The challenges of creating a global sourcing organization

Merrill Lynch centralizes and leverages new organization

William Atkinson -- Purchasing, 12/8/2005

Until a year ago, Merrill Lynch operated with two separate procurement functions—one that was involved in technology sourcing and was an organized part of the finance group, and another that was involved in traditional (nontechnology) purchasing and part of the corporate services group. "The two weren't connected at all," says Marc Marini, managing director of Merrill Lynch's new Global Sourcing and Procurement Services organization.

Prior to assuming responsibility for the combined organization, Marini had headed the tech sourcing group for three years and says there were several distinct reasons that drove the decision to consolidate. One was the company's emphasis on finance and cost management. Another was the ability to better manage risk and regulatory compliance issues, an increasingly important priority for procurement organizations today.

Once being named head of the new function, Marini set about to get the two groups working together and achieving results. He did this in three phases. The first was the Consolidation Phase.

"The first thing I did was conduct an internal assessment," he says. Marini evaluated the available resources (including conducting skills assessments of staff members), and also identified what his clients wanted on a global basis.

The assessment found that virtually all of his sourcing people had bachelor's degrees, and many had master's degrees, CPAs, or even J.D.'s, primarily because of the amount of legal work that was involved in technology contracts. Marini found that he could better utilize this combined expertise in the expanded organization.

He next created the "critical few" objectives, so that everyone would be on the same page and know what the expectations were from the beginning. A task force was then created to address each objective and get work started on them.

Marini then identified the synergies between tech and nontech procurement. As a result, he was able to make some logical combinations, such as combining cable and facilities into network/telecom, and combining printers and copiers on the nontech side with the hardware (laptops, desktops, etc.) on the tech side.

He then physically colocated employees on a regional basis, so they could develop camaraderie with each other and generate some combined efficiencies. The next step was to create a performance management team to do reporting for the whole group.

Studying the multiple processes that had existed in the two groups showed many could be combined into a single process and technology that could optimize those processes. Today, the group uses Ariba for e-procurement, Frictionless Commerce for e-sourcing, and Oracle for accounts payable activities.

The next step was to focus on employee satisfaction. "You have to win the hearts and minds of your team before you can accomplish anything," he explains. Using employee surveys, Marini was able to identify seven key issues of concern to employees. He utilized one of the task forces to work on the issues. Members included people from tech and nontech, so they could get to know each other better. He also assigned team leaders who were not managers, in order to give them some additional experience.

Finally, he adopted some innovative and progressive training strategies. "This really brought the team together, and emphasized that we do consider their professional development to be important," he states. Part of the training involved helping employees achieve Institute of Supply Management (ISM) certification. He was impressed to find that virtually all of the staff signed up to take the training and required testing. "We also had people participate in Toastmasters, which really helped them bond with each other," he adds.

The second phase was the Transformation Phase. "After we created teams and identified expectations, this phase was designed to focus on delivering results," states Marini. The first step was to measure and monitor client satisfaction. He did this by surveying clients after his group had completed deals for them.

He next developed operating models, which focused on how everyone would work together as a global team. To do this, he created commodity silos and an extensive communication model. This helped to leverage spends where previously buyers in different parts of the world might have been involved in multiple deals with the same vendor. He also arranged to have all legal issues funneled through his group, rather than have clients go to Marini's group for procurement issues and also go to the legal group for legal issues in procurement. The legal department facilitated the process by creating templates for procurement to use related to legal issues. "This has worked very well," he emphasizes.

Marini also created reports to provide information to senior management and simultaneously market the value of the procurement group to senior management monthly and quarterly. Reports are organized by business and by commodity.

The reports highlight savings, all of which are validated by the finance department before being included, in order to give the numbers real credibility.

The results have been impressive. The new organization can generate an average savings of 17% when it becomes involved in deals from the beginning. However, if clients wait until later in the process to seek assistance from the group (after opportunities for leveraging have passed), savings average around only 6%, which "really gets management attention," he says.

The third phase is the Elevation Phase which involves looking at all areas of spend in the organization—studying all vendors, all commodities, and all contracts to find other areas of opportunity. This process found many areas that the global sourcing group hadn't been fully involved in before, such as travel, events planning, and recruiting. Now, the group is becoming involved in these activities as a way to generate even more savings opportunities.

As a result of the combined initiative, the team is well on its way to achieving it aggressive savings target of $75 million in 2005 alone. With these impressive savings, Marini has found that the workload of the Global Sourcing and Procurement Services group has tripled over the last three years. The company isn't buying three times as much as it once did. Rather, clients are now utilizing the professional procurement group more frequently than they once did. And that's the ultimate compliment.