E-Procurement: Case Study Thomson & Saint-Gobain
E-procurement | |Case study : Thomson – Saint Gobain | | | |B. R. & A. A. | |17/05/2010 | This report point out the approaches of Thomson and Saint Gobain regarding the e-procurement. | Establish an « Astonishment report » listing the most surprising aspects of the procurement management for each of the two groups before the implementation of the eprocurement solution.
Thomson Globally, the problematic of non-production purchases at Thomson Group seems to be very neglected despite of its importance. Indeed, even if Thomson Group is one of the most important electronical devices manufacturers, its purchasing policy was archaic and anarchic before implementing Hubwoo.
The fact is that for its nonstrategic purchases, there were about 50000 suppliers, against 10 for the vertical purchases. This number is very excessive and should have never been reached. And this is even more worrying that these suppliers represent about 2 billion euros in 2002. Something very interesting is also that these figures are not exact because the IT system and the multiplicity of the suppliers do not allow to measure the exact amount of the expenditures.
This situation is the result of the total absence of horizontal integration in the purchasing management.
Naturally, there are no economies of scales, no commons purchases, despite of the huge amount spent each year. Something very relevant about this lack of horizontal integration is the fact that there were no “real objectives”. Actually, for the production purchases, the aim was to decrease the global amount by 8% per year. But this objective was not followed till the project Hubwoo. This situation led also the purchasers not to follow the rules.
Indeed, the administrative constraints were so heavy that they often placed orders outside the “normal purchasing framework”.
Moreover, their job, due to the complexity and the multiplicity of suppliers was reduced to an administrative one. It was almost impossible to have a real purchasing policy common to all the suppliers. To illustrate this fact let us pay attention at the following figures: 180 buyers all around the world were in charged of the 250 000 orders per year to the 50 000 suppliers. Naturally it was impossible to give them the order of having a common purchasing policy.
The situation at Saint Gobain was almost the same. The amount of non-production purchases was higher: 2. 5 billion Euros (on 13 billions Euros of total purchases). The problem was probably worst in terms of administrative constraints because applying and being a supplier of Saint-Gobain took on average almost one year. Although the horizontal integration was a little bit better because there was a “G.
I. E” which is a strategic group with the main aim of organize the integration of the purchases.
But even if this structure exists, the fact is that Saint-Gobain has known a very important external growth with more than 60 acquisitions. Naturally, each structure has its own purchasing department and its own purchasing policy. And of course, it leads to a mess in terms of nonstrategic purchases.
For example for some of its acquisitions the purchasing decisions are decentralized and there are as many policies as existing sites. Finally, this case asks us two questions: Why and how these huge firms have done to let such a apocalyptic situation occurs ?
Actually, in some of the firms we work in, non-production purchases are considered as important as the others and there are no distinctions. The fact is that in considering different categories of purchases by their criticity you create de facto a gap between these different purchases. Probably, if they would have mixed these two purchasing portfolios, this situation would have never occurred. Why do not they have organized a unique structure in charge of grouping all the purchases (horizontals and verticals) and which integrates all the new structure owned by the parent company ?
This kind of structure exists, and this is usually the job of the General Affairs Department of the group to create synergies between the different structures.
Naturally, purchases should be the first thing to pay attention for when you merge two companies or when you buy one other because you create scales of economies and also because you create a dependence of your supplier toward your group. If you do not pay attention for this aspect of the merge, you lose 50% of the advantages you have to merge or to buy a company because decreasing your purchasing amount is a way to increase your margin.
Point out the difference of use of the same tool (Hubwoo), by each of the two groups. As these two companies encounter the same problem of non-strategic purchasing but not in the same way, we understand that, although they will use the same tool to reach their aims, they will not manage it in the same way. At Thomson they told themselves: “This solution will help us to have a purchasing policy”, as their purchasers are not followed in their work, and as they are most of the time doing administrative tasks.
Saint-Gobain they told themselves: “This solution will help us to have a common purchasing policy for all the sites”, because at Saint-Gobain, the problem is that there is too numerous way to purchase and this lead to growing costs. Then we understand that they have the same goal but different problems. Thomson Here are the solutions that Thomson set up with “EasySource” developed under Hubwoo: • Supplier sorted by price, categories, geographic area, service • Reduction of the number of supplier, by sorted them through a selective process • Numerous reporting, catalogs and comparison tools A unique database which contains all the suppliers and products • Human approach which help the purchaser in his work. The solution adapted itself to the quality & skills of the user. Saint-Gobain The solutions which have been put in by Saint-Gobain are relying on two main ideas:
• The e-catalog or Electronic catalog: The group set up a e-catalog where all group suppliers are referenced.
Accessible from every subsidiaries of the group, the catalog enhance internal communication. There is much more coordination between the classical purchase and the e-purchase. Analysis tools for manager: The solution offer to manager a mean to see where they must do efforts. The analysis offered a way to improve themselves. Analyze and comment the results reached by each of the two groups Thomson Thomson used an offensive approach by implementing the platform EasySource everywhere in the corporation in wishing that the organization will switch smoothly.
As the objectives where “SMART” as we said in management (Specific, Measurable, Attainable, Relevant, Time-bound), it was easy for the purchaser to follow a way and fixed the problems encountered.
The first objective was to reduce ordering costs from $100 to $25 and they succeeded in this way. Moreover, thanks to this solution, Thomson found a tool which can be used by anybody in the company as it helps as the purchaser than lawyer or accounting officers. Finally, we could say that the Hubwoo implementation at Thomson was a success thanks to: • A good analysis of their environment by choosing a new and unknown solution. As they all start with this tool users do not have bad habits and learnt it together. • Training and support of the project to teach to users that it is a helping tool and not a reporting or monitoring one.
It was made to ease their work and let them focus on their real jobs. • Set-up of SMART objectives so everybody knew exactly which goals he was supposed to reach. Saint-Gobain Saint Gobain chooses to have a careful policy in implementing the platform. He first took the precaution to analyze its case with an audit and refuse to implement the program by all its subisidiaries ( Saint Gobain began with only 27 sites among its 180). The fact is that this careful behavior, combined with a relative resistance to change, does not allow to measure the results.
Even if we do not have any figures about the results, we could all the same think that these constructive policy will lead to : • Scale of economies • Stronger relationships with suppliers • An increase of the profitability of the Group Finally, the implementation of Hubwoo have all the necessary conditions to success : • A strategic need in terms of profitability • An help provided by Hubwoo • An opened-system with the other marketplaces (with the Global Interoperability group) • A standardized offer • the natural and necessary development of electronic catalogues and e-procurement in the beginning of the 2000′