Inside E-Procurement

Centralized, 'war room' approach saves Unilever $902 million and counting.

Inside a converted conference room in Greenwich, Conn., Greg Polcer huddles with his team of procurement experts as they plan their next attack on costly supply redundancies and inefficiencies at consumer packaged goods giant Unilever. The walls of the room are lined with white boards and electronic displays covered with up-to-the-minute procurement information.

One wall displays the current status of e-procurement; consolidated, cross-divisional purchasing and other projects that are under way from Africa to Latin America; along with their contributions to the bottom line. Another wall maps current and future projects against six major strategies that the team has developed to overhaul procurement. On a third, Polcer and his crew scribble and draw as they brainstorm and plan schedules for future projects.

Welcome to what Polcer and his team call the "war room," the command center for a major effort to revamp the way the $44 billion company procures everything from indirect goods to the raw materials that go into the soaps, teas and other consumer products it sells around the world. Key to the effort has been the centralization of control represented by the war room. Polcer and his team have replaced a hodgepodge of procurement systems in use across Unilevers dozens of product divisions with standard e-procurement, online auction, purchasing management and demand planning systems. Theyve also forced changes in purchasing processes that allow different divisions at Unilever to combine purchases, increasing efficiencies and driving prices lower.

So far, the efforts are paying off handsomely. In the last two years, Unilever has cut about $902 million in procurement costs. By the end of this year, Polcer said, the company expects to have achieved more than $1.58 billion in savings from procurement efficiencies.

"All initiatives in supply management are being coordinated, organized, planned and paced together," said Polcer, vice president of global supply management, who works out of the U.S. arm of Unilever, which is jointly operated by Unilever plc., of London, and Unilever NV, of Rotterdam, Netherlands.

Large enterprises with dispersed business units struggling to use the Web and other tools to revamp procurement could learn plenty from Unilever, particularly its drive to standardize on procurement systems and its centralized approach to rolling out consistent, collaborative procurement processes companywide. The task of replacing sometimes decades-old, inefficient procurement practices with consistent, collaborative processes is among the most pressing challenges facing companies that seek to move toward e-procurement, experts say. Three of the top five implementation challenges for e-procurement revolve around rolling out consistent business processes rather than technology issues, according to a recent survey by Deloitte Consulting.

That can be even more pronounced in the consumer packaged goods industry, where, as Forrester Research Inc. found, manufacturers tend to have redundancies in processes such as invoicing and procurement because separate operating groups retain control over those functions. In such an environment, cutting overlap and streamlining processes can directly affect the bottom line.

"Its not an industry with high growth, so the companies understand that the supply chain has to be flexible and has to support the margins and profitability of the company," said Bob Derocher, a partner at Deloitte, in New York. "Some like Unilever have decided on a holistic business perspective and are not about just rolling up [new] technology."

Top Unilever executives have realized that cleaning up procurement processes and systems is key to reaching business goals. In fact, wringing savings out of procurement is a focal point of a corporatewide push called Path to Growth, launched by the companys executive committee in 2000, that calls for increasing operating margins from 12 percent in 2000 to 16 percent by 2004 and for increasing Unilever revenue growth to between 5 percent and 6 percent a year by 2004.

Supply chain management, including procurement, was identified as one of Unilevers six major strategies for improving margin and revenue growth. Immediately, the procurement initiative had executive support, and the companys co-chairmen, Antony Burgmans and Niall FitzGerald, have lauded it as an example of Unilevers progress in presentations to analysts and investors.

Why was streamlining procurement and driving it to the Web so important to Unilever? Until the supply management initiative started, procurement was almost exclusively the domain of procurement departments within Unilevers dozens of operating companies spread worldwide, Polcer said. That meant many product groups purchased goods and materials separately, maintaining their own procurement systems and staffs. The situation not only led to costly redundancies, it also meant Unilever missed opportunities to seek better deals by consolidating purchases of common goods such as box packaging and receiving higher volume discounts from suppliers, Polcer said.

Those inefficiencies and missed opportunities increased in recent years as Unilever went on an acquisition spree. In 2000 alone, Unilever spent $28 billion on acquisitions that included the purchase of Bestfoods, Ben & Jerrys Homemade Inc. and Slim-Fast Foods Co. With each acquisition typically came separate product groups and operations with their own procurement processes and systems.

One of the most significant projects has been the corporatewide implementation of Ariba Inc.s Buyer application. Unilever is using Ariba for the purchasing of indirect goods, such as office supplies. The project started in 2000. Most North American operations are using the application, and the rollout in most of Europe should be finished this year, with plans for other regions in the works, Polcer said. Unilever officials said the e-procurement project saved the company millions of dollars.

To assure that common procurement practices accompany the global e-procurement rollout, Unilever and the supply management group also set up an Ariba Center for Excellence, located in Englewood Cliffs, N.J. The center has its own vice president, who helps establish a common process for using Ariba, manages the rollout and collects best practices, Polcer said.

Besides standardizing on Ariba, Unilever has begun to roll out an application for conducting reverse online auctions that can be used by all parts of the enterprise. Unilever is also experimenting with Web-based tools for such activities as sourcing suppliers and managing requests for proposals.

Along with the procurement technology and process initiatives, Unilevers IT organizations have been working to standardize on key supply chain applications. Efforts to standardize on SAP AGs R/3 suite for purchasing and other applications dates from 1997, said Gene Goodmaster, vice president of IT for the North America home and personal care division, in Trumbull, Conn. The group has also standardized on Manugistics Group Inc.s supply chain management applications for demand planning, Goodmaster said.

New common procurement and supply chain platforms are only one piece of the strategy. More dramatically, perhaps, Unilever has made progress toward consolidating procurement across multiple divisions by forming global teams responsible for aggregated buying of key direct materials. About 40 teams have formed so far, typically concentrating on an ingredient or component commonly used by multiple Unilever businesses in manufacturing. They include teams sourcing and managing the purchasing of tea—one of Unilevers brands is Lipton Tea—and cleaning agents that may be used in a variety of products from Dove soap to Snuggle fabric softener. By combining such purchases, Unilever can demand lower prices.

The teams consist of local procurement professionals from within the companys divisions and regions, along with businesspeople from the categories of goods involved, such as deodorants or hair care. Polcer foresees as many as 10 more teams forming as he scours the globe for more opportunities to consolidate purchasing.

In addition to forming elite, cross-divisional procurement teams, Polcers supply management group has been working in the trenches, helping procurement personnel at business units get up to speed on e-procurement and other processes. Polcers group has worked with human resources across Unilever to develop training and other tools that can help increase the professional skills of procurement personnel. Already, 180 middle managers have been put through a common, worldwide course on procurement, Polcer said.

But any corporate drive to make procurement more efficient can hit a snag if key suppliers arent involved as part of the process. According to at least one supplier, Unilever has been forming a collaborative, rather than a combative, relationship with suppliers.

Clariant Inc., of Charlotte, N.C., is the sole supplier of sodium isothionate, a key ingredient in soaps such as Dove and Lever 2000, to Unilevers Hammond, Ind., manufacturing plant, said Craig Buys, a product manager at Clariant. Clariant, which started supplying Unilever in 1996, began managing the plants inventory of sodium isothionate using a Web-based tool in 2000. The tool, provided by Unilever, allows Clariant to do more-precise scheduling of shipments based on Unilevers supplies. Through better planning, Clariant has been able to improve utilization of manufacturing equipment. In fact, equipment that once had to be dedicated to Unilever can now also be used to produce products for other customers, increasing the overall capacity of that production equipment by about 40 percent, Buys said.

Unilevers focus on managing enterprisewide procurement technologies and processes has helped earn it not only closer ties with some suppliers but also the reputation as one of the leaders in the consumer packaged goods industry for technology adoption, said Kara Romanow, an analyst at AMR Research Inc., in Boston. Its even allowed Unilever to gain some ground on consumer packaged goods industry technology innovator and prime competitor The Proctor & Gamble Co., said Romanow (P&G, of Cincinnati, declined to discuss its e-procurement efforts).

So successful have Unilevers procurement standardization efforts been that top company executives regularly visit the war room, sometimes bringing investors along to stroll through the command post to see for themselves just how procurement improvements are helping Unilever improve its quarterly numbers, Polcer said.

The war room isnt expected to be permanent. But, said Polcer, the hope is that its legacy—standard procurement technologies and processes—will be. "What were trying to do is build up that sustaining capability and build this into the fiber of the business," said Polcer. "So in years to come when the initiative goes away, its part of how we do business."