Get your suppliers in line

By Russel Beron

While Alfred Dunhill needs specialized service to handle its high value products, large manufacturers such as Haier Group need specialize strategies to handle their suppliers.

According to a Gartner Research study about on Why supplier relationship management matters, procurement costs account for about 50% of expenses. As profit margins in manufacturing tend to be slim, the incentive to save on purchasing costs is very high.

To reduce costs, improve efficiency and obtain competitiveness to support the aggressive sales growth of different business units, Haier Procurement asked the IBM Global Business Services, SCM Procurement team to develop a procurement strategy for them. For their work with Haier, IBM won the CHaINA award for Best Supply Chain Consulting Partner in China.

Haier Group, a Chinese company which is ranked as one of the top ten global appliance giants, makes everything from white goods, to personal electronics, mobile phones and computers. They are expanding aggressively into world markets.

IBM developed a supplier evaluation model to objectively and precisely reflect supplier performance and capability. Their model which is linked with various supplier development strategies, helped transform Haier’s procurement supplier management to a global best practice level.

“The benefit for Haier of IBM’ strategy is that they now have the right KPI and the right volume indication to give to suppliers,” said JC Lee, IBM’s project manager.

The three-year master plan for the procurement strategy, covered the entire procurement process, with the first phase involving the design and implementation of a Supplier Relationship Management (SRM) plan.

The next step, a Strategic Sourcing Project will be launched in January 2008. The focus will be on installing advanced strategic sourcing methodology and processes through a pilot category. The result is expected to achieve considerable cost savings.

Further explaining their approach, Lee pointed out that before IBM’s strategy initiative, “Haier was only focused on direct procurement; we will also implement indirect procurement innovation.” Indirect procurement refers to corporate wide spending on office furniture and other items that are not purchased centrally. “Our target is to save at least 10% of the procurement cost in the direct procurement category,” said Lee. In a company the size of Haier such cost savings are nothing to laugh about.

Russel Beron, Chaina Magazine

This is the third part of the Chaina article “Learn lessons from some of the leading companies in China”. Next week we will publish the fourth part. Read part I and part II.