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Since 1995, IBM's procurement organization has saved the company over $12-billion. That's the hard dollar cost savings tracked by IBM's financial group and attributed directly to improvements in the total procurement process. Contributing to the savings:
* Purchase order processing time (cycle time) is now only one day. In 1995 it stood at 30 days.
* e-Procurement spend in 2000 was $43-billion (representing 96% of IBM's total spend) versus only $3-billion in 1995.
* Purchasing escapes (maverick buying) are less than 1% today, down from the 45% of five years ago.
The wake-up call of 1993. IBM posted a record loss of $8.8-billion that year. "It was a difficult time, we had a lot of problems," acknowledged William S. Schaefer, vice president, procurement services (Raleigh, N.C.; [email protected]).
The picture also was "pretty dismal" in the purchasing organization (see sidebar, page 13), with many of the elements still common in other companies even today, he observed.
The IBM action plan for success. "We began procurement's transformation shortly thereafter," Schaefer shared at NAPM's 86" Annual International Purchasing Conference (www.napm.org).The procurement transformation framework (see sidebar, page 14), he maintains, contains the critical elements purchasing professionals should consider when reviewing and evaluating different models and potential solutions.
"Strategy starts with an overall understanding of the opportunity for value," Schaefer explains. "Once you establish the strategic framework for your business, you can make a more rational choice and evaluation of the various options available."
It's important that you think that through and determine which ones are right for you, where you can derive the most value, and "which projects you want to bite off now, versus next year, or the following year," he explains. "You won't want to do all of the things at one time-- or be able to."
Reengineering the fundamental business processes of procurement is essential. Right behind strategy is the process. He identifies two major process areas that are important: strategic sourcing and process reengineering.
"When I talk of reengineering, I'm focusing on how we want to make the buy across the entire process," Schaefer notes. They identified 16 major process elements...