30 April 2010 | Rebecca Ellinor in San Diego
Procurement made a considerable contribution to LG Electronics’ profitability in the past year.
The creation of an entirely new procurement organisation, headed by CPO Tom Linton, who joined in 2008, has resulted in $5.9 billion (£3.8 billion) in direct material savings on a spend of $24.8 billion (£16.1 billion), and $200 million (£130 million) savings on non-material, indirect spend of $7.5 billion (£4.9 billion).
Speaking at the Institute for Supply Management (ISM) annual conference in California this week, Linton said savings made by the purchasing department have contributed significantly to the company’s profit.
His work establishing a procurement organisation this week earned the company the R Gene Richter Award for Leadership and Innovation in Supply Management, which was presented at the ISM conference.
Speaking about his achievements at a later session, Linton told delegates: “Through the recession the company grew 20 per cent. In terms of our profit we’ve had significant growth in our operating income, which last year was 2.9 trillion South Korea won (£1.7 billion).”
Linton said he had an opportunity to make an impact since 75 per cent of the company’s revenue is purchased and there had never been a CPO in LG Electronics’ history. “It was like picking money up off the floor,” he said.
Many of the savings in indirect spend were achieved by the 150 non-buyers Linton put through procurement training last year and then dispatched to various parts of the world to achieve the cuts.
“There were some wins and some losses with that approach, but no guts, no glory. I used the recession to seize my opportunity. If there hadn’t been a recession the CEO wouldn’t have said: ‘Give Tom 150 people.’
“Could they have saved more if they were professionals with a lot of experience? Sure. That’s what we’re working on now.”
Meanwhile, at the same conference, Anthony Nieves accepted the highest honour awarded by the ISM, the J Shipman Gold Medal Award. One individual a year receives this medal and ISM said Nieves, who is senior vice-president or supply management at Hilton Worldwide was picked in recognition of his “modest, unselfish, sincere and persistent efforts for the advancement of supply management”.