The innovator’s innovator
Published: Nov 06, 2007
You're already known as the office pencil-pusher. Now your boss wants you to step up and evolve the company into a low-cost, high-profit, smashing success. Sending a memo out with the words "I'm in charge now, if you need to buy anything, it goes through me" won't work, and shouting it from your cubicle certainly won't do it.
Getting the trust and respect of your co-workers may just be the toughest part of changing from a tactical sourcing team to a strategic one, especially if other departments are already accustomed to buying whatever they need on their own.
This was one of Nancy Quek's greatest challenges when the regional manager of client services procurement in ASEAN at IBM was tasked with aligning the direction of procurement in Asia with the priorities and goals of procurement at IBM globally.
"Before the reengineering took place, procurement was regarded as a pure administrative back-office support," she says. "We were given many names, like ‘pen pushers' and ‘traffic cops'."
Quek says the traffic cop nickname came about from the misled (but common) notion that procurement was hiding somewhere in the back-office, and would suddenly appear with a summons when something was bought with company funds but without procurement's involvement.
"We had to work hard on earning the trust of fellow IBMers - who are our internal clients - to get their support of the procurement function," she says.
This was no easy task. IBM employees were pros at maverick buying. Getting them used to a central procurement order form and having to go through the procurement team before buying anything was an uphill challenge.
In spite of this, the team, spearheaded by Quek, was able to convince fellow co-workers of what procurement can do, and can now boast a significant drop in maverick buying from a high of close to 40% in 1995 to less than 0.2% today.
Bring on the change
Reducing maverick buying by such drastic amounts was not IBM's only success, but it certainly was a significant one when compared to the company's pre-integrated supply chain days.
What probably triggered the need to streamline and centralise the procurement function was the sharp decline in profits in the early 1990's. "It wasn't a pretty picture with cash flow. We were not delivering value to the shareholders," Quek says.
IBM was a highly decentralised organisation at the time, with local in-country procurement performing traditional purchasing activities like administrating purchase orders.
Further, individual IBM country offices functioned like standalone companies, buying for their own use only. "From a global IBM corporate perspective, there was lots of duplication in the number of suppliers for a particular service." True enough, IBM suffered from duplicate spending and redundant inventory that cost the company US$4 billion in 2001.
According to Quek, the situation escalated to such an extent that at one point, IBM had hundreds of commissioned advertising agencies servicing their worldwide advertising needs. "Each country was not able to leverage on the work done by another country. We had no consistencies in the quality of work, and our negotiating power as a company was drastically compromised."
The situation worsened in 2002 when the company saw earnings plummet by a whopping 35% to US$5.3 billion as the IT sector contracted for the second year in a row. Top management realised something had to be done to keep costs in check and impose some form of order.
Instead of retrenching and staying stuck in the low-growth IT product business IBM had served for 92 years, Sam Palmisano, IBM's then newly-appointed CEO decided to go on the offensive, announcing a reinvention strategy of his new firm under the tagline "on-demand business". His vision was to transform IBM into an adaptive organisation that could profitably respond to customers' need for innovative solutions.
Palmisano recognised that IBM's success in evolving into an on-demand business hinged on transforming IBM's supply chain. Thus in January the following year, Palmisano appointed IBM veteran Bob Moffat as senior vice president of the recently formed integrated supply chain (ISC) group. IBM's ISC is organised both by function: procurement, customer fulfilment, global logistics and manufacturing, and integrated end-to-end by three cross-functional teams: operations, talent and strategy.
ISC was a huge global project undertaken to cut back on unnecessary cost. It sought to streamline all of IBM's supply chain processes - leaving no part of the supply chain untouched.
"The changes were driven by the need to simplify the huge complexity and associated costs that came with IBM's decentralisation back then," Quek says. "Procurement was one of the core functions of IBM and was one of the first to be reengineered."
Procurement became part of IBM's ISC in 2003, linking key enterprise processes and ensuring end-to-end enterprise-wide standards for its core business.
Getting respect for procurement
Quek, who was responsible for leading the region's procurement teams in the transformation, says she had to balance delivering on her personal business commitments while driving the direction of procurement in Asia to align with the company's international procurement objectives.
"I remember communicating constantly to my team via all means possible, and personally engaging everyone involved," she says.
In fact, constant communication was one of the tools Quek used to change IBMers' mindsets toward procurement. Encouraging her procurement team to spend time with clients - both internal and external - helped them to not only see problems from their client's perspective, but also gain their trust and endorsement.
However shaking the "traffic cop" tag and actually getting colleagues to respect their authority was only one of the problems Quek and her team faced. Internally, she had to make sure procurement staff fully understood larger global procurement goals and had the right attitude to execute the strategy.
One of the ways Quek did this was to emphasise, within the team, the importance of having a centralised procurement system and understanding each procurement officer's crucial role in carrying out his task.
"We also had to constantly revitalise and promote a positive procurement image within the team by propagating the success stories of various procurement professionals," Quek says.
She had to make sure the team was fully equipped to handle more strategic tasks by going back to school. "[Everyone] got retrained, attended ‘client-facing' classes and enhanced the procurement team's domain knowledge," she says.
IBM now incorporates procurement in its induction programme for all new staff, when they are taught the importance of the procurement team and how to use the central procurement tool. These induction programmes are carried out by a local procurement manager.
This way, all staff are fully aware of procurement's role from day one, nipping maverick spending in the bud.
It wasn't only internal staff who had to work to a new plan, external suppliers also had some difficulty adjusting to the change after being used to working with individual staff rather than a centralised procurement division. There were already relationships in place that now looked like they were being eroded.
"Suppliers liked to work directly with our internal clients. They felt the procurement department was a hindrance to their selling process," Quek says.
Over time, however, both co-workers and suppliers began to appreciate having a structured, centralised procurement system. "Now, [suppliers] realise the value of dealing with a professional procurement organisation. One of the pluses [for them] is, of course, getting paid on time. Likewise, [co-workers] began to realise our value and grew to accept procurement's roles and responsibilities. This way, there is a partnership where we all can work towards common goals and business successes."
Getting top level support
Getting top management to recognise the team's importance was yet another challenge. According to Quek, procurement was viewed by top management as merely a department handling the administrative procurement process, similar to how many other companies view their procurement divisions.
Quek then had the arduous task of making sure top management in Singapore realised the team could do more than just fill out purchasing orders. "Our focus isn't just on that," she says, "but rather, on the total business value that is delivered by the procurement process - that's what we exist for."
To get around this problem, Quek made sure the team capitalised on its strengths and armed them with impeccable product knowledge.
"The speedy execution of the procurement process was our best kept secret then, as was our knowledge of the business. We knew then that that we needed to provide top management and fellow IBMers with what they didn't already know and this is where we excelled, since we were in touch with the suppliers on a daily basis," she says.
"We became the ‘eyes and ears' of what goes on in the industry and the competition."
Quek had the unwavering backing of CPO John Paterson who was recently moved in from the Global Procurement office in the US and is now based in China.
Quek says much of the credit goes to Paterson for driving IBM's procurement transformation in the region as he helped her engage and motivate the IBM procurement team to achieve nothing short of success.
She was also quick to add that the transformation could not have succeeded without the support of her fellow IBMers, who she is proud of for acting with the greatest urgency and passion for the business.
"For procurement to be recognised as an important function in the company, I worked closely with IBM global procurement as we looked forward and planned for the skills needed to support the advancement of procurement's purpose." These included the recruitment of new talent as IBM developed the skills of existing employees to deepen their procurement knowledge, she says.
Today, Quek can boast of a procurement team that has since developed into a highly
sophisticated organisation. They have moved from merely being administrative pencil pushers to solution providers for their internal and external clients in helping them meet their procurement needs.
IBM's procurement practices have been so widely acclaimed that Big Blue rolled out its services to customers outside IBM's walls. "We are now extending these procurement skills to service our external clients."
An on-going process
It's been nearly four years since IBM's procurement arm was integrated into the ISC, but Quek says the process is hardly over.
"What we have today is the result of an on-going process to drive horizontal integration and to be more flexible and responsive to our clients' needs and market conditions," she says. "We are constantly thinking of ways to enhance and optimise our processes, to better support our clients to deliver a competitive advantage and to become a globally integrated supply chain."
In spite of its "work-in-progress" status, the amount of savings IBM has managed certainly appears to have made the exercise worth while.
Tim Carroll, vice president of IBM supply chain operations recently revealed in a white paper that from 1995 - 2005, the company managed to increase electronic purchases through electronic procurement applications from under 20% in 1995 to 98% in 2005, resulting in more than US$2 billion in savings.
It has also since consolidated 300 transaction processing centres into three and reduced purchase order processing time from one month in 1995 to less than 24 hours today.
But Quek stresses that while driving cost savings is key to a procurement officer's role, what was equally, if not more important is the ability to leverage spends with their suppliers.
"Spend information, whatever the amount, is now centralised and we can leverage it with the help of global sourcing expertise. When coupled with good market intelligence, it becomes a powerful informational tool to have when we are driving bottom line savings."
While IBM's procurement arm, and the processes it drives, appears to be humming along nicely for the company and its external customers, there is still plenty to be done, Quek says, and that suits her just fine.
"My work is both serious and fun for me. The serious part is about executing flawlessly and the fun part is being the innovator's innovator," she says.
"The next step for me is to infuse enablers of innovation within my procurement organisation and extending practices into the supply chain. I need to bring these discoveries to profit for IBM."
Box : "Soft" skills to give procurement an edge
Regional manager of client services procurement for ASEAN and south Asia for IBM, Nancy Quek, may be riding on Big Blue's success in empowering the procurement function, but she firmly believes the buying function is slowly but steadily moving up the professional value chain in Singapore.
According to Quek, skills like commodity knowledge and category buying are "hard" skills, which are learnt through experience. However, it is the "soft" skills like innovative thinking, persuasive negotiation, presentation, relationship building, good communication, acquired through training and practice that will give the procurement function an edge.
"Over the last decade, the procurement profession has radically evolved. If a leopard could change its spots, now would be the time. Once viewed as a tactical and back-office function, procurement is now regarded as a strategic opportunity which is fundamental to the success of an organisation," she says.
"Procurement is poised to become a ‘voice at the table' and eventually, we'll see more deeply skilled procurement practitioners as consultants."
- IBM Singapore Pte Ltd