ProcureCon preview – MTS procurement transformation and Vodafone partnership

One of the highlights of the Autumn conference season will be ProcureCon Europe, held this year in Berlin on November 3rd – 5th. It already looks like an impressive agenda and we will be featuring a couple of keynote speakers here in the next few days with interesting stories to tell.

Christian Linhart is the deputy chief purchasing officer for MTS, the leading telecommunications business in Russia. The firm is listed on the NYSE, and “as of December 31, 2013, the Group serviced over 100 million mobile subscribers in Russia, Ukraine, Armenia, Turkmenistan and Belarus, a region that boasts a total population of more than 200 million. The Group’s fixed business, as of December 31, 2013, had a total of 12.269 million households passed, 2.421 million broadband Internet and 2.613 million pay-TV subscribers”.

Whilst there are only a handful of expats working with MTS in Russia, Linhart is one, being German himself. He joined MTS in 2010 after working for McKinsey and then A.T. Kearney for over 10 years, where his career first took him into the procurement area.

As well as being an independent business, MTS is also Vodafone's partner in Russia and neighbouring countries. So if a Vodafone customer wants a global deal, MTS provides the service in those countries as part of that arrangement. On the back of that relationship, the firm has built a successful procurement partnership with Vodafone; but that in itself is just one element of a wider procurement transformation.

I spoke to Linhart recently to catch up with progress and find out what he will be talking about at ProcureCon. We started by talking about the general transformation effort.

“We have been fortunate to have had great support from top management for our procurement development”, says Linhart. The former Chief Executive of Deutsche Telecom, Ron Sommer, is Chairman of MTS and, having seen successful procurement transformation at his previous company, promoted the idea in this business.

The initiative really got going in 2010 and over the last four years , procurement has moved from influencing spend in part of the group to all of it, and from certain limited categories to pretty much everything, including logistics and site rental expenditure. “ A real sign of progress and the status of procurement is that my boss, Valeriy Shorzhin, is now a member of the full executive board with responsibility for Procurement and Administration”.

So what have MTS and Vodafone actually done together? Early steps included benchmarking and then the first joint tenders. A steering board was set up which meets regularly and now there is a range of joint projects.

MTS revenues are around $12 billion, so it is likely that their third party spend is something like 50% of this. Whilst Linhart does not want to be specific, the partnership with Vodafone is now handling hundreds of millions of dollars of spend annually – not the majority of spend, but a significant amount nonetheless.

It may seem surprising that organisations as large as MTS and Vodafone need to work together. Surely they can achieve all the economies of scale they need individually? But Linhart points out that there are a number of key supply-side sectors where literally a handful of suppliers dominate the global market.

“Even Vodafone with their partners only account for some 15% of the global sector demand, whereas many supply markets are very concentrated. For instance, just two firms, Apple and Samsung, hold 80% of the hand set market,” Linhart explains. So the additional leverage is important.

I asked him what barriers that partnership has faced.

“Suppliers will tell you that can't do this - that it is illegal, that the specifications don't match, that they can't provide the same account managers in different countries..! Then we also found suppliers trying to subvert our process by offering better deals to internal clients rather than to procurement. But we have been persistent and fortunate in having such strong support from the top”.

Moving beyond procurement matters, it is obviously a difficult time for international relationships, but apart from being a good procurement case study, it is a very positive example of Russian and Western European businesses working together successfully. It will be fascinating to hear more about the partnership from Linhart at ProcureCon in November, including more on the critical success factors, and I’m sure we all hope that the political situation is more stable and positive by then too.

And thanks to him for sparing the time to speak – the first time I believe I’ve had a phone call with Moscow!


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