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SUCCESS STORY: SPEND SMART
CLIENT:
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Fortune 500 Insurance Company |
DIVISION:
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Corporate Wide Strategic Spending Program |
CONTACT:
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Corporate Vice Chairman and CFO
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MAJOR FUNCTIONS:
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Purchasing |
SITUATION:
The client's three principal lines of business -- Health Care,
Financial/Retirement Services, and International Insurance --
generally enjoy a decentralized and autonomous operating
environment. Certain functions, such as Purchasing, are provided
in a Shared Services arrangement. Annually, purchasing
expenditures were in excess of $1 billion. The client's new Vice
Chairman asked LoBue to design, manage and institutionalize a
Strategic Purchasing Program to reduce these expenditures.
The objectives of the program designed by LoBue were to ensure:
- Proper purchasing policies for the organization were created
and/or modified and communicated.
- An efficient purchasing process was designed and
implemented.
- MIS created to support audit and compliance of the policies
and process.
LOBUE RECOMMENDATIONS:
This program was required to institute "cultural change" and to
question the quantity of items purchased (should policy limits be
altered); the quality of items purchased (should policies vary)
and the price of items purchased (are discounts and vendors being
leveraged to extent possible). To institute pervasive cultural
change, the program design incorporated:
- Conceptual buy-in across the corporation.
- Creatively questioning and evaluating current spending
paradigms and entitlements.
- Isolating expenditures required to grow or improve the
business.
- Vendor management programs for consolidation of vendors to
command purchasing discounts and create of supplier partnering
relationships.
- Management policies at the user level - roles and
responsibilities for the requisitioner, purchasing department and
users.
- User group symposiums, reward and recognition programs.
- Management discipline and a coordinated Management Process
to track results and monitor compliance.
LoBue's program was crafted to complement the rationalization of
the purchasing department that yielded recommendations for
improvements in:
- Reducing manual approval controls on ordering and receiving.
- Consolidating multiple offices incorporating best practices
into the centralized unit.
- Increasing self-approval purchasing limits.
- Reducing imbedded roadblocks in the usage of electronic
purchasing.
- Creating an environment where purchasing professionals
undertake product line and vendor management rather than order
taking.
- Reinforcing the usage of centralized purchasing customer
service options.
REAL RESULTS:
The client reduced its expenditures, targeting only the largest
spending categories by $30 to $50 million. Upon LoBue's
departure, the client was planning to implement a similar program
for additional spending categories.
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