Supplier rationalisation at Nuon…

Supplier rationalisation at Nuon Nuon,_a_Dutch-based_utility_company,_had_about_12,000_suppliers,_the_total_spend_with_
whom_was_about_1_billion._The_procurement_team_analysed_this_supply_base,_and_was_
helped_in_ this_ task_because_ there_was_one_single_list_of_suppliers__which_is_not_at_all_
always_the_case!_In_more_internationally_operating_companies_there_are_often_as_many_
lists_of_suppliers_as_there_are_operating_countries_or_subsidiaries._When_studying_the_list_
of_suppliers,_several_issues_emerged:

_ All_ suppliers_
essentially_were_ treated_in_ the_ same_way:_
their_invoices

Supplier rationalisation at Nuon Nuon,_a_Dutch-based_utility_company,_had_about_12,000_suppliers,_the_total_spend_with_
whom_was_about_1_billion._The_procurement_team_analysed_this_supply_base,_and_was_
helped_in_ this_ task_because_ there_was_one_single_list_of_suppliers__which_is_not_at_all_
always_the_case!_In_more_internationally_operating_companies_there_are_often_as_many_
lists_of_suppliers_as_there_are_operating_countries_or_subsidiaries._When_studying_the_list_
of_suppliers,_several_issues_emerged:

_ All_ suppliers_
essentially_were_ treated_in_ the_ same_way:_
their_invoices_were_paid_in_ strict_sequence_of_arrival,_they_all_operated_under_the_same_generic_terms_and_conditions,_and_no_time_was_invested_in_any_of_these_suppliers_unless_there_were_problems._
Part_ of_ the_ reason_for_ this_was_
that_ the_ list_was_ simply_ too_ long_for_
procurement_ professionals_to_work_other_than_in_firefighting_mode.

_ The_ list_was_
too_ long_for_ procurement_ professionals_ to_
be_familiar_with,_ let_ alone_ manage_all_suppliers_effectively.

_ The_list_contained_errors_because_it_was_not_owned_by_procurement;_there_was_a_supplier_called_IBM_and_a_supplier_called_I.B.M._and_a_supplier_called_IBM_the_Netherlands.
What_the_procurement_team_did_was: 1 Assign_ownership_of_the_supplier_list_to_the_management_team,_and_appoint_a_point_
person_in_the_operational_procurement_team_to_administer_the_list._This_person_periodically_sat_down_with_procurement_teams_(which_all_had_respective_categories_under_
their_control)_during_drive_in_days. 2 During_these_days_the_procurement_teams_met_with_the_supplier_list_manager_consecutively_to_review_their_list_and_correct_errors,_relocate_suppliers_when_in_the_wrong_
category,_and_remove_inactive_suppliers_or_suppliers_that_did_not_fit_within_the_category_strategy.
3 The_supplier_list_manager_also_created_speed_bumps_(barriers)_to_introducing_new_
suppliers:_new_suppliers_had_to_be_submitted_for_inclusion_and_procurement_might_be_
asked_to_underwrite_their_inclusion_in_the_list.
It_was_found_that_simply_assuming_ownership_over_the_list__a_role_not_contested_by_
anybody_ _helped_drive_progress_ and_
awareness._Additionally,_ supplier_ rationalisation_
targets_were_set,_and_the_supplier_count_was_placed_on_the_management_teams_dashboard_(Case_study_3.6)_in_order_to_ensure_managerial_focus_and_scope_being_devoted_
consistently_to_the_supply_base. After_clearing_a_lot_of_errors_and_clutter_from_the_supplier_list,_it_was_found_that_less_
than_10_per_cent_of_ the_ suppliers_generated_more_
than_90_per_cent_of_ the_ spend._In_
other_words,_there_was_a_long_tail_of_suppliers_(Activity_2.1)_that_had_very_little_spend_
and_that_were_supplying_only_infrequently. In_order_to_reduce_the_supplier_list_further,_the_expenses_policy_was_adjusted_to_eliminate_a_substantial_portion_of_the_list_where_lunch_places,_restaurants_and_bars_had_been_
asked_ to_invoice_ rather_ than_have_ the_employee_pre-pay_and_
then_claim._Also,_a_purchasing_card_was_introduced._This_is_a_credit_card_in_an_employees_name_but_linked_to_
the_firms_accounts._The_introduction_of_this_payment_method_allowed_for_a_lot_of_small_
purchases_(for_example,_books,_team_outings_and_flowers)_to_be_made_by_credit_card__
without_ the_ need_ to_ have_ the_ supplier_
on_ the_ list._ Finally,_ the_ ongoing_
focus_ of_ the_ _organisation_strategically_to_source_categories_of_spend_helped_reduce_the_supply_base.
For_example,_when_contracts_were_developed_for_IT_consultants,_the_list_of_IT_consultants_
was_reduced_from_200_to_a_manageable_16.
In_just_three_years,_these_efforts_helped_to_drive_down_the_supplier_list_from_12,000_to_
4,000__making_for_a_much_more_manageable_supply_base._Also,_the_structural_focus_on_
the_list_helped_track_compliance_with_contracts_(for_example__are_there_suppliers_on_the_
list_that_are_not_contracted?_Are_there_old_suppliers_returning?)__simply_because_the_list_
was_being_managed_actively_and_was_down_to_a_controllable_size.