Procurement has a hand in the Russian steel firm’s strategic projects before board decisions are made
After a nine-year development journey, the procurement team at United Metallurgical Company (OMK) is winning recognition for its integrative supply management, its supplier relationships, and project and risk management.
The business – which comprises five divisions – produces steel, rolled products, pipes, valves, railway wheels and automotive springs. Its key market is Russia but it also ships products to 20 countries worldwide.
The catalyst for change, CPO Alexander Sidorin says, was a desire to bring purchasing activities in line with the company’s ethos to be “better and one step ahead”.
After building up key operational business procurement processes, documenting them and ensuring they were extended to incorporate all business units, says Sidorin, procurement set about automating them into the company’s IT system, and built upon that with a corporate SRM system.
These were all changes that helped OMK’s operational finances, but the team wanted to go beyond solving problems and completing tasks, to contributing to the company’s strategic goals.
It was at this point, Sidorin says, that they realised tools were required to assist with risk management, sustainability and to create additional value from purchasing – essentially, they needed strategic sourcing.
The team now has 36 category strategies, which cover approximately 90% of spend. “If you buy something today from one supplier, tomorrow from another, then you are not of interest to anyone,” says Sidorin. “But if you sign a long-term contract, then suppliers are ready to develop together with you, ready to share your values.”
Procurement established cross-functional teams that included anyone connected to the category – buyers, internal customers, repairers, financiers, production workers – and together they defined the short and long-term goals for each product.
Through these teams, procurement understands the strategic goals of each unit, and no longer works simply from receipt of order to delivery, but considers short and long-term value, risk and cost on each strategic deal.
“Within these 36 partnerships we and our suppliers co-create new modified goods and business solutions,” explains Sidorin. “For example, we have long-term relationships with our suppliers of refractories. They create new technological solutions for us with the aim of decreasing our expenses and improving the resistance of refractories.”
The team’s recent award for Integrative Supply Management from the European Institute of Purchasing Management proves the success of the transformation, with judges highlighting the shift from operational relevance to strategic contributions through the team leadership. They also noted the systematic category management process; innovative business and technology solutions developed with suppliers; early attention to risk in sourcing and construction projects; and outcome-based contracting.
Supporting social projects
OMK recently won praise from regional governor Gleb Nikitin for its efforts promoting social business initiatives in the Nizhny Novgorod region.
After success with a ‘start your own business’ programme in two other regions in which the OMK operates, it decided to replicate it in Vyksa. It has now provided support to 12 social business initiatives with a total project budget of 3,000,000 rubles and has created 32 additional jobs in the Vyksa Municipal District.
One of the projects involved replanting a forest (pictured above), while another was undertaken by the Vyksa Society of the Disabled and involves finding employment for people with disabilities.