Thales UK has diverse business divisions, including aerospace and defence ©Thales
Thales UK has diverse business divisions, including aerospace and defence ©Thales

Do these companies have the best procurement processes?

As the first company ever to receive a 100% score, BT is topping the CIPS Sustainability index, and Thales has just been awarded platinum in the CIPS Procurement Excellence Programme – the first to get 100% on its first attempt. What can we learn from these procurement superstars?

BT
Make sure your boss understands the importance of sustainability, and ensure you can provide evidence to demonstrate your sustainable credentials.” Those are the top tips for sustainability success from Hari Sundaresan, BT Group’s CPO and Tony Roy, head of sustainability and governance.

The telecoms giant has a string of credentials, from Newsweek voting it the eighth-greenest company in the world, being rated a supplier engagement leader by the CDP (formerly the Carbon Disclosure Project) environmental reporting organisation, and its last two modern slavery statements making the FTSE 100 Top 10. It can now add to this collection a perfect score in the CIPS Sustainability Index (CSI), making it the first telecoms company – and only the second firm in the five-year history of the index – to do so. 

The CSI, powered by audit services provider PRGX, scores a business for its sustainability practices across economic, environmental and social pillars. BT had already been given 100% for the economic and environmental pillars. In 2018 it received 100% in the social pillar too, which looks at policy statements, codes of conduct, staff processes and activity around preventing modern slavery. BT joined the CSI in 2015 and has since encouraged a number of its own suppliers to sign up to the index. So how has it been so successful when it comes to sustainability?

Procurement across the entire BT Group is centralised, with a team of more than 400 people based in 29 countries and managing some 18,000 tier one suppliers worldwide. Procurement’s annual budget is around £12bn. “The CEO [believes] sustainability is important: we want to make a better world,” Sundaresan says. “Outside of government, we have one of the top five procurement budgets. The supply chain has to play a part.”

On behalf of procurement – with the help of subject matter expert Roy – Sundaresan stepped in to support the CEO’s aim, setting tough targets, accepting that “you can’t do sustainability without a cost”. The journey started seven or eight years ago, and the team is now “storming through the goals to get to 2020”.

He credits a significant portion of the success and the enthusiasm of the stakeholders to the message coming from the top. “You don’t want to be associated with not helping the group CEO achieve something that we have gone to the City and very publicly told everyone about,” he points out. And supporting sustainability and fighting modern slavery are also the right things to do: “How could you not agree with it?”

BT’s plan to reduce its own carbon emissions by 87% by 2020 has already been reached – its energy use is now 96% from renewable sources. The aim for 125 of its biggest suppliers to be on 50% renewable energy had been achieved by 114 of them by December 2018. And the target to have 250 of its biggest suppliers audited and certified on the CDP has already been exceeded, with 260 on the system.

Scale is another factor in BT’s success in reaching the targets, says Sundaresan. Through BT’s own associations, such as its major deal with nPower on a renewable energy contract, procurement is able to introduce its suppliers to each other and help them arrange deals. 

Introducing a stick to encourage suppliers is also helping. About eight years ago, using the percentage allocation when adjudicating a tender, he put 5% on sustainability/CSR measures. The rest of the 95% could vary according to the product on price, functionality, operations, procurement, but the 5% sustainability was fixed. “Buyers then asked, how do I judge it? We had to do some policy work, and then we could give it to the buyers to educate the suppliers on this 5%.”  Sundaresan used his regular two-monthly ‘all-hands’ call with team members to reinforce the importance, with Roy’s additional ‘knowledge’ calls giving more support. “It was a tough gig, but we are on the journey,” Sundaresan says.

A few years later, the sustainability quotient went up to 10%, a “material difference”. On the final round, that 10% could move a company from first to third. To lose a contract because of your green credentials could lose someone their job, says Sundaresan. The buyers coached suppliers through the process, and that’s when the dam broke, with stakeholders, buyers, and suppliers on board.

Procurement at BT isn’t easy, says Sundaresan. “We have enormous power, but the bigger the corporate, the greater the responsibility.” Tens of thousands of people work in BT’s supply chain, and when a supplier is brought on board, there are thorough checks on the elements of risk. One is modern slavery, something that the company is working on revealing down the supply chain. If it is found, BT takes a remediatory approach.

Roy believes some of this activity helped BT achieve its 100% score on the social pillar. “We worked on supplier engagement with the Modern Slavery Act, managing the risk down the supply chain, using our audit experience, and understanding the risk – not just in tier one but going further down to understand if there is a risk from enforced labour, for example, in Chinese suppliers. Finding it is one thing, but using our influence to change behaviours in our suppliers is what is making us better.” 

BT does ‘all-rooms-visited’ audits, adds Sundaresan, stressing that slavery can be found in the UK too, not just the Far East.

The firm can add to its accolades being rated the number one telecoms firm globally for sustainability by the FTSE 100. Such evidence all helps to grow the business. “The government is keen on the CIPS sustainability index,” says Sundaresan, “and the sales guys like the top score. This is a differentiator.”   

Sourcing strategically

Buying is becoming more about strategic sourcing, says Sundaresan. “We’ve been experts at buying, and now, to communicate to suppliers the need to change their modern slavery processes and embrace sustainability, you need EQ. We are like marriage guidance counsellors.”

Go out and talk, learn and understand, he advises. Ask stakeholders what they want to achieve, and it can lead to better solutions. “For example, if you are asked to buy a mobile phone, have they considered if using a laptop is better for the purpose?” A conversation with an engineer working out of a BT Openreach van found that a much-appreciated screwdriver had been replaced by one that broke regularly. “We changed that.”

Supplier days help reveal innovations and cost savings, and using the ‘humility card’, Sundaresan says, gives very useful feedback. “We invite suppliers to tell us what we are doing wrong and what we should be doing.”  

CIPS rated supplier

Thales UK

It’s a fairly common procurement aim: moving upstream in business activity, from transactional to more strategic value-adding. But at the UK arm of French multinational electrical systems firm Thales, this aim has been achieved with particular gusto. 

Thales UK’s procurement department refers to this process as ‘left shifting’. The plan to take procurement out of simply transactional activities and move upstream to become involved at the engineering, design and bid stage was just one of the eight strategies Malcolm Dare set in place three years ago when he started as CPO. The company had recognised that something was not quite right, and Dare’s job was to ‘fix it’, he says.

Thales, which in the UK has revenues of over £1bn and a staffing level of around 6,500, has diverse business divisions, such as aerospace, satellites, transport, defence and cyber security, and much of the procurement activity was done separately. “Everything evolves for the right reason,” says Dare, “but when you step back and look, you realise there are better ways of doing things.”  And so began the development of Strategy 8.

Kicking off the transformation process, Dare sat down with his procurement directors to re-evaluate the leadership and create a functional identity, instilling a ‘one team’ mentality. Guided by a professional psychologist, regular away days were introduced to provide a confidential environment for quality conversations. 

Taking that mentality to the wider procurement team involved a few months spent visiting all the different sites, explaining how the organisation works. “People tended to know about their site but not about their overall function.”

Investing in people was key, as well as communicating career paths and training options. Staff learned how to sign up for CIPS training and certification, improve technical skills, and how to self-assess against a technical competency framework. Dare also made sure procurement staff were able to access the company’s wider soft skills training, something that had not always been possible.

Three years on, the MCIPS qualified staff in procurement has increased from about 15% to over 30%, and should reach 50% in the next two years.  

PWC provided external support for a long-term cost reduction programme. “That helped us to learn new ways and challenge the business,” Dare says. One area of major change was logistics, which covers everything from small electronic components to vast amounts of copper cabling for the London Underground network and carrier diesel engines for Queen Elizabeth-class aircraft carriers. The operation, which was previously site-specific, was handed to fourth- party logistics provider Wincanton, standardised across the UK with one national distribution centre and warehouse complex. “By doing that we optimise storage space and transport movements,” says Dare.

The business was already looking for savings across the supply chain to be able to reinvest and win new business. Supplier-facing elements of the transformation began with investment in a team of supplier development managers, improving performance management and sharing the information transparently with suppliers. While Dare modestly says none of this is rocket science, the outcomes are undeniably impressive: Thales has halved its supply base, and supplier performance has steadily improved.

Left-shifting is an important part of the supply chain transformation, given Thales is involved in developing many new products or systems, such as enabling airline passengers to connect to the internet at 30,000 feet. If procurement is involved at the engineering and design stage, it can better understand and advise on component delivery, resolve cross-functional issues, calculate when orders can be placed and bring it to market on schedule. 

Benchmarking has been key, and Dare is delighted that the country division of Thales has gone from no score in May 2015 to receiving a platinum score in the CIPS Procurement Excellence Programme. “That’s quite a racy change, don’t you think?” he says. And, he’s not wrong. The platinum award is the pinnacle of the CIPS programme. The assessors and verifiers’ report said that every element of the submission met the requirements for a platinum rating, calling it “excellent and comprehensive”. Assessors specifcally commended procurement’s good strategic and operational focus, and called the performance reporting process, which can be viewed at local level as well as at overall UK business level, “impressive”. 

Dare’s focus on capability building was praised. “The people management and development processes looked to be highly professional and well developed,” the report said, citing the use of a range of approaches including apprenticeships, graduate schemes and placements.

Dare hopes the acheivement will help with recruitment and retention. “It will allow employees to see the benefit and end result of all of their work and receive the recognition from CIPS and the business.”

Now the wider Thales Group is looking at what the UK has done. “They are asking how we have done it,” says Dare. “It has given the UK a platform.” And Dare has been given additional responsibilities across 10 European countries, a clear indication of how highly rated and respected the transformation has been. 

Strategy 8

Plan the project in a way that engages, explains Dare, who named the transformation Strategy 8, because at the outset they found eight areas for improvement: People, organisation, systems and processes, supply chain – engineering and technology (left-shifting), cost reduction, supply management, metrics and reporting, legal (standardising contracts). 

“Engage your team early, agree the plan early and stick to the plan in a flexible way,” he advises. 

“Set ways to measure progress. We opted for a rolling three-year improvement plan, with targets for each year, and a monthly progress tracker. Engage the business, explain what you are going to do and then deliver it.”

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