Citizens Banking seizes spend

Strategic sourcing successfully turns around procurement strategies and increases cost controls in many spend areas.

By Karen Prema -- Purchasing, 3/2/2006

It's a bank's job to help customers save their money. So it only makes sense that a strategic sourcing organization at a bank should have particular expertise. At least that's the thinking Anders Lillevik brought when he joined Citizens Banking Corp. in Flint, Mich. in 2004.

Today Lillevik is the vice president and director of corporate procurement at Citizens. He created a new strategic sourcing organization and infrastructure to support that organization focusing on automating as much as possible.

"We [strategic sourcing] have been focusing on building a robust infrastructure that consists of both tools and processes to allow us to scale in responsibility without having to substantially add resources to the transaction processing functions," Lillevik says.

To control spending throughout the organization, Lillevik and his team implemented a centralized e-procurement system. In the past, the sourcing organization bought mainly through supplier websites, faxing purchase orders or making telephone orders. With such diverse order placement methods, the overall spend was difficult to track and control and the back-end processing of paying its suppliers was inefficient. The only way strategic sourcing could track its spending was through accounts payable data.

From reviewing that data, the most likely candidates for spend control through e-procurement included office supplies, forms, promotional items and technology peripherals. "We were able to benchmark what the spend was for each category per month. The business case for building a centralized e-procurement system was built by targeting a certain percentage in savings for each category," says Lillevik.

Upon implementation, enabled vendors were prepared to stop taking orders over any channel other than through an online purchase order. Strategic sourcing made it clear that any order without a system-generated PO would not be paid. Accounts payable was also prepared to flag any controlled spend items that were not ordered through the official channel.

For example, items bought in stores and expensed were flagged. Strategic sourcing took all flagged payments and communicated the new process to internal clients with flagged expense reimbursements, which eliminated high-priced name brand items and items it felt were redundant. The new policy cut the available office supply items in half and users noticed right away.

In the initial phase, strategic sourcing ran parallel transaction processes for one month so users could become familiar with the system and a backup was available. After one month, strategic sourcing eliminated the other ways of ordering controlled items. Lillevik says it took about three months for everyone to get used to the e-procurement system but took only two months for the average spend on office supplies to drop by almost 30%.

Through deploying demand management for office supplies, strategic sourcing reduced its office supplies spend by close to 50% in less than one year. "This constitutes a 500% ROI on the cost of implementing the software in one year alone," Lillevik says. "It's not the tool you implement; it's how you use it that matters."

After carefully reviewing the facilities spend at Citizens, management was convinced how dependent the discipline was on third parties and how much of a natural fit it was for sourcing processes to be applied to the facilities area. Six months ago, Lillevik moved the facilities spend under the control of his organization. Since then strategic sourcing has been re-engineering processes to support the ordering and payment of goods and services.

For example, one particular facilities service generated in excess of 3,000 paper invoices with over 120 vendors per year. Through supplier consolidation and process re-engineering, Citizens now buys the same service with improved service levels and 5% savings in overall price with less than 50 electronic invoices per year.

"The effort to provide the service from a management perspective has decreased substantially, which makes it exciting for our facilities professionals to replicate this process for other services."

Strategic sourcing has since identified more than 10 other areas that could be re-engineered to provide a better service for lower cost and overhead.

The challenge when buying services is defining what exactly is being bought, says Lillevik. Citizens' sourcing consultants always start off by walking their internal clients through a process to determine the desired deliverables and better define what services are needed.

Strategic sourcing recently implemented a supplier management program that takes into consideration some of the more softly measured targets in addition to the traditional service levels typically measured. Strategic sourcing has about 60 actively managed suppliers in the supplier relationship management program today.

The travel spend is another area being targeted by Citizens' strategic sourcing organization. In the next two quarters, strategic sourcing plans on implementing a complete T&E spend portal which will go hand-in-hand with a single-source strategy for buying travel related services.

Strategic sourcing decided that travel policy enforcement is more important than driving down unit cost, even though travel-related expenses are a low percentage of its spend. "Once we single-source, we will have the ability to do comparison by city, and our strategy may be augmented with a more specific travel related price reduction initiative," says Lillevik.

In addition to travel services, strategic sourcing single sourced its temporary labor agreement with one supplier and is working in a close relationship with human resources, which administers the temporary labor hiring process.

Strategic sourcing is driving an initiative to replace the bank's entire output device fleet with multifunctional devices (MFP) that can handle reprographics and scanning services for the bank. This initiative has been driven by the sourcing organization, but will likely be implemented by IT and use a single supplier.

Company policies on how documents are received were a key determinate for the MFP strategy. New MFPs will let users image documents in the field for processing This will give strategic sourcing the ability to speed up the level of delivery and increase customer service in each branch.

Citizens has consolidated down to a single office products supplier. Since strategic sourcing manages the catalog and the order process, the key performance metric it uses for its supplier is delivery time. Citizens now gets a confirmation when an order has been received by the supplier, and another confirmation once the items are shipped with an estimated time of arrival.

Lillevik and his team are pursuing a strategy that will allow them to leverage the logistics infrastructure of the supplier to deliver more items at the same time as well as to further reduce costs.

"Many suppliers excel at logistics, but what separates the good from the rest is their ability to provide an ordering infrastructure for all items without having to go through painful integration work. This way we can use the same supplier to leverage its logistics channel for multiple categories. An example of this would be an office supplies vendor also delivering custom stamps, promotional items and furniture in the same run. We had challenges finding a supplier that can manage the catalogs and integrate with Citizen's e-procurement system," says Lillevik.

Lillevik meets daily with leadership executives. "It is key to ensuring that the top of the organization is aware of the sourcing efforts going on." Lillevik's sourcing consultants also have interactions with the top executives.

Lillevik continues to receive support from the front line executives. Meanwhile, strategic sourcing has gained a tremendous amount of traction in the past 18 months that the group has been in place at the bank.

"The fact that we have been trusted with managing things that are as critical as our 183 locations' physical plants is a testament to the fact that sourcing methodology is adding value in places that seldom see this kind of rigor in most organizations," he says.