The airline’s procurement team has been on an award-winning transformation journey. Laura Grant, VP procurement and working capital, tells how it has left the department – and the organisation – flying high
The names of commercial airline Virgin Atlantic’s fleet of aircraft sum up the brand pretty well. They are quintessentially ‘Virgin’, which has almost become an adjective in its own right: sexy, innovative and exciting, with tongue firmly in cheek. Among the 44 Boeings and Airbuses you’ll find Miss Moneypenny, Daydream Believer, Lucy in the Sky and Sleeping Beauty Rejuvenated.
But, while that sense of fun remains, the company has matured over the years, explains Laura Grant, VP procurement and working capital, when SM meets her at The Base, Virgin Atlantic’s state of the art cabin crew training facility near Gatwick Airport. Part of that has been driven by a recent joint venture with US airline Delta, which invested $360m in Virgin Atlantic in December 2012, buying the 49% stake previously owned by Singapore Airlines.
As of early 2019, European airline Air France-KLM will take a 31% stake, taking Virgin Group down to 20%. However, Virgin will retain chairmanship of Virgin Atlantic, its independence as a UK airline, and it will continue to fly under the Virgin brand.
The gradual decline in founder Richard Branson’s ownership has “changed the way we operate, because our shareholders are very different”, says Grant. “We’ve needed to grow up a little bit.”
The airline industry faces a number of challenges beyond the control of any single company, she explains – whether that’s Brexit’s impact on the exchange rate or an increase in terror attacks across Europe. “It’s an industry that’s forever under challenges. There never seems to be a steady state. Just as you are getting into your flow, a volcano goes off. We are impacted by geopolitical events, natural disasters and just life in general.”
Procurement can play a big role in supporting such challenges. Grant has recently led Virgin Atlantic’s procurement department through a transformation that has not only seen a significant gearshift in how the function is viewed in the organisation, but also led to it being named Most Improved Procurement Operation – Step Change in the CIPS Supply Management Awards 2018.
Build a framework
Grant has worked at Virgin Atlantic since 2006, steadily progressing through categories such as technology and product and services (which includes all inflight products, catering and goods for Virgin’s Club Houses). She took over the whole procurement department, initially as an interim, in 2016. She had already been part of the procurement leadership team that had come up with a brand – ‘Buying at our Best’ – and put in place the five pillars it would focus on: planning strategically, sourcing consistently, supply effectively, governing appropriately, and team and customer.
“The pillars were there, but we were not in a state of maturity. The vision was there, but hadn’t been embedded,” Grant recalls. She also felt the procurement department “lacked impetus” with stakeholders, being seen more as administrators. “Stakeholders would have us in for help with an RFP, but we didn’t have a seat at the table in terms of being able to influence or offer sound insight.” The other challenge Grant perceived was being too slow, hampered by ineffective reporting. “We weren’t able to measure our performance, and when you can’t measure something, you can’t tell people what you are doing. Information and reporting allows you make relevant changes.” It was, she adds, a combination of a lack of business appetite to engage procurement and the trouble the function had promoting itself effectively.
Coming in as an interim gave Grant “six months to really demonstrate what I could do; I had to hit the ground running”. She took the existing strategy and slimmed it down to her top five priorities (putting in place category strategy; revising the procurement toolkit; strengthening SRM; refreshing KPIs; and reorganising the team), sharing ownership among the “stars” on the team.
First on the agenda was “a tactical saving activity”, badged Challenge 2017. “We were going through a bit of a dip as a business, so what better time to dive in and say ‘we can help you and deliver some benefit’,” says Grant. The nine-month project, delivered in collaboration with consultants Deloitte, provided £11m of savings. “We found them through product and tech savings, developing more strategic supplier relationships, changing the way we serve meals on board, changing the water on board, doing a wine tender… loads of different activities.”
Challenge 2017 had a two-fold objective: making tangible savings at a tough time for the business (hit by the Brexit vote and terrorism in Europe) and teaching the team to think more strategically about savings opportunities and how to sell these opportunities to their stakeholders. “It changed the way we behave in lots of cases,” she says.
“The business is so focused on customer experience and satisfaction, we needed to make sure we weren’t impacting that in a negative way, and that we were supporting the business to drive its NPS [net promoter score] and bring better value back to our customers, both internal and external,” she adds. “Our mission statement is about driving value to deliver great commercial outcomes to our stakeholders. If they are getting what they want and are able to deliver on their strategy, and we are enablers of that, that’s a great thing.”
Measure your success
Procurement is not mandated at Virgin Atlantic – “we have a policy but people can ignore it”. That, says Grant, has dictated the way they influence. “As we are not mandated, we can’t bang on that drum. You need to use other [levers]. It becomes about demonstrating value, that people want you there because they like what you offer and you’re benefitting them in some way.”
So, as well as delivering savings, Grant’s team has focused on spreading good practice. As procurement doesn’t engage in spend under £100,000, unless it’s business critical or risky, it has launched a ‘Buying at our best’ course for stakeholders. “It shows [them] how to buy and make sure they don’t fall into any horrible holes,” she says, adding that the uptake has been “huge”.
They have also launched a supplier relationship management (SRM) course. SRM is a core focus, but at Virgin Atlantic procurement is not responsible for it. “We do the strategic sourcing, then pass it over to the business,” says Grant. That meant there used to be “a lack of consistency” in discussions with suppliers post-contract. Working with consultancy State of Flux, the team developed and ran an SRM pilot with six key suppliers, building a framework for SRM off the back of the findings.
The three-hour SRM course is now run almost monthly. While it’s not mandated “yet”, anyone who owns a relationship with a business critical or strategic supplier is expected to go on it. “We are the custodians of good practice,” says Grant. “You own your SRM, but procurement can support you by putting you on a course that shows you what good looks like.” The course covers areas like contract management, influencing and negotiating, and when to bring procurement in. It has been well received and teams from other Virgin companies are keen to replicate – the highest accolade.
Another focus has been developing KPIs that are fit for purpose, measuring successes and failures, and enabling Grant to tell a more compelling story to the business. One of the most useful KPIs is measuring the point at which the business gets procurement involved: shape, define or deliver. The target is for 75% of projects to involve procurement at the shape phase, for which it’s currently tracking at 69%.
Using Power BI, for this measure and others, lets Grant see which functions are engaging procurement and when. “Some engage us early whereas others come to us at the delivery point. I might as well not exist if I do that little! It allows me to see who my top performers are.” Sharing the stats with senior leadership is also proving useful in driving the right behaviours in the business – they see real value in the comparative transparency.
The complexity of projects, which are ranked on a 1-9 scale, is another useful measure. “Nine is something complex, strategic and high impact. One is buying a pen. My target is nothing below a seven.” Grant also tracks how long projects are taking and activity types, from transactional to value-add (“do I really want [the team] doing basic amendments or dispute resolution?”).
Rather than sending out a monthly report to the leadership, a dashboard means they can see how the procurement department is doing whenever they like. “It becomes massively transparent,” Grant says. “We are very visible now about our savings; we never used to be.” The procurement governance team also does a monthly audit, spot-checking “are we practicing what we preach?”
Throughout this transformation, which inevitably involved a restructure and some redundancies, the engagement of the procurement department has remained remarkably high. In 2017, it scored 91% on the employee engagement survey, the highest Virgin Atlantic had ever seen. This score, alongside the impressive savings delivered through Challenge 2017, the SRM pilot programme and subsequent framework and a procurement function ROI of more than 600%, gave Grant the impetus to present to the leadership team about repositioning procurement within the business.
“I was able to say: when you have a highly engaged team who feel empowered and are able to do a big project, when you let them in you get a great financial benefit,” she says. “My ask of leadership was to maximise engagement with them and their direct reports at every opportunity.” Grant herself now reports directly into the CFO and has added working capital to her portfolio. Procurement also sits at all monthly leadership meetings.
Engage from the outset
Virgin Atlantic’s joint venture with Delta has also – understandably – been the driver of much change. When Grant reorganised her function she sent one of her category heads to Atlanta, to sit with Delta’s procurement team. “The whole purpose is around maximising our synergies within the JV partnership, joint sourcing where appropriate and making sure we are operating in a collaborative way.”
“Delta operate at speed,” she adds. “They are a profitable organisation and we are tiny compared to them. It’s about making sure we are in the right place at the right time to jump on the back of what they are doing.”
Working with a third party, Delta and Virgin Atlantic’s procurement leaders are undertaking a piece of work to understand what good JV procurement practice looks like. “We want it to be scalable, so that when we go in with Air France-KLM, we can roll it out to them,” she says.
For Grant, the most critical part of Virgin Atlantic’s procurement transformation journey has been “that engagement piece”. “It’s got us at the table, being able to show through great reporting and the projects we have done the success we can bring. [It allows us to answer the question:] why would we use you?”
The testimonial from CFO Tom Mackay speaks for itself: “Over the last two years, I have seen a transformation in the procurement department from what could have been perceived as a transactional sourcing function to one that now proactively engages with business stakeholders from the outset.” Buying at their best indeed.
Virgin Atlantic’s transformation in numbers
5 key pillars
Planning strategically; sourcing consistently; supplying effectively; governing appropriately; team and customer
Virgin Atlantic’s annual addressable spend (excluding fleet, taxes, authorities, and fuel)
Annualised savings delivered through Challenge 2017
Savings delivered over life of one strategic contract, thanks to SRM
of procurement department is CIPS qualified
NPS procurement-led training score in 2018
Reduction in transactional procurement queries, thanks to training the business
Procurement’s 2017 employee engagement score