On October 19th, the Future of Sourcing Awards will celebrate organizations and individuals that have shown innovation, leadership and transformation in categories that are critical to the sourcing industry. Interviews with the finalists provide helpful insight about their projects, the problem they sought to solve and the impact to their organizations.
Can you outline why your team embarked on this project and the problem that needed to be solved?
The automobile industry is experiencing a once-in-a-generation evolution as its products transition from internal combustion engines to electric vehicles. In order for automakers to enable this transition, characteristic improvements to our organizational structure across North America was needed to drive operational efficiency, lower OPEX costs, and speed up decision making. Our project team was tasked with restructuring the indirect procurement function under a single governance policy, a unified organization, and one system while navigating change management amidst the biggest organizational change in company history.
All of this was done in just over 12 months, amidst a global pandemic, amidst the “Great Resignation,” and the unique need for our professional staff and management, including our project team, to work the assembly lines for a period of 2 months to maintain production.
How were things done originally and what was the inspiration to innovate the process?
Prior to our reorganization in 2021, Honda’s indirect procurement function consisting of 12 separate and decentralized purchasing teams across 10 different Honda companies. This was the result of our rapid growth in North America during the 1990s and a company philosophy of “carry your own torch.” This environment also produced a similar number of unique governance policies, an untold number of different business processes for similar procurement functions, and 4 unique ERP systems/supplier portals. How indirect procurement was viewed within each of those Honda companies, and what role they actually played (strategic vs. transactional) also varied widely. This does not even take into consideration our deleveraged position in the market with our suppliers and/or having different contracts and pricing agreement with shared business partners either.
The inspiration to innovate this function came as part of the overall company reorganization. Numerous attempts have been made to consolidate this function, both formally and informally but that work was hard and the victories few.
What KPIs did you use to measure success for this project? (For example: performance, customer satisfaction, revenue, sales or relevant financial gains?)
Financial and performance outcomes were measured by achieving the required manpower and expense reduction (percentage) target. Another major metric achieved, was ensuring there were no major disruptions to the existing business as we reorganized and launched a new system. The final metric we achieved was the unification of policies. This was accomplished by establishing a single Indirect Procurement Governance policy for the North American region.
How do you plan to ensure that the new model remains relevant and adapts to the future needs of the market?
We plan on continuing the momentum we built with the reorganization and policy unification by focusing our attention on the following key areas:
- Place at the top of our operating characteristics and business plan activity the HR pillar, where associate development, culture and engagement is emphasized.
- Accelerate our digital transformation and maturity of procurement tools and automation.
- Utilize those technologies to continue driving business process standardization.
- Shift our procurement governance strategy away from simply training and awareness toward more compliance management, using those practices to drive both individual behavior and overall process changes.
- Continue to bring unmanaged company spend (such as marketing and advertising) under the influence of this new indirect procurement function.
- Transition from a savings-focused approach in sourcing to bringing creative solutions and value that maximizes overall company profitability instead.
What advice do you have for those who may want to implement this innovative approach in their own organizations?
Below are a few of the more critical insights we would like to share:
- An organizational change management and communication strategy should be the first thing that is developed. Think from the “outside-in”.
- While executive sponsorship is essential in achieving project success, having well defined, and reinforced, project KPI’s to back up executive direction is equally important.
- Be intentional and enthusiastic with assimilating new people into your organization. When it comes to building trust and eliminating fear, the soft stuff is the hard stuff.
- Take the opportunity to redesign as many business processes within a cloud-based solution as possible to eliminate legacy customizations. This will save long-term system development costs and allow for more flexible configurations as new functionality is released.
- Internal groups and companies will undoubtedly resist change, even at management levels. Be prepared to emphasize regularly that collective standardization is more important than individual optimization.
How did you get your company and/or stakeholders to get on board and support this project?
Executive direction and the need for our company to change (transition to electrified products) drove this effort at a macro level. To ensure we had good stake holder alignment to our specific activity, we deployed the following strategies:
- Focused our new system design and technology roadmap around building a better end user experience and interface.
- A “lift and shift” approach that integrated legacy procurement teams into our organization but kept them in support of their legacy business teams for 6 months to ensure continuation of business while stabilizing operations in the new organization structure.
- From a procurement governance standpoint, we issued a new policy in a “hard launch, soft compliance” fashion, again to allow the organization and business structures to form.
In reflection, finding that proper balance between ushering in the new (systems, business processes, organization, policy, etc.) while maintaining operations of the old proved to be rather challenging, but that moderate approach proved to be the correct one in strengthening the indirect procurement function’s role within the company for the long-term.
