We will return to our regular publishing schedule next week – And, in the coming weeks, we will have some exciting new announcements regarding our plans for 2013.
Today, we continue with Part II of the AIG case study that was shared at the Zycus Horizon conference at the end of October. The case was delivered in a presentation entitled “Game-Changing Procurement That Drives Business Performance” given by Bruce G. Schneider, VP and Sr. Director of Performance and Risk Management, Global Sourcing and Procurement Services AIG, Inc. Part I of the AIG case is here.
In 2010, the procurement function at AIG, also known as American International Group, Inc. operated as a silo’d and decentralized procurement department. This created significant challenges for the different P&L owners and this created large inefficiencies and resource constraints for the procurement professionals seeking to support the different businesses. The business owners realized that there was a problem; unfortunately for Bruce and his team, the business leaders felt that the procurement team was the problem and had no interest in working with procurement team to fix it.
While not necessarily agreeing with that harsh assessment, the procurement team realized that it had limitations and constraints that would have to be addressed if it were ever able to accomplish a transformation and efficiently pursue opportunities across the large and complex AIG company. The CPO (whose manager, reports to the CEO) and Bruce knew that they had to build up the team and develop a plan.
AIG’s plan for procurement transformation, which was fortunate to be included within the larger company transformation, had several main components including:
- Disband the silos to better leverage resources
- Use existing tools more effectively and introduce new ones
- Gain early engagement in the sourcing/contracting processes
- Reengineer the contracting and legal engagement processes
- Standardize and streamline the contract approval process
- Determine how to maximize savings opportunities
The team moved aggressively to remove the silos and create a center-led organization. Along the way, they moved to consolidate different functions like IT vendor management, global sourcing, eProcurement services, corporate card, travel, contingent workforce management, and accounts payable. The consolidation also led to greater ownership for procurement and held the staff more accountable for its work than in the past.
Next, the team began an active campaign to engage the business and set a sourcing policy (AIG did not have a 3-bid policy or any minimum threshold that required the global sourcing team to get involved).
From there it was a focus on gaining visibility into its spend. With its complex federation of companies and back end systems, AIG realized that it needed a new solution and selected Zycus as its spend analysis provider. The increase in spend visibility that the Zycus solution provided enabled the AIG team to better analyze and report on spend which in turn helped the team ensure that a greater number of contracts were properly sourced, that risks with different suppliers were identified and mitigated, and that contract compliance could be tracked and improved.
The visibility allowed the newly consolidated global sourcing team to have productive and proactive discussions on savings opportunities and supplier purchasing trends with business stakeholders that were fact or data-based. The team also used the spend visibility to develop an active sourcing pipeline.
The transformation has been successful but Bruce says that there’s more work ahead particularly in the areas of vendor governance, supplier diversity, and outsourcing.
The bottom line on the transformation for Bruce is that the procurement organization is now “properly leveraging business spend and decreasing costs” and the spend visibility has provided the team with “accuracy, options, and success.”
The financial bottom line has also been impacted over the last three years with year over year savings increases of 61%, 65%, and 48% which shows that “game-changing procurement can drive business performance.”
