Live from SIG — Shell’s Radical Supplier Management Focus (Dispatch 1)

This morning, I listened to a great presentation at SIG's Global Sourcing Summit by Gregg Parsley, an executive in the Office of the CIO at Royal Dutch Shell, who runs IT sourcing and procurement. Gregg came on stage after Steve Forbes (more on his talk later) and hit the mark on a topic that is an increasing priority for many procurement executives. Setting the stage for Shell's supplier management program, Gregg noted that his firm's annual spend is among the largest in the world, representing some $50 billion "just to keep the lights on" and $25 billion per year on capital projects. Following this introduction, Gregg then shared Shell's strategy for prioritizing supplier relationship management and supplier development alongside other sourcing and procurement areas.

In terms of procurement priorities, Gregg breaks down individual areas into what he terms the "Holy Trinity" of supply management. The first of these areas is category management and "knowing demand." The second is contract management; "allowing and enforcing discipline within the internal Shell community and defining best practices and then extracting the best value from contracts and suppliers," as Gregg defines it. Yet the "glue" of the Spend Holy Trinity is "supplier management" or "taking value beyond the contract of goods and services." Here Gregg remarks that "supplier management is about realizing relationships have so many more alternative sources of value" than just driving savings. Moreover, "Supplier management and focus is not about paying a premium; it's about getting a premium."

For Gregg, the desired mindset he's trying to drive across his organization is one where suppliers are a core part of the delivery team. In his words, "We treat suppliers with the same respect of our employees" and "key suppliers can be entrusted with our strategy and plans." In addition, Shell is moving in a direction with its top 50 suppliers (soon to be the top 100) where it specifies what it needs and what a tender needs to achieve, but not necessarily how to achieve it. This points to one of Shell's primary motives when it comes to supplier management -- tapping the R&D efforts of its supply base. Within IT spend, for example, Shell's top 11 suppliers collectively invest over $40 billion each year in R&D. Compare this with Shell's $1 billion in R&D spending in the same area.

Check back for further details on Shell's approach and model to drive supplier management programs alongside category management and contracting as a top priority.

Jason Busch

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