16 October 2009 | Jake Kanter
UK technology company Smiths Group is targeting procurement to save more than £11 million next year as part of an efficiency drive.
The FTSE-100 firm wants to make total cutbacks of £50 million over the next two years under plans boost profitability.
Head of procurement Maggie Jones told SM the company will reduce vendor numbers, encourage greater collaboration between its five divisions and improve category management.
Purchasing saved £9 million in the past year. Better data helped it increase visibility of its £1.1 billion spend last year and reduce costs through supplier negotiations.
Improved data showed 60 of the company's 250,000 suppliers had contracts with all five divisions, and 15,000 vendors selling to more than one. Divisions include Smiths Detection and Smiths Medical, which make airport security scanners and patient monitoring systems.
By introducing bigger deals with a smaller number of vendors over the next year, the company aims to cut its supply base in spend areas including raw materials. This approach has already proved successful in business travel, where 38 travel management vendors have been cut to one.
A monthly sourcing council, chaired by Jones, is supporting greater divisional collaboration. The council oversees spend and identifies opportunities to make group-wide deals.
Jones said support from Smiths' chief executive Philip Bowman is key to the council's success. "Philip is one of those enlightened CEOs who recognises the value of procurement and he has really put his weight behind the council and cut through a lot of resistance to change."
Smiths is also giving each of its subsidiaries responsibility for managing a category of spend on behalf of the group, helping to pool buying power. "It's a pretty radical concept," Jones said. "It takes a lot of confidence and stakeholder management for a division to rely on another company to manage its supplier."
Supplier relationship management is another area not yet fully exploited, Jones added. Business practice will be improved through better communication and by sharing innovation, she said. "We have got such a wealth of opportunity and in the current economic climate, anything we can do to support the business and protect margins has got to be worthwhile."