Mary Siegfried is a freelance writer based in Chandler, Arizona.
June 2007, Inside Supply Management® Vol. 18, No. 6, page 32
Johnson & Johnson took several proactive steps to manage consulting spend.
Companies spend millions of dollars every year on consultants who provide a variety of services to their organizations in an alliance that is very relationship-driven. Because of the unique relationship between consultant and business client, procurement traditionally has not made inroads into the consulting services spend category.
Procurement executives at Johnson & Johnson knew that consulting services was one of the larger spends for the New Jersey-based company and its more than 200 operating companies worldwide. They viewed this fact as an "untapped opportunity." An initiative was launched in March 2005 to start making inroads into the consulting spend in North America. The Johnson & Johnson Consulting Sourcing Team has received the 2007 R. Gene Richter Award for Leadership and Innovation in Supply Management in the Process category.
A team of 30 leaders from the Johnson & Johnson Family of Companies in North America came together to help the organization "work smarter." The teams included members from procurement, finance, legal, internal audit and the business partners who used consultants. Three sub-teams were established to delve deeper into the consulting spend category and to define processes and practices to help manage the category.
The sub-teams included:
Veronica Manuel, manager of strategic sourcing at Ethicon Endo-Surgery, Inc., a Johnson & Johnson affiliate company, followed the process excellence discipline. She says the first step the procurement organization took was "to more clearly define and then rigorously measure and analyze the data to determine how much was truly being spent on consulting." Manuel says that from the outset, the procurement organization realized the need to improve spend visibility. One reason visibility was poor, Manuel says, was that the method used to assign codes to consulting spend was inconsistent, and there were no clear definitions regarding which codes should be assigned for various types of consultants. The scenario often went like this: A Johnson & Johnson business partner needing a consultant would create a requisition. The next question that came up was, "What are you buying?" The customer would say, "Management services."
"So lo and behold, when we did an analysis, 75 percent of the money thrown in the bucket was for management services," Manuel says. "We realized that we really needed to understand what consulting services we were buying."
She explains that the Find-It Sub-Team took "deep dives" into thousands of requisitions for consulting services to get a sense of what the internal customer was buying. That process resulted in a new list of 22 defined UNSPSC consulting commodity codes to replace the existing four codes.
As spend visibility came into sharper focus, Andrea Grable, worldwide director, category leader of consulting, temporary labor and professional services, says the Get-It Sub-Team handled such challenges as creating a checklist for competitive bidding, defining how the company interacts with process partners, developing a lean sourcing toolbox for RFP templates, statements of work (SOWs) and SOW change order templates. The team also created a harmonized competitive bid policy throughout the company's 200 operating companies, and reprogrammed the Ariba Buyer software to standardize measures to monitor bid policy compliance. As a result, procurement has trained on best practices and created an environment of improvement and "lessons learned."
Grable says the team also knew that a key ingredient in making the consulting initiative work was receiving buy-in from the business partners who use consultants. That meant arming procurement professionals with the skills and knowledge needed to gain credibility and trust with senior management and executives.
"Our procurement professionals not only need to have skills for sourcing and contracting, but they have to talk the language of the person they are buying services for," explains Grable. She says an important part of the team's message to internal customers is how to add value to the customer's decision-making process. "Notice I said add value to the customer's decision-making process."
Mark Zaremski, commodity manager at Ortho Clinical Diagnostics, Inc., another Johnson & Johnson affiliate company, says the Keep-It Sub-Team created guidelines to help procurement manage the consulting partnerships, which were being established. According to Zaremski, roles and responsibilities were agreed upon and implemented to encourage ongoing collaboration and communication with key consultancies. Zaremski says that supplier scorecards are being piloted to track performance. Scorecard results are used to facilitate discussions that lead to improved product and service delivery. An "e-room" or "knowledge repository" was created to house best practices, templates, agreements and recently completed projects.
The initiative has:
Grable says some of the lessons learned from tackling this spend category are that structured analysis of a spend category is invaluable when trying to understand the scope of the spend. In addition, she emphasized that strategic relationship-building is a very important component to making inroads with internal clients, and that the marketing and selling of procurement's capabilities is an ongoing process. Next, the team is planning to roll out these best practices globally.
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