IBM and Procurement Transformation: By the Numbers, Risk Management and More

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Earlier this morning, on the final main stage of Coupa Inspire, Michael O'Leary, director of procurement offerings and strategy at IBM Commerce, shared the IBM procurement transformation story. Michael has a background in procurement, playing a leading part with IBM’s internal transformation charge before shifting to the product/solution side of the business. And, at the start of his talk, Michael noted that IBM’s total procurement spend (including client spend) now stands at $52 billion annually. IBM counts 17,000 suppliers across 100 countries within its supply base (after significant supplier rationalization efforts).

From a numbers perspective, IBM’s procurement performance KPIs and performance improvement metrics are more than impressive. Michael noted IBM saved $6.9B in approved and measured savings targets in 2014 compared to before the program was put into place. Payment terms now stand at close to 60 days rather than 30 days. Spend and contract compliance has increased from 50% to over 90%. Sourcing experts now look at 100% of spend compared to less than 10%. Electronic invoicing has increased from 20% to 90%. And 83% of POs never touch a buyer.

These numbers are impressive. But they came from a concerted procurement transformation effort centered on 4 areas:

  1. First: organization – where IBM moved from “functional and geographic silos to [a] horizontal and integrated” program.
  2. Second, IBM centered on people – where the giant shifted from hiring “generalists to broad and deep and deep ‘t-shape’ skills”.
  3. Third came process that involved a 180-degree turnaround from “inconsistent and fragmented to common and distributed.”
  4. And finally, the fourth element involved technology that evolved from “tactical and administrative to global and smarter.”

There were other changes, too. Michael noted that IBM’s focus on risk management has “gone higher and higher” involving a total risk assessment system that goes beyond just looking at supplier financial risk. IBM’s supply risk program now incorporates “geopolitical data and insights, weather information, feedback from subject matter experts” and systems data with API feeds. The result is a total “risk view of suppliers and multiple tiers in the supply chain.”

Most important, “this effort was spearheaded in procurement and was not driven from the outside in.” With this approach, IBM’s procurement team is serving its supply chain and the business with a critical procurement measurement dimension that transcends savings and cost.

Our take: the hard dollar savings and related numbers might be very impressive within IBM. But the procurement-led supplier and supply chain risk management program speaks more to the value the function can provide in new areas.

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