No one will dispute that buying services globally is a challenge for purchasing operations at world-class companies. It's not so much that there are not many suppliers capable of providing services around the globe, it's that to be successful, purchasing has to ensure that its strategy is consistent from country to country, whether the business is buying, say, marketing services in North America or Europe, Asia or Africa.

Companies like United Technologies, Intel and a host of others have figured this out. Buoyed by corporate-level support, they use cross-functional teams led by executives from the businesses and a bevy of communication tools to keep in touch and share best practices from one corner of the globe to the next. But what if no one working for the company anywhere on the planet has to follow the purchasing department's lead? That's the case at the prototypically decentralized Microsoft in Redmond, Wash. Still, the company's procurement operation says it has racked up over $1 billion savings in five years on a $14 billion annual spend. Procurement did it largely through internal salesmanship.

The seeds of Microsoft's procurement operation's successes took root in the late 1990s when, in response to a request from Bill Gates to rid the purchasing process of paper, the procurement organization developed a suite of e-procurement tools based on an SAP ERP platform for employees to buy just about anything, from office supplies to computers and software, to temporary help and travel. The tools are easy to use and are designed to lead employees to suppliers selected by procurement. Now, 99% of the company's purchase orders pass through an e-procurement tool called MS Market.

With the data generated by MS Market and the other tools, the procurement operation has conducted thorough spend-analysis exercises and was recognized by Purchasing in 2004 for its effort: gaining 100% visibility to the company's entire spend.

Next, as part of a drive for Microsoft to become more efficient and cost effective, procurement put in place some purchasing policies and procedures, including a strategic sourcing process and category management teams.

All these activities set the stage for the cost savings. Next, the purchasing professionals worked to become better connected to the businesses so they will help them realize the saving potential.

Corporate procurement at Microsoft is led by Tim McBride, global procurement officer. About 50 purchasing professionals work in corporate procurement, with others located within the businesses and at locations across the globe.

The organization primarily develops suggested policy and manages relationships with preferred suppliers. But the actual buying—and the decisions on whether to follow the strategy—are the businesses' responsibilities.

About 75% of Microsoft's annual spend is indirect materials and falls mostly in these three categories: technology (consisting of computer hardware and software), professional services (consisting of temporary help, consultant services and outsourced software development) and marketing (consisting of advertising, public relations, market research and print and fulfillment). The direct spend consists mainly of electronic components and materials needed to build the Xbox.

Stephens: “Our goal as a procurement operation is to create a strategy that has value and evangelize that value around the company.”

First up: marketing, because at $4 billion annually, it's the largest spend. John Stephens, senior director of procurement marketing, is responsible for managing the category.

Category management teams define sourcing strategy for the category globally in what procurement calls category playbooks. They do this in tandem with key stakeholders around the world, using standard strategic sourcing methodology that defines the supply base and the purchasing process. Then Microsoft businesses execute the strategy as defined in the category playbook. For example, the strategy for purchasing promotional merchandise is to conduct a reverse auction with three of the company's preferred suppliers.

"Our goal as a procurement operation is to create a strategy that has obvious value and spend a lot of time evangelizing that value around the company," says Stephens. "We learned that in our environment, cost savings isn't always the driver to encourage people to use our sourcing strategies. We have to find something that speaks to the businesses." For example, he points out that the business that produces the Xbox is interested in cost savings and likes to use reverse-auction technology while developers of Office and Windows software appreciate a purchasing process that's quick and flexible.

When the category management team for advertising developed its sourcing strategy, which included consolidating the supply base to one global ad agency, Stephens says that in his communications with the businesses he "spent a lot of time talking about the consistency of our branding and the benefit of having customer communications that are not confusing or disjointed. We also talked about the importance of keeping our data secure."

While consolidating the supply base has financial benefits for the company, it isn't always the message Stephens and his team communicate to Microsoft's businesses. "To the extent that we help them save money, they may worry that their budgets will erode over time. So, we tell them that they will be able to reach more customers and spread their message further by working with procurement and using our sourcing strategies. That speaks a lot to them. That makes sense. We do, however, talk about it to the CFO."