LIVE Day 2: Spend Management Triage

Shelley Stewart of Tyco kicked off the main stage event this morning. Stewart, no stranger to complex Spend Management -- and other -- challenges, joined Tyco 2 years ago, amidst the corporate governance scandals that shook his firm. But the Tyco that Stewart represents today is very different. At US headquarters, roughly 430 out of 450 senior managers and executives are new, along with a completely new Board.

From a Spend Management perspective, Stewart was starting from ground zero. He inherited a supply chain organization that had an impossible challenge: integrate and manage over 700 acquisitions, all of which occurred in recent years. And he was tasked with doing this in a company where decentralization was not just policy, but religion (his corporate supply chain and Spend Management team is only around 20 individuals).

How complex is the cadaver he had to dissect? Stewart discovered that he oversaw an organization with nearly $20 billion in spend and over 350,000 suppliers. Before the consultant readers of this blog begin to salivate over an opportunity to market their supplier rationalization processes, you should be aware that you’re not dealing with an amateur here. Stewart knew exactly what he had to do to get the situation under control. And he began with Spend Management triage by prioritizing the top opportunities and going after them aggressively.

For Stewart, these top activities were spend visibility and eSourcing. From a spend visibility perspective, Tyco just went live with a data warehouse that now addresses over 50% of the company’s spend, bringing most of the unknown under management. This has enabled Tyco to create and plot appropriate strategies -- and processes -- to reduce purchasing costs and improve corporate governance (by creating visibility, standards, approaches, and processes).

From a sourcing perspective, Tyco intends to save $1 billion by 2006. And it looks like they're on track to do it, thanks to Tyco's leadership, which is firmly -- and actively -- behind the initiatives (the CEO meets with Stewart's team nearly every other month to monitor specific initiatives). In Addition the CFO and CEO sponsor Spend Management initiatives and get actively involved in monitoring progress of specific efforts (e.g., telecom sourcing).

Not a bad start for Stewart, given his relatively short tenure on the job. Clearly, Tyco is an organization which has placed a huge bet on Spend Management’s ability to improve shareholder value. And they've done this through prioritizing only a few Spend Management areas to make savings and process improvement a reality.

-Jason Busch

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