High-cash-impact sourcing program for international telco
With the expansion of the Internet and third generation mobile phone standards and technology (3G), European telcos are under considerable pressure. Their high level of debt and the increasing competitive pressure of maturing markets are major issues.
Telcos often require high-impact transformation programs to recover their financial health and leverage synergies from international expansion. For European telcos, with major labor constraints, sourcing is the priority contributor to cash generation. Implementation speed is crucial to gain early wins.
Challenge
An eight-week procurement assessment outlined both the challenges of the very fragmented procurement organization and the significant opportunities. The telco needed to launch and efficiently run a first-class sourcing program that would maximize cash impact in the first year, plus deploy best sourcing practices throughout the decentralized organization.
Major issues identified upfront included:
- How to accelerate cash impact and realize early results
- How to manage major suppliers and locked-in categories
- How to improve relationships and efficiency between buyers and specifiers
- How to ensure implementation of agreements and compliance
Approach
The joint A.T. Kearney/telco team developed and implemented four major concepts:
- One-off action — quick-hit actions for suppliers (face-to face meetings, supplier forum, letter, etc.) with requests for proactive supplier suggestions to realize short-term savings
- Mega wave 1 — upfront launch of a huge first wave, comprising the telco’s 40 biggest categories, which represent approximately 50 percent of the total spend, and address both core and non-core products and services
- Accelerated sourcing — sourcing approach and duration (3-6 months) tailored to the nature of the category with extensive use of tools to accelerate the evaluation of suppliers’ offers, support the negotiation process, and sustain results
- Demand committee — committees of high profile senior managers set up as a link between specifiers and buyers to validate and sponsor specification rationalization
Results
The sourcing program resulted in significant savings:
- After 6 months, cash impact was above €1 billion, exceeding the initial target by 30 percent
- After one year, the negotiated annual savings reach €1.7 billion
- On average for all wave 1 categories, negotiated savings are an impressive 18 percent
The program also accomplished objectives for improving the ongoing procurement organization and its supplier relationships. The supplier base is significantly reduced, from about 2000 to 800 suppliers. Best practices have been introduced in a newly designed sourcing organization, including a unified sourcing process, e-sourcing tools, cross-entity teamwork, specification improvement culture, etc.
Overall, the Demand Committees, which have been key enablers of the sourcing process, are moving to a sustainable role. They are managing demand and specifications, and serve as a bridge between the procurement organization and other functions.
Contact
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Pierre Brzustowski is a partner in A.T. Kearney's Paris office.
