How Unilever changed procurement’s playbook
There is a new platoon in the buying world. The procurement department. A many-headed monster finely tuned to know everything about the art of buying and about the industry in which it works.
In less than a decade, purchasing has gone from ‘part of the job’ to a high-flying fast-paced multi-faceted career. It used to be that a bachelor’s degree in business studies was the nearest you could get to training for the world of procurement, but now business purchasing, supply-chain management, contract management and procurement courses have high enrolments in universities, business colleges and graduate schools worldwide.
Many corporations have moved away from just celebrating the top line in corporate success and are looking to the number-crunching, detail-orientated guys, who do battle daily to improve costs, reduce overheads, and get innovative with the supply chain.
The days of department heads buying the materials and services they need to keep things running smoothly are very much gone.
Research says that now the average B2B sale involves 5.4 people -- including end-users, technical, financial, and operations people as well as professional buyers – which means buying committees (not individuals) often make purchase decisions.
This was something Unilever realized back at the turn of the century when it initiated its ‘war room’ to drive down costs and push profits through the roof: the company cut $1.58 billion in procurement costs, increasing Unilever revenue growth to between 5 percent and 6 percent a year by 2004.
The Unilever way
For decades, each Unilever product group had purchased goods and materials separately, each maintaining its own procurement system and staff, which meant Unilever missed opportunities to seek better deals by consolidating purchases of common goods, such as box packaging and receiving higher volume discounts from suppliers.
In a concerted effort to stop haemorrhaging money on “costly supply redundancies and inefficiencies”, Unilever set up a SWAT team to delve into every element of company expenditure, from paper clips to pressed olives for Benecol and free-range eggs for mayo, to cookie dough for Ben and Jerry’s legendary ice cream.
Using wall displays of maps, strategies, project lists, plan schedules in their command centre, they drilled down to the tiniest expenses to find ways to streamline and save, efficiently.
Seeing benefit in the ‘better together’ idea, Unilever rolled out a corporate-wide application for buying indirect items, like office supplies. It then led the way with a standardized application for conducting reverse online auctions that could be used throughout the enterprise. Unilever pushed forward with web-based tools for sourcing suppliers and managing requests for proposals and in the process cut printing and postage costs to a minimum.
A whole new procurement world
Unilever’s bold leap forward in redefining procurement was the beginning of an international trend of forming elite, cross-divisional procurement teams who created collaborative rather than combative relationships with suppliers.
Procurement officers moved away from just getting the right product or service at the right price to being experts in the industries in which they procure, gaining an in-depth knowledge of up-to-date business requirements in all areas of the industry as well as its cutting-edge R&D progress.
By developing this solid understanding of the industry, procurement departments forge successful working relationships with their supply chains, often sharing their new business ideas and innovative ways of approaching old problems with service and product-providers.
Multi-nationals provide tools for more-precise scheduling of shipments and improve utilization of manufacturing equipment, and procurement departments are fast becoming the backbone of many manufacturing, retail, military and other industrial organizations.
In thinking laterally as they manage the finances, procurement officers get close to each internal department to gain a thorough knowledge of the products and services their company needs to make the process easier. Because knowledge is power – something sales people should also value.
What does procurement do?
So contrary to popular belief, procurement in the 21st century is not just about buying goods and services. It is a vital element in any forward-looking company and has many roles. If you have never looked at a job description for a procurement officer or purchasing manager or even a purchasing clerk, now might be a good time, because it will give you the clearest idea of what the guys on the other side of the fence are expected to do.
Because the more you know about the people you do business with, the more likely you’ll get the outcome you’re looking for.
Procurement departments are responsible for
- acquiring supplies, services, and constructioncapabilities
- issuing of invitations to bid, requests for proposasl, requests for quotes and the issuing of contracts
- issuing purchase orders, developing term contracts, and acquiring supplies and services
- disposing of all surplus property and equipment
- identifying opportunities both internally and throughout the supply chain
- being the primary contact with the supplier
- nurturing a productive, two-way relationship with all suppliers
- having a great relationship and understanding of the business of all departments within the business
- maintaining records
- managing logistics
- keeping inventory at a reasonable level
- controlling cost
- securing the best possible price to maximize profitability
- complying with all company policies
Who has the power?
Whereas the sales team used to deal with the decision maker in the buying process, today, sales professionals need to understand there are levels of power in the procurement department, and know which level of procurement they are dealing with.
With so many people involved in the modern procurement process, Malaysia’s Wawasan Open University course explored a range of approaches for organising the procurement department.
Depending on the role of the buyer and the approach the company wants to take, procurement officers could specialise in one specific area, such as raw materials, spare parts, capital or services, and then focus that expertise in all departments across the corporation.
Procurement organisation for specialist buyers
While specialist buyers may help with channelling deals for bulk buying, the procurement team has a less-developed sense of each product or project’s needs.
Procurement organisation for generalist buyers
A second option is for the buyer to become an expert on specific products or projects and work across the providers to arrange the best solution for his or her team. The concern in this approach, as Unilever and many other globals discovered, is that they could be missing out on opportunities to leverage buying in bulk.
Many companies now use a hybrid procurement organisation, where the two approaches are combined:
“a few specialist buyers are each made responsible for developing and implementing procurement strategies for a specific portfolio of important procurement items required across a number of product-lines or projects. These items may be important because they are either of high total procurement value or critical to the operations of the firm.”
These portfolio managers work on framework agreements but stay out of the operational procurement elements of the deal. A different set of buyers work with customer groups, product line or projects on operational procedures and everyday supply issues within the framework agreements developed by the portfolio managers.
They’re watching you!
And within the procurement office, there is often a team dedicated to analysing the procurement process with an eye toward what they can learn at each stage and how they can further streamline processes using data, research and forecasting.
What does all of this mean for the sales team? Sales professionals:
- have to work harder to differentiate themselves, their companies, and their products from the competition. Price is often the focus of the procurement dialogue, even when buyers say value is key.
- can no longer work around procurement or delay involving them until the final stage.
- have to have a strategy for understanding and controlling the buying process.
- need to drill down to the core issues, uncover business and personal needs, and focus on desired outcomes. .?
- must discover ‘why’ the buyer wants what they say they want so you can demonstrate value
- need to build trust.
When asked how sales teams can better engage procurement professionals in provocative discussions, Michael Friede of Bayer Material Science, Andres Jaffé of BASF and Marc-Oliver Fleischer of T-Systems recommended:
- enhancing business knowledge so sales people can share insights with their clients
- honing negotiation tactics and countermeasures
- knowing what you can offer and how to position it for maximum value
- being very clear and direct in what you can do and what you cannot do
- demonstrating confidence in every communication
- being patient during the process: instead of closing quickly because the procurement team will see it as a weakness “Give me that extra 5%, and we can close by end of the quarter!”
“Thus,” as we return to Sun Tzu’s Art of War wisdom, “the expert in battle moves the enemy, and is not moved by him.”