Case Study: Managing a Diversified Supplier Network
A sound supplier performance strategy can translate across complex, worldwide organizations.
When yours is one of the largest organizations in your market, you have to focus on the two mains solutions for rapid growth: organic internal growth and external growth. While emerging markets present opportunities, much demand hinges on the global economy.
Mergers and acquisitions (M&A) has become a sound strategy for many types of organizations to increase their size and market share. When you are mining your own industrial materials, it pays to work on a large scale. In M&A strategy, one goal is to bring two companies together and unite purchasing power to create opportunities for reducing costs.
United We Save
Imerys Ceramics is a leading supplier of industrial mineral solutions for sanitaryware, tableware and tile manufacturers. Our quarries and transformation plants are devoted to providing a comprehensive offering for the ceramic industries: raw materials, prepared bodies, glazes and engobes. In addition, from the same industrial assets, we have expanded to a competitive range of solutions for electro-porcelain and non-ceramic markets such as glass, fiberglass, and building industries. Our Ceramics division alone has 50 production sites in 21 countries and 1,350 employees.
Mergers translate into improved purchasing power to buy equipment, services or goods. By placing larger orders, manufacturers have a greater ability to negotiate prices with their suppliers. The procurement savings from greater negotiation power delivers cost reductions.
There is one caveat to this: as companies merge and acquire, they grow more diverse and face the challenge of being able to collaborate across divisions. Imerys has more than 240 offices in 47 countries across the globe, so getting every purchasing executive on the same page is a challenge. At such a diversified organization, more than half of the turnover is in acquisitions. It is necessary to unite the new and various procurement divisions in collaboration in order to realize synergies after merging.
On the purchasing side, the challenge is to create a system to easily share data and insight on markets and supplier situations. This helps speed up the processes that spring up around a bulky supply chain network. For example, different ERPs and processes can be used across newly joined and different divisions, creating a “silo” approach.
What good does it do to acquire scores of companies with the goal of boosting purchasing and knowledge power if they aren’t table to talk to each other? It does not matter whether acquired companies are right down the road from each other or spread all over the world speaking different languages—communication is a challenge, and sometimes it is hard to ensure that everyone is on the same page. When communication is problematic, the desired benefits of M&A can be lost.
Imerys recently acquired PPSA (Brazil) and Talc de Luzenac; as the company continued to acquire and bring in new and diverse departments, the e-sourcing program matured. A once-simple sourcing exercise became more complex as additional players became involved. But as the process became more complicated, the opportunity for greater savings through more complex sourcing events materialized.
The Right Type of Transparency
Change may be inevitable, but it is sometimes unwanted. It is crucial to respect the different organizations involved in each merger or acquisition. For example, we needed to ensure that the same information was sent to all relevant organizations at the same time, especially intelligence crucial across the purchasing department.
At the same time, we needed to be aware of what was being shared and to whom. Not all information needs to be shared with everyone. Managers should act as editors and filter out the unnecessary details—such as information on costs, suppliers, contracts and analysis—to make it digestible and useful for their peers.
Apples to Apples
Since Imerys produces materials, the company does not buy a lot of raw materials or parts. However, total spending still exceeds 2 billion euro (approximately $2.7 billion) and largely consists of operations and investment, including labor, services, fuel, subcontracted mining, and machines. Imerys manages risk across its 10,000-plus global supplier base. Divisions include: minerals for ceramics, refractories, abrasives and foundry; performance and filtration minerals; pigments for paper and packaging; and materials and monolithics.
Supplier performance can not only directly impact cost, product quality and market competitiveness, but all can suffer as a result of an underperforming vendor relationship. Regardless of the division, a sound supplier performance strategy can translate across the organization. Different divisions need to cooperate with one another to benefit purchasing, as some synergies frequently need to be rediscovered and embraced. For example, the information harvested on suppliers in sourcing for ceramic materials can directly benefit paper and graphite divisions.
The concept is the same when different divisions, regardless of the product, work together so everyone can benefit. For example, many different minerals are needed to produce paper and graphite, and the same group of suppliers could be involved for ceramic grinding. These synergies may not be recognized automatically, but they need to be discovered.
The more suppliers an organization has, the more reliant they are on their supplier base to produce their own goods. With a supplier network of over 10,000 globally, Imerys could not afford unnecessary exposure to risky suppliers. Instead of depending on Plan A, an organization needs to outline Plans B and C as well.
Risk management tools are key. The tools need to be easy to use and normalized so the purchasing team professionals can take advantage of the process and limit exposure. Certified auditors need to make sure all actions taken by the company are socially accountable. Areas of concern that can come up in the ceramic industry include:
• Logistics issues—potential physical disruptions (e.g., an act of nature such as a volcano)
• Lead time—how long will it take to reach us?
• Sustainability—steady and sustainable options should be available in the supply chain
• Child labor—make sure that all suppliers are compliant
• On-market demand—dealing with high-volatility markets (e.g., energy) related to cost and market demand
Supplier Performance Management
As outlined previously, Imerys needed to practice excellent supplier performance management. BravoSolution, which has managed Imerys’ supplier base since 2008, helped reduce spending and minimize risks. BravoSolution was selected for its experience in providing comprehensive risk analysis across the entire supply chain. Through BravoSolution’s supplier performance management tool, visibility has increased into:
• Suppliers at risk for bankruptcy and logistics disruptions
• Global economic risk, including currency fluctuations, commodity volatility and political instability
• Product and component shortages and price increases.
It is important to prioritize risk assessment and supplier visibility in procurement practices. A supplier should not be engaged without first analyzing the risks and reliability of that potential partnership. Imerys’ partnership with BravoSolution has directly contributed the company’s success and significantly increased the efficiency of the purchasing team.
BravoSolution technology is built around the process. Purchasing managers have access to best practices and are guided by the tool. Some of these best practice capabilities include scorecards, actionable alerts based on configurable key performance indicators and alert rules, and exception-based corrective action plans and compliance reporting.
Imerys gained the visibility to effectively track and manage performance over time to drive continuous improvement and more effectively track and manage performance, compliance and identify risk, trends, and problem areas. As a result, 5-10 new reports related to change management were added.
Success is evident when purchasing executives can see the value in using the supplier performance management procedures and processes. As Imerys evaluated the progress of specific divisions, purchasing departments stuck to the best practices outlined by BravoSolution. They were given the tools needed to reduce supplier risks, and the integration was smoother than expected; employees put the tools into action in less than half a day.
Although Imerys’ purchasing employees have plenty of experience with their division’s purchasing process, a system was needed to broaden their vision and practice to span the entire organization. BravoSolution’s supplier performance management helped purchasing employees gain visibility into the compliance and performance of the supply base while developing optimal relationships with strategic sourcing partners. This visibility greatly improved compliance and risk mitigation programs, supplier relationships, and the execution of sourcing strategies.