around the globe. Buying globally, however, does not necessarily mean buying centrally, Cowhig says. Rather, it means taking a global view, but recognizing that it often makes sense to use local suppliers.

"Factory managers—I know this because I used to be one—want the security of local supply. They get worried when you tell them they're going to have to change their local resins supplier, who they can call on short notice to solve a scheduling or quality problem, for a supplier located halfway around the world." To help the cause, Gillette's global sourcing organization conducted a series of meetings with the company's factory managers to explain the global SSI approach. "In many cases, our incumbent local suppliers get to keep the business and we provide them with more business to allow them to become more efficient. In other cases, we may place the business with new suppliers who may be further away, but who—especially in today's electronic world—can overcome the obstacles of distance with more effective communications and understanding of our specifications."

Another piece of the SSI success story at Gillette is Kilts' emphasis on "ZOG" and "NOG" which stand for, respectively, "zero overhead growth" and "negative overhead growth." As part of the company's turnaround plan, Cowhig says each of Gillette's business unit presidents have "very significant" productivity growth goals as well as big objectives for reducing costs of goods sold ( COGS ), which has the effect of making the global purchasing organization a welcome participant at their planning tables. "Depending on product line, our purchased materials can make up to 50-75% of COGS . If we can reduce this figure by 10-, 15-, 20-, sometimes 40%, they're very happy to have us there," he says.

Each of the Gillette's five business unit presidents and the senior vice president of strategy and business development sit on an SSI steering committee along with Cowhig, who chairs the committee and represents global technical and manufacturing interests. The steering committee meets once every two months. "These are people with direct P&L responsibilities," Cowhig says. "They want the savings and they're focused on getting the benefits for their product lines."

As to capturing and validating Gillette's cost savings data, Cowhig says the direct materials side is easier than the indirect. "Our standard cost accounting systems do a good job of capturing and reporting the savings we're achieving on the COGS side," which means that crediting savings to business-unit P&Ls is a pretty straightforward process, according to Cowhig.

On the indirect side, for things like office supplies, leases, temporary labor, and advertising, market research, and travel, the process is trickier. "We have corporate staffs like HR, legal, corporate affairs, who want their piece of the savings," Cowhig says. To ease the process of allocating savings correctly, Gillette has favored negotiating flat rates with periodic rebates for meeting volume milestones. "This way we claim real savings that can be credited easily according to usage. None of our savings are based on what we could have paid. All are based on what we actually paid."

On top of Gillette's RFx processes, the company has been making big use of reverse electronic auctions, Cowhig says. With A.T. Kearney providing guidance and training on the SSI, eBreviate was the natural choice for e-auction technology and services (the two companies share a parent).

Cowhig says Gillette has submitted "a very high percentage" of its strategic supply packages to the reverse e-auction process. Examples include plastic resins, personal computers and servers. For suppliers emerging victorious, there are usually long-term contracts, typically in the three-year range. "Not all of our suppliers will agree, but our objective has not been to beat them down," Cowhig says. "We believe there are large savings to be had and we've made it clear to our suppliers that the auction process is here to stay. But we also recognize that the rate of savings we are achieving is not sustainable without supplier development work as well."

Because of the ZOG and NOG goals, Cowhig says the SSI is proceeding with very little in the way of new resources (either in terms of people or information technology). On the contrary, he says the size of the purchasing and supply chain organization is expected to shrink over time as tactical buying work is pushed out to end users and/or automated.

On the technology side, he says that while it can be difficult to capture spend data from multiple information technology (IT) systems, the company is "not replacing legacy IT systems in the current go round." Instead, he says Gillette has an IT project in the works that will use a data warehouse to capture information from its various IT systems.

In the Braun division, however, Cowhig notes that the company is building out a catalog-based e-procurement system from its SAP (enterprise resource planning) system as a pilot program to improve transaction-processing efficiencies. First and foremost he says, such systems will be used to "eliminate escapes" from the SSI process. "We want to make sure our business units are using the SSI suppliers because we want to maximize our business with these suppliers." The e-procurement pilot, he says, will also help Gillette to "capture better spend and savings data and concentrate on ZOG and NOG."

Also because of its ZOG and NOG goals, Gillette is focusing on what Kilts calls "functional excellence" which, for Cowhig, means reshaping purchasing from a transaction focus to one of global category management. "We're still in transition, but, in the end, our people will be working much more on sourcing, value analysis and working with our R+D and new product development organizations on meeting target costs. We want 60-70% of our resources in purchasing going to these types of activities. We also want to make sure we're taking advantage of our suppliers' R+D capabilities, which are significant and very often more targeted than our own. We've been doing some of that, but we want to do more."