Innovation At Work

STRATEGIC SOURCING IMPLEMENTATION @ IB.


Below is the account of the Project Manager, Strategic Sourcing who worked in a commercial bank in Nigeria.


I was transferred to work with other project managers on a global strategy project that my bank was implementing to transform and put the bank on a global pedestal. It was a new experience for me as I had not worked in that area before and my assignment was to bring in innovative ideas that will help the bank do things in a new way in the strategic sourcing work stream.


I had to work in conjunction with some consultants who made some valuable contributions towards the success of the project.


Strategic Sourcing work stream under the Global Strategy Project was set-up in July 2007 to manage suppliers, influence Demand, and monitor internal compliance to reduce the cost of recurring and capital expenses by 10 percent.


The objective was to assist the bank in developing a strategic sourcing capability to actively manage the cost of purchased products and services in the following areas:


o Establishment of baseline costs analysis

o Development of sourcing strategies for each sourcing category

o Development of procurement organization and policies

o Development of procurement processes in line with appropriate technology

o Provision of negotiation support with vendors in the defined sourcing categories


Challenges with Previous approach to Procurement

· Prevalence of advance payment to vendors and contractors

· Poor quality of goods and services

· High cost of goods and services – the buyers did not leverage on the economy of scale

· Closed-door approach used for vendors selection as market leaders were not being patronized

· Lack of clear-cut policy on procurement process and contract issuance

· Lack of standard request for proposals, contract letters and service level agreements.

· Indiscriminate purchases at different levels

· Poor record keeping of purchases and contract agreements

· Poor analysis of cost both at micro and macro levels

· Monitoring of expenses was very difficult

· Under-utilization of assets and occurrence of idle assets

· Limits not well defined for operational expenses

· Faulty approach to budgeting resulting in Non-adherence to budget and poor budgetary control

· Weak controls in place and not being enforced

· Poor vendor/supplier relationship management resulting in lack of reciprocity from them

· Bureaucracy in the approval process

· Tolerance of avoidable expenses e.g. indiscriminate movement of staff between head office and regions vice versa

· Wastages of stationery items like photocopying paper

· Prevalence of un-written policies

· Pilferage of assets and unauthorized disposal of assets was possible

· Lack of segregation of duties between purchasing and inventory officers

· Staff compromise was not abated.

· The banks integrity/image was at stake


During the course of the project the following milestones among others were achieved:

· there was proper definition of Supplier selection criteria. The incumbent and prospective suppliers were given equal opportunities to run through the standard RFP process.

· proper definition of procurement categories

· centralization of purchases for some capital items

· review of existing contracts to determine outstanding obligations to suppliers

· review of approval limits

· definition of expense limits for various expenses

· contract bidding by suppliers

· contract negotiation with preferred bidders

· preparation of contract documents for various categories and signing of agreement with successful bidders

· preparation of letters to un-successful bidders

· communication and change management

· set-up of procurement organization

· implementation of procurement system (purchase to pay)

· review of procurement policies


Overhead Management Department was created in April 2008 to perform the following Cost Management functions.


- Re-align business processes by defining efficient and result-oriented processes

- Standardize cost and quality of service in the bank

- Develop policies and procedures for all expense lines

- Negotiate cost of goods and services with vendors and service providers

- Define and monitor limits for all expenses

- Define Service level for suppliers and Contractors

- Review and Monitor all Service Level Agreements with Suppliers of goods and services

- Recommend cost saving initiatives to achieve target on cost reduction

- Control price of products and services

- Rationalize supplier base as a basis for improving operational and cost efficiency and optimizing the bank’s investment in the procurement of goods/services

- Monitoring of suppliers performance

- Matching purchases and contracts with budgets

- Monitoring of achievement of cost reduction on all expense lines

- Monitoring of quality of product and services

- Eliminate bottlenecks and corruption


Procurement department was established in October 2008 to manage the centralized procurement system and perform the following functions:


- Procure all capital assets in the bank in line with approved budget

- Reduce waste and achieve cost reduction on all expenses on a monthly basis

- Strengthen ties with suppliers of best quality products and services

- Implement corporate contracts and establish benefits tracking system

- Monitor compliance with contract and service level agreements

- Monitor commitments and manage relationship with suppliers

- Review baseline spend on a monthly basis and issue monthly report on procurement and commitments

- Maintain database of suppliers and prices of products and services

Major Achievements


· Alignment of Expense lines for easy monitoring of expenses

· Cost reduction from N8.2b per month in 2007 to N6.35b in June 2009

· Set up Overhead Management department

· Established Centralized Procurement function

· Set up Travel Support Services Desk and established corporate agreement with major airlines for domestic and Overseas travel.

· Obtained discount on tickets costs from partnered Airlines



Also achieved the following key deliverables & Quick wins:


Key Deliverables

· 10% Cost reduction on recurring expenses

· Database of registered suppliers & prices of products and services

· Compliance tracking strategy

· Criteria for selection of suppliers

· Service level for suppliers & contractors

· List of suppliers

· List of products and services

· List of existing contracts

· Standard RFQs, RFI and contract letters

· Prices of products and services


Quick Wins

· Reduce waste and non-value added costs

· Control price of products and services

· Eliminate bottlenecks and corruption

· Consolidate purchasing power and ensure cost management by consumption for each area

· Re-align business processes, work and information flow by defining efficient and result-oriented processes

· Strengthen ties with suppliers offering the best quality products and customer service

· Tighter supplier relationships by narrowing the number of suppliers used in the business, "partnering" in alliances and entering into mutually beneficial contracts, suppliers can work together with a strategic sourcing business to achieve standardization and improvements in cost, quality and time.

· Improved Teamwork And Purchasing Skills: By creating cross-functional teams that can include suppliers in order to overcome organizational barriers and inspire collaboration.

· Availability of detailed information about products, markets and the buyers' and sellers' needs that will facilitate easy monitoring


Approved Criteria for Selection of Vendors and Service Providers

• High quality goods and services

• Ability to give best value (authorized to do the business, proposed approach, pricing & terms offered)

• Experience in that line of business and past performance on similar contracts (Referrals)

• Financial Stability – ability to meet long term contractual obligations

• Capacity and distribution capabilities

• Capacity to complete work within the required time

• Competitive value based pricing and terms offered

• Flexible payment terms

• Strong customers support and service, and availability of qualified personnel to give post sales support

• Access to supporting resources e.g. direct access to manufacturers

• Electronically capable – ability to conduct business electronically with web or internet based equipment

• Reciprocity


APPROVED POLICY CHANGES TO CURTAIL EXPENSES


Existing Policies

- Staff Travel Policy

- Centralized Contract Issuance

- Abolition of Fax machines

- Overseas Courses were suspended

- Overseas trip was restricted to those critical for the bank’s business

- Advance payment on contracts became the exception and not the rule

- Identification and assignment of idle assets

- Shared services and automation of processes in the bank

- Maximize the underutilized resources

- Purchase of replacement vehicles was put on hold

- Recruitment of staff was put on hold

- All purchases and contracts requests above N250,000 were negotiated by Overhead management

- All payment requests in excess of N100,000 were endorsed by the Head of Overhead management

- Early shut down of generators by 7pm at Head Office and 6pm by branches

- Redefinition of limits on expenses e.g. telephone, transportation, hotel accommodation etc.

- Zero tolerance for extra budgetary expenses


Newly Recommended

- Allocate one vehicle per branch for rural branches

- Put a hold on

o New projects including those budgeted for

o Capital expenditure such as

§ Branch expansion

§ Purchase of motor vehicles

§ General replacement of furniture except on occasion of damages

§ New Adverts/promotional projects

- Release of excess resources to other areas of need

- Minimize the use of consultants in the bank

- Standing approval for expenses that are more than six months old should be re-validated

- Eliminate payment of honoraria as this may serve as avenue for fraud

- Restrict expenses to those that are critical for business

- Restrict general MPR to the regions and hold EXCO MPR in Lagos monthly


Other Recommendations


General

- Need to set up a standard project Management function in the bank to monitor achievement of deliverables of key projects to ensure the bank receives good returns on investment.

- encourage full optimization of solutions deployed in the bank

- All new projects should be subjected to proper assessment by relevant control areas before approval.

- Need to strengthen the internal control system in the bank.

- Re-definition of internal control functions to monitor and enforce compliance with laid down policies and procedures on a more frequent basis.

- Re-alignment of duplicated functions in the bank.

- Encourage implementation of process improvement initiatives

Staffing

- Need to carry out staff audit, proper job evaluation and ensure round pegs are put in round holes. Each staff should be put in place of his/her best fit.

- Enforce discipline and avoid double standard.

- ensure work load balance in all units and departments

- identify and release the misfit and excess staff

- re-assign staff to other more challenging functions where possible replace them with low level staff capable of achieving better results

- review the levels of staff in each functional area and ensure there is good succession plan

- emphasize value addition and have a good career path for all staff

- identify and release the deadwoods


Procurement

- ensure only “must have” items are procured, avoid buying for pleasure and buying on impulse

- ensure items are procured in line with approved budget and at best prices

- identify and release excess resources to other areas of need

- identify resources that are being under-utilized and redeploy to areas of better use

- encourage resource sharing e.g. Printers and photocopiers and avoid wastages

- ensure quality is not compromised at the expense of cost

- encourage ownership and good maintenance culture

- curtail extra budgetary expenses as much as possible

- recommend similar competitive brands of items that are cheaper and durable where necessary.



Conclusion


My work stream was adjudged the most successful of the four work streams under the project and I was later asked to implement all the recommendations for the bank which I successfully did despite all the challenges faced with the stakeholders at different levels.


Innovation can occur in any areas of an organization and every employee should be engaged to make better things happen within their units or department. Organizational growth and improvements can be achieved by tapping into the intelligence, skills, and passion of everyone, no matter who they are or what they do for the organization

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