End of the worldwide function?

2 July 2003
More news

03 July 2003

Diageo is scaling back its global procurement ambitions. David Arminas assesses the implications for other international companies and the profession

Multinational companies have long believed that global procurement holds out the promise of great savings through aggregated spend worldwide. But the reality is that global procurement is also one of the most difficult areas for purchasing professionals. As our news story shows, international drinks company Diageo is scaling back its global procurement group and refocusing on more regional buying.

Some purchasers argue that there is no such animal as a truly global contract. No doubt Diageo went through intense soul-searching when it decided it needed to restructure. As one Diageo procurement manager told SM, "the dream [of global procurement] is not over, but we do need to focus it in a different way".

Diageo's experience will leave many global purchasers wondering whether they, too, should restructure.

This raises two key issues. How is a global strategy defined? And does the organisation have purchasers with enough experience to put one into effect and manage the complex relationships between different countries and cultures?

On the first issue, defining a global strategy is where many problems start, according to several heads of global procurement. By definition, the strategy does not mean buyers at central office need to hammer out deals for their company's regions and territories, according to Doug Pulsford, a senior consultant with the QP Group and a former global buyer with Xerox. Most deals can be done regionally. "The central organisation is mostly contract management, general due diligence that allows local or regional purchasers to negotiate deals," he says. "But this set-up may not be called a true global procurement function, simply a central contracting resource."

Charlie Thelu, vice-president of global purchasing at EMI Recorded Music, agrees that a global procurement department at head office need not be the deal-maker for a series of worldwide contracts.

"A global strategy is not necessarily about one supplier in a given area taking care of all your needs worldwide," he says. "We have found there are probably no more than eight to 10 categories that are this global."

As with Diageo, EMI global procurement is restructuring. It recently replaced one of only four jobs at its head office with one in a major territory.

"Rather than build up a central core, we have been building up a network across key territories," explains Thelu. "We have centralised globally our key production materials such as polycarbonate and plastics components, for which there is a global supply base. We buy from regional suppliers but deal with it in a co-ordinated way. For example, printwork is co-ordinated across two regions with one person doing that."

This type of strategy is a mosaic of local deals, says Richard Plummer, a consultant with the Corporate Travel Partnership and a former global manager at GlaxoSmithKline. A global procurement team tries to ensure that local deals fit into a global strategy.

But doing this successfully requires deft handling of cultural differences within regions: the second major issue. Plummer believes many companies simply don't have the right people to handle international deals. Procurement skills range from highly dedicated professionals in the US and the UK, to part-time buyers in part of Europe whose real profession is not purchasing, and finally in Asia to the managing director's PA.

EMI is particularly aware of the need to get buy-in from its regions and territories when the global procurement team implements a process, says Thelu. "We can give the regions some concepts, advice and analytical tools to make deals according to a global strategy. But we must win them over and demonstrate there is something in it for them; show them it will save money that can be spent in other marketing areas to expand their influence."

Successful global procurement leaders should not forget that lessons about good practice can come from the regions as well.

One former Diageo procurement manager says the company has been much more successful at sharing knowledge and processes in this way than it has at saving money by doing global deals. "They had an intelligent go at this using some highly skilled people and realised that it doesn't work."

Diageo's experience should not deter purchasers from pursuing a global purchasing strategy. But it might make them think more about what is and is not possible.

SMjul2003

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