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Reengineering Purchasing: Managing Culture Change

Author(s):

Michael J. McMullen
Michael J. McMullen, V.P. of Global Materials Management, Wyeth-Ayerst Laboratories, St. Davids, PA 19101, 610/971-5920.
William L. Michels, C.P.M.
William L. Michels, C.P.M., CEO, ADR North America LLC, Ann Arbor, MI 48106-0366, 313/930-5070, adrna@ic.net.

83rd Annual International Conference Proceedings - 1998 

Objective. Reengineering as a concept has been around for some time. Although many companies have experienced a degree of reengineering, few purchasing departments have undergone radical transformation. The global marketplace, rapid introduction of electronic commerce, and available data will require such transformation if companies are to be successful in the next millennium. The opportunities for any company exist in its ability to:

  • share ideas, knowledge, information, strategies and plans
  • reduce waste
  • leverage buying power
  • drive continuous improvement through the supply chain
  • standardize
  • manage short and long term planning
  • move purchasing to a business process rather than a functional activity.

This discussion will concentrate on reengineering purchasing from a functional activity to a business process.

Reengineering. Traditional reengineering advocates like Champy, Hammer and Hazeltine, tend to focus on process reengineering. We will address reengineering on a broader scope to include organization, processes, systems and people.

Reengineering is implemented to increase business capability and sustainable change; however, reengineering is only the start of a continuous change and improvement effort.

After languishing as a managerial backwater, purchasing has become an important topic for top management in many companies. There are three primary reasons for this management focus.

  1. Purchased materials represents 50-60% of the cost of goods sold.
  2. Many top executives are now realizing the benefits that can be achieved through strategic purchasing.
  3. There is an increasing trend toward outsourcing.

While the concepts of strategic sourcing have been widely discussed, not many companies are capable of making it happen.

This presentation will focus on how Wyeth-Ayerst Laboratories reengineered purchasing effectively.

Planning. Wyeth-Ayerst developed a project structure for reengineering the effort.

Reengineering Organization: (graphic not available in text-only version of this article)

It is essential that the project be sponsored by top management. Wyeth decided that the steering group should be comprised of the top materials managers from twelve locations. The project leader was selected based on business respect, project management skills and positive attitude on change.

Having defined a working structure, it is important to develop a vision for now and the future. The vision must be developed from a number of criteria:

  • business strategy
  • business goals
  • assessment of gap to best practice
  • business culture
  • business capability to adapt to change
  • support for the initiative.

Wyeth turned to an external resource to provide a baseline assessment. The baseline provided a gap analysis to best practice.

From the baseline, it was obvious that Wyeth needed a change in organization, process, people and systems.

Organization. Once a purchasing vision has been established, an organization must be designed to meet the vision. The chart below details the decentralized, centralized and "center-led network" options for organization.
(graphic is not available in text-only version of this article)

The Wyeth steering group selected the Center-led model for the business. It was decided that all transactional material scheduling would be managed by each plant's planning group. A small group of core, strategic buyers were established at Wyeth's headquarters.

(graphic is not available in text-only version of this article)

The separation of transactional purchasing from core, strategic purchasing was one of the aspects which led to Wyeth's success.

Processes. It is essential to have common ways of working across any corporation. Most purchasing departments are internally focused with a concentration of effort on transactions.

Process development must maintain the internal focus, while maximizing effort externally on the entire supply chain.

Some key process areas for development at Wyeth were:

  • cost management
  • measurement
  • reporting
  • supplier management
  • cross functional organizations
  • matrix management
  • strategic source planning
  • R&D early involvement
  • nontraditional purchases management
  • setting goals, objectives and targets

Each area will need careful review and alignment with the business strategy. In many cases, these processes are not documented in the traditional organization.

People. One question which should be asked is: Do our current staff members meet the competency profile developed from the new vision? This was the most difficult question faced by Wyeth management. The chart below identifies some of the issues.

Required Changes in People

Old Vision New Vision
Transactional and Tactical Analytical and strategic
Local and Domestic Global and Multi-Cultural
Price Oriented Cost Oriented
Leverage Behavior Alliance Behavior
Uncomfortable with Top Management Comfortable in the Board Room
Functional Cross-functional

Criteria should be developed to assist with the decisions on whether people have the desire and capability to change.

Wyeth developed an intensive development and training program which was delivered at both a group and individual level to assure the success of the program.

Systems. Many organizations believe that a "systems approach" is the total solution. Most of the time, systems require large capital, take time and require a full scale approach to be successful.

It is essential to develop both a short and long term approach for this key area. Once again, it goes back to supporting the new vision for purchasing. In the discussion, Mike McMullen will detail an innovative approach which Wyeth-Ayerst has implemented to bridge the gap.

Summary. Reengineering purchasing is not just a fad or a project which can be taken lightly. It will involve a major investment by management to overhaul all of purchasing. It's implications on the business, its people, the supply chain and corporate earnings will be felt for several years. Your commitment to develop a strong continuous improvement process to augment the project will assure its success or failure.


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