Dive Brief:
- Five years ago McCormick & Company redesigned its procurement department to tap into the company's global growth strategy and create a more holistic approach to company growth. The company did this by centralizing its procurement division in a top-down fashion.
- To reduce costs and improve productivity, McCormick's arranged for the regional procurement teams to report to a global department head, and centralized the procurement spending.
- By fleshing out the department with more positions to help coordinate this new global procurement effort, McCormick's improved costs by 250%.
Dive Insight:
McCormick’s successful approach to centralized spend, increased horizontal and vertical communication, and the inclusion of procurement and supply management into the overall company strategy is a wonderful story. Their process provides a framework for other multi-unit organizations to achieve success.
If there was any downside, however, was that it needed to be a grass roots effort from the procurement folks and not an ingrained part of the company strategy, an expectation from the C suite. While not a fan of management by directive, one would think by now that senior management in any organization would simply find strong competence in procurement a requirement for business success and provide the necessary support unquestioned.
With four decades of supply management under my belt, I find it frustrating and tiresome to continue to hear how purchasing is still trying to show value and in the most patronizing expression of all… ‘to find a seat at the table’. Actually, I probably bought the table that I yearn to sit at…as well as the chairs, projectors, and even food services that complement up the meeting. The ‘thanks, we’ll take it form here mentality’ at most companies is sadly still in effect.
McCormick’s supply management unit deserves all the credit they can get, and their journey was well documented. But frustratingly, there is nothing new here. All procurement organization needs to align their sourcing and supply management strategies with larger company strategies. This is not optional.
In one way or another all procurement is global so understanding the impact on global business and politics is critical to identify and manage risk in the supply chain. Some say that economics drive the supply chain. McCormick, with its reliance on large raw material purchases that can be impacted by so many things, certainly understands the fundamental issues of global supply and demand.
Perhaps the most difficult part of their evolution was the centralized spend approach. This is hard work for both the internal and external fronts. The concept of aggregating spend is simple: find out how much each operating unit buys of a particular commodity or supplier, combine the spend, and negotiate a company wide purchasing agreement that will benefit the overall company. And then repeat the process. Logical, effective, and just plain good business.
Yet the headwinds are tough. On the buy side, business unit autonomy, established commercial relationships, internal politics, and sometimes better individual business unit pricing agreements can derail many efforts at centralized spend. On the sell side, fragmented spend lead to higher margins, changing relationships, and uncertainty. If centralized spend benefited the seller, we would be swimming in potential agreements.
McCormick was successful in their approach to comprehensive supply management and deserves all of the credit they get. They took action when so many others don’t. But as we approach 2020, their story should be the norm, not the exception. I think we need a bigger table.
