Ariba Live Dispatch 4: How is Heinz Realizing a 15 to 1 Indirect Sourcing ROI?

Heinz' VP of N/A Procurement, Christopher Stockwell, shared quite a few numbers this morning in his presentation about his companies indirect sourcing results (including a forecast ROI including incremental headcount, technology and professional services of approximately 15 to 1) over a multi-year period. According to Chris, his organization set out to deliver on a strategy that went beyond just cost, aligning "quality, business alignment, service, cost, cash, growth and innovation" as part of an overall indirect sourcing plan. In Chris' view, perhaps the most important strategy is to "put your best people on indirect" to get savings fast. Why? "They must know how to manage the business and get into situations by presenting the right humble and persistent attitude," Chris noted.

With the right people in place (including 12 new members of the indirect sourcing team), Heinz is doubling down in their attempt to bring more indirect spend under sourcing management. In 2007, Heinz saved $12 million through indirect sourcing initiatives in North America (on an implemented basis). In 2008, this rose to $14 million. Looking forward, Heinz forecasts $22 million and $35 million in savings in 2009 and 2010 respectively. In his words, it should be a cut and dried business case. "Give me $12 million to get back $160 million" on a global basis, he remarked.

But achieving these results is not easy -- nor is it for everyone, especially timid procurement leadership who can't hold their own with finance and the rest of the business. Still, the business case should be relatively straight forward to make if you have the influence and team to back it up. "You are leaving ridiculous amounts of money on the table if you are a 'getting started' company," Chris believes. "No one else can match the return on invested capital (ROIC) that procurement can [but you] need a strong leader who can face the scrutiny of stakeholders" to get both the budget to pursue a program and then make the savings stick. I would add to this that you also need a management team who is willing to buck the trend of reducing staff, even in procurement -- and that can be achieved with a compelling business case. After all, sometimes you need to spend to save.

Jason Busch

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