Inspiration from BP – how procurement lubricates good business performance

After 25 years in the profession, it's not often I see or hear something that makes me proud and excited to be part of our world. But the presentation from Mark Edwards of BP lubricants division (Castrol etc) at the Emptoris Empower event last week inspired those emotions; even at 9am in the morning!

Today we’ll introduce the procurement transformation programme they are undertaking, with particular emphasis on how they have used advanced sourcing tools in a couple of specific market areas. In a second post we’ll discuss how stakeholders were motivated to co-operate with the changes.

Edwards started by saying that sustainable cost reduction was key for the procurement team – their division of BP has a very high proportion of bought in costs, which puts greater focus on procurement. Other objectives were important, but cost reduction gives them the right to be taken seriously (which took me back to our first Spend Matters sourcing debate a few weeks ago, as that was the point made by both Professor Andrew Cox and David Smith).

The procurement transformation over the last year or so was kicked off by a new divisional CPO coming into the organisation. Historically, the function was not fully aligned with internal stakeholders or suppliers; there was limited spend visibility, dozens of different ERP different systems and some limited and unsophisticated eSourcing in place.

Introducing the Emptoris sourcing platform “got people thinking that something was different, that we were serious”, said Edwards.  He emphasises the importance of change management; that is what programmes like this are all about. But the tool helps to drive that. An early win was spend analysis; of the multi-billion £ annual procurement spend, over 90% is now categorised.

The more advanced optimisation-type sourcing capability has been used in certain categories that seemed to best suit the approach. One is packaging, where spend (in the £ hundreds of millions annually) was dispersed in terms of the supply base and the internal stakeholders.  Procurement basically bought “what marketing wanted”.

That situation has been transformed. Procurement now understands the category; they have broken down the cost components of the packaging, and built proper cost models. The Emptoris platform has allowed suppliers to offer alternatives within the tendering process and driven innovation in the supply base. This has had a major effect on cost (a double-digit cost saving across the category) but has also led to use of new technology and ideas generated by suppliers.

Another category that has been addressed is Chemicals. Here, BP had thousands of raw materials, and hundreds of very localized suppliers. There is also complexity on the sales side; with a very large number of individual SKUs produced for the customer base.

Here, procurement went to the market with the sourcing tool and asked the market not just for basic pricing but also for alternatives to current products, and new product ideas. Generally, the market saw this as an opportunity to offer innovation and grow their own business, not just an attempt to drive down cost.  The entire spend has been taken to market over the last year; inconceivable under previous largely manual processes.

Again, double digit savings have been captured, but perhaps more importantly, “we have a 3 or 4 year technology pipeline of ideas coming from the market, many of which will be revenue and profit generating for us”.   And risk management has been another positive; one supplier had an explosion at their plant, but procurement had alternatives ready that had been identified through the sourcing process.

This strikes me as real competitive advantage stuff; but as well as the procurement leadership, capability, and technology support, it has also required skilled stakeholder management.  In our second and final post on this topic (next week) we’ll take a look at how the various stakeholder groups were engaged and motivated through the transformation programme.

 

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