Discovering True Savings Through Non-Traditional Purchasing Engagement
Dawn Moore, Corporate Purchasing Commodities Manager, Intel Corporation, Chandler, AZ 85226, 480-554-2233, Dawn.Moore@Intel.com
85th Annual International Conference Proceedings - 2000
Abstract. In an ever-changing market with increased margin pressure, Intel has been forced to take a hard look at G & A level corporate expenditures in order to improve our position in a market. Managing our indirect and internal operating costs has proven to be one of our successful strategic initiatives over the years. Intel Corporation has saved millions of dollars in the non-traditional procurement arena, which goes straight to the bottom line.
The Industry & Environment. Over the years the industry that Intel has been a part of has changed. Our technology life cycles are shorter, or breadth of product offerings have increased with our segmentation strategy, there is renewed competition and we are heavily involved in multiple acquisitions globally, all of which force us to take a long hard look at all of our expenditures and cost drivers. We can no longer maintain our market position just on cutting edge designs and technology, we must leverage all resources necessary to drive productivity and efficiencies internally.
The Focus and Strategic Initiative. We are positioning our organizations to focus on key areas of spending and investment to reduce the "total" cost to Intel. One third of our external expenditure resides in the areas of "non traditional" procurement. These areas were not normally considered "job #1" in a manufacturing company. Direct materials (materials that go directly into the end product - Example: Silicon) was consider our core competency. These are the critical materials required to "stay in business". After that, MRO related items were considered important. There is a need to make sure our facilities are operating appropriately. But until about 7 years ago, the non-traditional items were considered a necessary evil that purchasing could not influence. We were lacking in the technical skills and didn't have the resources to focus on the "other" expenditures.
Since that time, Intel has invested heavily in establishing organizations and hiring people with the right technical and behavioral skills necessary to operate in the non-traditional expenditure space. JD/MBA and heavy financial backgrounds are emerging skills sets necessary to address these areas. HR Legal is especially desirable coupled with core technical procurement/supplier management skills. Key behavioral skills necessary are effective communication, analytical problem solving, ability to operate in an ambiguous environment and strong ability to influence others.
Some of the organizations that have been developed at Intel, over the past few years are the Sales & Market Procurement Group, the Corporate Travel Group, the IT Strategic Procurement Organization, Facilities Materials and Services and the Corporate Purchasing Commodities Organization. Within Corporate Purchasing Commodities, we are focusing on the areas of HR/Training, Benefits, G & A, Consulting, Temporary Workforce, Tax, Legal, Audit, Immigration, Relocation, as well as other more traditional procurement in non standard hardware, software, lab equipment, site services, MRO, etc. There is a key focus on "outsourcing" of the non-core competencies and integrating strategic supplier management/development activities in these areas of expenditure.
The organizational structure is highly matrixed and relies heavily on strong cross-functional engagement. We need to ensure all technical requirements are understood via a solid scope of work and performance measurement indicators. In addition, we need to ensure all Intel policies as it impacts Intel employees are adhered to as well as bringing solid supplier selection and management to the table. The focus is on "total cost". There is a need to quantify not only the "hard" but also the "soft" costs of process improvement/total cost of ownership. That is accomplished by putting a great deal of effort on the risk assessment and the "make vs buy" model.
For example, at Intel, we have dedicated people assigned to working with our internal business groups to negotiate benefits contracts (Medical, Dental, Prescription cards, SERP Mgt., Stock Option Mgt., Stock Transfer Agent, Relocation and Destination Services). Gone are the days of non-purchasing representatives negotiating a deal and signing the T & C of the supplier. Risk management and controls mandate the involvement of purchasing and previous successes have the internal partner demanding the support.
Objective. The key is to understand what we can influence, change and drive. Evaluating what benefit we derive from applying our resources to one activity over another via a solid ROI analysis and prioritization process. Ensuring that the purchasing function is adding value rather than "pushing paper". There needs to be more of a value add than just placing a purchase order. There is a need to provide industry benchmarking, market analysis, strategic deployment and eCommerce/internet technology to non-traditional procurement.
Main Benefits. The five main benefits to non-traditional procurement engagement are:
(Reduce cost of G & A related expenditures - These costs can represent up to 40-50% of company expenditure (including payroll for some potentially outsourced functions).
(Effectively utilize procurement personnel on "greenfield" areas - Making a difference by introducing performance contracting into areas and driving "total cost" solutions
(Outsource non-core competencies - Getting back to the "basics" and allowing others who specialize in these areas apply the resources and expertise without the large company overhead.
(Reduce risk and apply "controls" to non-traditional expenditures - Documented agreements with validating benchmarking ensures we are meeting our fiduciary responsibility to the company.
(Educate and engage internal business partners - Early engagement into a solid supplier management process is key. Purchasing as a critical team member rather than a "support" function. Internal partners understand the risks and benefits to early engagement.