Starting With a Clean Slate: Building a Procurement and Supply Chain Organization

In one of the better pieces of journalism to come out of the trade media in recent months, a story in Supply and Demand Chain Executive featured the highlights and success factors of the procurement and supply chain transformation of Commercial Metals Company (CMC). The effort had such a significant impact on CMC's bottom line (and its stock price) that, according to the story, "CMC's senior management was crediting the supply chain organization with a total of $76 million in savings, including $36.2 million through the procurement group, $32.1 million achieved by the optimization group, and $7.7 million by the logistics group. Those results added up to $1.2 million in savings per supply chain staffer … Supply chain also helped reduce the company's inventory by 444,220 tons, worth more than half-a-billion dollars."

CMC was able to achieve these results from going broad and deep across the buy-side function. In the article, Andrew Reese captures the massive scope of the new supply chain organization at CMC. Under its purview would come the "procurement of direct and indirect materials … logistics … supply chain optimization group, which focuses on the sales, inventory and operations planning (SIOP) process … and a supply chain capabilities group, which manages all the tools that supply chain uses, including SAP, business-intelligence reporting, spend management, supplier scorecards, supplier diversity, supply-risk analysis, eRFX, e-auction, e-commerce, EDI and global master data, including all the vendor information that is loaded into SAP."

Even with this massive supply chain/procurement transformation, CMC's success ultimately comes down to a handful of more basic principles, including bringing the right resources and skill sets to the table. In this regard, the article captures the mindset of the new executive in charge of the group when it says, "Bringing operations and sales people from the business into supply chain lends the organization credibility … because the people in the business see that it's their peers in supply chain, not outsiders. That means that when a supply chain person comes to the business and talks to them about changing to a certain supplier or doing a process in a certain way, it has credibility, because the people in the business know that the supply chain person has lived in their world."

What other factors did CMC come to look upon as central to its success? Reese suggests that communication was key. In fact, the executive in charge of the program was "on the road for the first 90 days of the project, visiting most of the company's U.S. locations, meeting all the staff from top to bottom, from the vice president in charge to the individual buyers, getting to know them personally." Training also played a role as well (including training the executive team on supply chain's impact and role). CMC also did a novel job of communicating success internally in the form of road shows, emails, and other marketing efforts designed to build momentum and excitement for the program. All in all, CMC's transformation shows that generating massive savings ultimately comes down to the people involved and their charter to create lasting change by actively engaging the right set of executive and line stakeholders.

Jason Busch

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