With the advent of new technologies such as big data and analytics, leading electronics companies are searching for ways to leverage information to maximize spend and make the most of budget. It's no easy task, but it can be done.
EBN sat down with Garry Christie, director, global business services/global supply management at AMD to talk about the importance of these efforts on indirect procurement. Several years ago, the chip giant implemented a spend analysis tool in order to drill down on where money was going—and found that the benefits went beyond just cost cutting measures. We asked Christie to tell us more about these efforts and their results.
EBN: Why should managing indirect spend/procurement proactively be a priority for electronics OEMs? What benefits can organizations hope to capture?
Christie: There's a natural tendency to focus on the direct side and cost of goods sold and that will continue to be the top focus within the electronic OEMs as they look at spend. However, indirect procurement has increased visibility in the last decade with a significant focus on operational expenses (OpEx). There's an understanding that you have to be looking at spend across functions. Cost center managers manage their budgets, however you need a team to look across the enterprise and have a good handle of how we are spending money and with whom are we spending. Without being a spend police, just having a team that makes sure that we are driving down cost and getting as much as we can for each penny we spend is important.
There's also the quality of goods and services we are getting from suppliers. The focus needs to be, not just lowest cost, but lowest total cost. To manage spend effectively we have to be confident we have the best suppliers and the best contracts in place. A lot of our time is spent working on contracts, hand in hand with our legal team, to ensure they accurately reflect our requirements.
For all of procurement at AMD, the number one goal is savings. It's more difficult to measure savings in the indirect area than in direct procurement. In direct, you have part numbers for the materials, you know exactly what you spent before and what you plan to spend in future, and you are working with a relatively small number of qualified suppliers. In indirect, you are not always buying exactly the same items. Services can change significantly. To overcome this, we worked with finance to create savings definitions and apply this rigorously to our sourcing projects. We track these and review on against goals on a monthly basis, just like our peers responsible for the direct spend. We aren't responsible on our own for driving spend down, our stakeholders are accountable for their budgets, but we are there to help make spend go as far as possible.
EBN: What capabilities should an organization look for when choosing a procurement solution?
Christie: When I joined AMD in 2010, we ran reports from our enterprise resource planning (ERP) system. However, it wasn't easy to do and consistency was a challenge. Given the importance of understanding who we are spending, not having a simple solution to run a spend report wasn't good. That got me speaking with the IT team and we jointly put together a proposal to invest in a spend analytics solution.
After looking at a number of suppliers and running a RFP, we chose Zycus as our spend analytics provider. We also deployed the e-sourcing and Supplier Performance modules from the Zycus suite. In terms of implementation, the e-sourcing and supplier performance management was straightforward since we had solutions in place already. Spend analytics was more difficult since we were starting from scratch. Given that, we were pleased to be ready to go live in four months. This was an accelerated time schedule and we succeeded through the teamwork of procurement, IT, and Zycus.
There are a lot of good providers out there. The end factor for us, given our maturity level on the analytics side, was that we wanted to have a supplier that we felt would listen to our needs as we started to understand more of what we truly required. We felt we couldn't afford to go live with a solution and have to live with that solution and any inadequacies it had in terms of our requirements. We wanted someone we felt that would work with us, truly listen to our input and help to tweak the system to meet our needs.
In addition, we run with a lean organization in AMD procurement and so we don't have a team of analysts. Instead, we are asking our sourcing leads to perform the analysis, which added to the challenge in terms of having something that met different requirements.
EBN: What are the ways that your organization used to get end users on board? How did you reduce the natural reluctance people have to organizational change?
Christie: The easiest way would be to mandate the change. We didn't want to make people feel that they had to use it for sake of using the tool. We wanted people to get excited about using it. We are asking our commodity managers to perform analytics in addition to sourcing and contracting and they might not have a strong skillset or a strong desire in that area. It's a mix: some people really jumped on board but others took a little longer.
For training, one of our commodity managers took the lead. We used online training and videos to show people what to do since it is a good medium to cover our sites around the world. We also appointed super users in each of our sites.
Data accuracy is always an ongoing challenge. Data maintenance is a chore, however it is a necessary evil that is required. It's tough when people are really busy and yet they know they have to do it. People want to spend time analyzing spend but have to spend time cleansing the data. That's just the reality of any analytics out there. It's an ongoing challenge.
EBN: What were the biggest surprises that you found when you had tools to dig into what was going on with spending? Where did you find the biggest savings opportunities?
Christie: Although we didn't have a spend analytics solution in place, this was a really good indirect procurement team who were managing their categories well. Because of that, there wasn't as much low hanging fruit as I anticipated. Our managed spend was high even though we couldn't easily take a look at it.
One of the immediate benefits was payment terms and net payment. We changed our standard terms and wanted all of suppliers to move to the new terms. The new tool gave us this ability to understand which suppliers were adhering to the new standards and so we could focus on the suppliers we needed to work with on accepting the new standard.
There was also immediate efficiency gain. In the past, we'd spend a lot of time pulling data for a category review or if a spend question came down to the team. Now, we have the information at our fingertips, and we know that it's accurate. I can easily see where we are spending money, who we are spending with, and look across regions to determine where there were opportunities to leverage global spend.
EBN: What are the next goals that AMD has or that you have for the organization?
Christie: Right now, there's nothing major set to take place. We will do further integration at some stage since we know that's where the value is. When will be down to affordability and prioritization. We have a seat at the table with all of our stakeholders where we spend money and we work closely together, particularly with large spend and contacts. We are viewed as a team that's here to help and add value, one that is constantly seeking ways to meet the needs of business. This will continue to be our mantra.
— Hailey Lynne McKeefry, Editor in Chief, EBN