Procurement transformation—when a company turns procurement into a strategic, competitive advantage rather than treating it as just a back-room function—gained significant momentum in 2006 and should continue through 2007. Companies are realizing the promise of improved performance from taking strategic advantage of a modern procurement organization.

To illustrate this point, we spoke with freight transportation and logistics company Con-way,which is well on the road to modernizing its procurement function and seeing incremental success along the way.

Step 1: A revamped organizational design

With more than 24,000 employees located in 22 countries and average less-than-truckload (LTL) shipments of 55,000 per day, Con-way is one of the largest LTL firms in the industry. Based in San Mateo, California, the company has approximately $4.2B in revenue and is composed of three primary businesses: Con-way Freight, which provides regional LTL freight transportation in North America; Menlo Worldwide, a provider of third-party global logistics services; and Con-way Truckload, a U.S. full-load transportation service.

When Mitch Plaat took over as vice president of Con-way procurement in April, a review of his total procurement spending told him something needed to change. He had 35,000 suppliers, $2.5B in addressable annual spending, and three separate organizations with limited visibility. The company needed efficient and effective tools, personnel training, and to turn procurement into a valuable and strategic function.

Mr. Plaat melded three previously separate organizations of indirect, IT, and fleet procurement into one cohesive procurement team. In addition, he also took on the responsibility for Con-way’s accounts payable, giving him control of the complete procure-to-pay (P2P) process. He then segregated the organization into three functional areas: purchasing, sourcing, and accounts payable.

While restructuring, simplifying, and automating were vital to the success of the project, the real requirement was having software to support all the plans.

Step 2: Procurement software platform decisions and implementation

According to Mr. Plaat, the following three principal reasons defined the company’s software needs:

One global platform

The company had widely dispersed operations and disparate procurement needs. It needed a platform that provided the following:

• Visibility across all procurement activity and the whole procurement cycle, from request for proposal (RFP), to bid, to accepted, and finally to spend
• Let staff categorize procurement, measure it, study it, and drill down into specific areas to better understand spending dynamics
• Be accessible from operations anywhere in the world (hosted, web-based delivery model)

Better spend analysis and metrics

Con-way needed more timely visibility into high level as well as detailed, specific spending categories. It also needed to see the suppliers in those categories, not just the three general silos that were managed.

The team also wanted to more efficiently analyze spending behavior as well as find and correct the anomalies and rogue spending patterns that were creating extra unneeded costs.

Con-way wanted its executives to be able to have their own dashboards, create reports, and review metrics. The executives needed greater visibility into spending metrics critical to their specific operations and responsibilities.

Institute a single system for sourcing, RFX management, and execution

It needed an integrated platform that provided templates and repeatable, online business processes. The team did not want to reinvent the wheel every year when they went out to bid, and the company wanted to move away from a manual, paper-based system.

Vendor selection and implementation

Initial requests for quotes (RFQs) were sent to Ariba, Emptoris, Ketera, Oracle, and Verticalnet, with Emptoris winning final selection. The ability to accelerate the value quickly and then transfer the knowledge from the consultants to the Con-way employees was critical to the success of implementation. Mr. Plaat relied on all these parameters to bring about Con-way’s modernization of procurement.

The Emptoris spend analysis product was set up to collect data from Con-way’s systems of Oracle AP, Ketera e-Procurement, JP Morgan Chase P-card, and the American Express Travel and Entertainment systems. While aggregating, cleansing, and enriching the data from these separate systems, the procurement team in parallel tapped into areas they knew were easy money, so they could deliver value immediately.

Using Emptoris, Con-way established RFPs for two major initiatives:

• A project to re-logo the company’s entire truck fleet (35,000 trucks and trailers) with the firm’s new brand identity
• New uniforms for company drivers (roughly 20,000), to conform to the new branding standards

A request for quote (RFQ) using this new process was also introduced for toner cartridges, an area the company, which has more than 500 offices, thought was a quick win.

The new process delivered savings across all three initiatives, with the toner cartridge RFQ bringing in a savings of 28% over the previous spend. Each helped build employee support and proved that savings could be had. It also showed the company that the procurement group was ready to tackle bigger issues with promises of much larger payback.

In June, the enhanced spend data indicated what steps should be taken with further sourcing activities. That analysis let Con-way put $150M more spending under management.

During the first six months, the procurement team received training and the company ran 11 sourcing events, ranging from $750K to $15M. Those 11 events equated to savings of between 5% and 30% per event. Quarterly spend analysis updates now provide continuous improvements to sourcing plans.

Step 3: Broader deployment of procurement modernization in 2007

The procurement team’s plan for 2007 is to address a number of other categories, including waste services, temp labor, forklift scales, fuel systems, and fleet maintenance systems. Opportunities are identified in each category, and then a total opportunity rollup for the year is done.

While supplier rationalization is one of the biggest areas for improvement expected this year, sourcing events are of paramount importance. Mr. Plaat believes Con-way has an aggressive plan that will yield at least 60 different sourcing events in 2007, and expects to achieve at least a 3% to 5% savings per event. Included in Con-way’s procurement modernization is the addition of strategic sourcing professionals. Training has been provided to many within the team, but experience with multiple events, bid strategies, and automated strategic sourcing exposure is a commodity that Con-way needs to ensure the success of the 2007 plan. And with this investment in talent, Con-way expects to achieve greater spend under management and meet its goals.

Con-way modernization lessons learned

Mr. Plaat and his team learned a great deal from their journey. Here are some lessons the team learned during the transformation so far:

• Lead from the top. The importance of securing executive support cannot be underestimated, particularly when some of the procurement activity takes place outside of the procurement group. This initiative was part of a directive from Con-way’s CEO and the executive team to modernize the procurement practices, making it a fundamental long-term change to how Con-way plans, manages, and executes procurement. This mandate makes it clear that procurement has one mission, one strategy, and one platform that will be used to manage and evaluate the purchasing process for every commodity at every operating company and support organization.
  
  
• Don’t try to do everything yourself all at once. Take the implementation process and the training of key users in a series of defined steps. Con-way is still transitioning to a full use mode of the product. Emptoris employees initially were doing most of the heavy lifting, with Con-way workers watching over their shoulders. Now the Con-way spend management team is ramping up quickly, so Emptoris is moving more into the background, taking a more advisory role.
  
  
• Know your data. The system is only as good as the quality of the data. Con-way spent a lot of time up front reviewing where the data would come from, what form it was in, and where there were gaps. The team did a lot of data quality control and data cleansing prior to launch, and that really helped smooth the rollout.
  
  
• Look at every process, including those you think you do well. The new platform saved Con-way 28% in areas where the procurement team thought they were smart and experienced. Those savings came from applying the new tools and new processes even into spend areas they thought they had down. And they also gained savings by applying a standard online bidding process to items that had never formally had bids. It was more efficient, with Con-way able to get to market faster.
  
  
• Communicate with your vendors. Suppliers must be a part of the change. Historically, Con-way had many long-term supplier relationships that were resistant to change, but then the field opened up and it was no longer business as usual. All categories of spend are now subject to evaluation and potential change in supplier base. The smart suppliers have embraced the new process. As Con-way becomes more efficient at managing its procurement and spend practices, it has become a better customer to suppliers. This in turn reduces the cost of the supplier in servicing the Con-way account.

Con-way is in a tight-margin, high-volume business where small efficiencies can add up quickly. It is now beginning to reap the hard-dollar value expected when Mr. Plaat’s procurement modernization initiative was launched nearly a year ago. The significance is in the results: every dollar saved through modernized procurement is now tracked, validated, and dropped right to the bottom line.

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