Orica Impacts on Bottom Line Through Strategic Procurement

11th May, 1998

Orica is improving its bottom line thanks to a major program which is reducing costs through more effective purchasing. The project is an important element in the company's overall three-year program to improve efficiencies and reduce costs by $200 million by the end of this year.

The initiative - known as Symphony - impacts on the bottom line through a core strategic procurement team providing cross-business and cross-functional expertise in purchasing. The program operates across all Orica business units: Chemicals, Plastics, Explosives, Dulux & Selleys and Incitec. There are currently 38 teams working on cross-business purchasing opportunities.

This initiative's success lies in its structure. It underpins the company's diverse and decentralised group of SBUs, while providing the benefits of autonomy and aggregation.

Where products or services purchased are common to more than one business, the spend is aggregated to achieve one approach to the market. The process in aggregating the spend is co-ordinated by cross-business and cross-functional teams.

Orica business project director Mr Ross Kreuiter said, "It is essential that Australian companies keep reducing costs if they are to be world competitive. To this end, we're working to be the manufacturing industry's leader in supply-cost management.

"Our objective is to manage professionally what we spend.This initiative is a unique process of providing a company support group to the businesses; importantly, one which is business-driven.

"This is a core of excellence set up by the corporation independent of any business. Responding to a director, it is not the traditional central purchasing. Rigid measurement systems ensure savings are fed back into the organisation. These results are identified and auditable. This process captures all the benefits."

A central core team of skilled and experienced strategic procurement experts work with the businesses as facilitators. They work across the supply chain area, both cross-functionally and cross-business. The support team of eight also assists the businesses to develop a career stream for procurement.

Mr Kreuiter said that key to the process is having a stream of professional procurement management people.

"We're committed to enhancing and growing our people's skills as we're determined to have the highest possible quality procurement group. We plan to ensure the focus is retained through ongoing best practice training."

As important feature of the training process is the secondment of purchasing personnel from the individual business units to the procurement team.

"It's an extremely valuable training and development ground as the individual gains exposure across the company," explained Mr Kreuiter.

"It's a win/win situation. The company gains from the new insights the employee can bring to the job and the resulting impact on the bottom line. The employee wins because it's an exciting and skill-intensive form of career development. "

Procurement experts from Hong Kong and the UK have featured in masterclass training to provide the team, and business representatives, with the latest on supply chain management techniques and developments.

"We're seeing the benefits and our suppliers are also seeing benefits," said Mr Kreuiter. "For example, suppliers now only have to deal with one point of contact as they are entering into a team contract.

"A group of early wins - including electricity, telecommunications, fuel, travel and packaging - have accounted for savings in excess of $15 million. This has buoyed the team with confidence to pursue more opportunities."

Mr Kreuiter said, "While there is a sustainable 'virtual organisation' coordinated centrally, participation and ownership within the business units ensures supplier agreements are managed by the owners - the businesses themselves - and that new opportunities are realised.

"The cross-business and cross-function team structure ensures there is continuous sharing of supply market information. A Lotus Notes-based Knowledge Management database provides the 'glue' to stick together the many business units and sites."

Examples of strategic procurement team innovations include:

• redesigning service and product specifications via input from both supplier and the business unit to enhance efficiency and customer value;
• combining the packaged road freight volume of 10 business units into one contract;
• combining container sea freight volumes into one contract;
• aggregating the company-wide spend on cardboard boxes with one supplier;
• consolidating motor vehicle fleets into one unit;
• redesigning site-based facilities management to achieve the right mix between in-house and outsourced service, together with subcontract service moving across multiple sites. Cost reductions for the Melbourne Head Office and Botany site have been significant;
• reducing high volume and low value purchasing costs with use of purchasing cards, utilisation of new SAP computer system and use of electronic commerce and
• moving to more efficient forms of packaging such as semibulk containers and, where possible, reducing or eliminating packaging altogether.