Managing Enterprise Spend - Diebold’s Business Model for Commodity Councils

What is a Commodity Council? In November 2002, with a global spend of almost 50 percent of total revenue, Diebold Incorporated, maker of ATMs, cash dispensers and electronic voting systems, embarked on a journey to develop Global Commodity Councils for certain indirect (services) spend. The main driver of this strategy was to manage spend and achieve cost savings via a team-based management approach. These Commodity Councils allow Diebold to manage commodities, and enterprise spend of selected highprofile commodities, world-wide through a "managing sideways" technique (see Figure 1).

Today, Diebold has several Global Councils chartered with managing and reducing enterprise spend by between eight and 18 percent. For each Council chartered, we believe the potential savings ranges from a low of eight percent to a high of 20 percent. These savings are generated via tactics developed by a Global Council, based on spend management road mapping and strategic planning for the commodity.

What has been accomplished at Diebold?

Since January 2003, Diebold has chartered a number of Councils in both the direct and indirect spend categories. Some of the first chartered Councils were focused on reduction in enterprise spend management, with more control of maverick spend (see Figure 2). [Maverick spend is that not authorized by global procurement, or purchases outside of our recommended supply base.] To date, Diebold has initiated Councils for: Telecommunications, Software, Plastics, Sheet Metal, and other Fabrication Councils chartered for new product start-up.

We have realized savings as high as 15 percent from the Telecommunications Council.

Process

Generally, Councils progress through a six-phase process, defined as follows:

• discovery (information gathering, spend visibility, process analysis, who is spending what, where?);
  
• stabilize (spend world-wide);
  
• cost reduction or cost avoidance (opportunities and savings);
  
• standardization (of processes world-wide);
  
• compliance & control (conforming to policies and guidelines and reducing maverick spend);
  
• savings visibility (tracking savings to the bottom line and integrating them into annual budget-setting process).

  Some Councils may operate under different missions and charters, e.g., some were originally chartered to manage a new product introduction world-wide, but were eventually "rechartered" to manage enterprise spend and reduce maverick spend for that particular product.

  Commodities will have different cost reduction maturity levels, based, among other things, on past focus and cost reduction efforts. Savings are realized throughout the total supply chain: inventory management; part standardization and influencing of product design and supplier selection; service part optimization; supplier leveraging of pricing; terms and conditions; exchange rate opportunities; low cost country; compliance via control of maverick spend; process improvement, (reverse auctions, transaction costs); common suppliers; and products across business units.

  How do you Start a Global Commodity Council?

  Each Council is strategically selected on the basis of meeting certain criteria developed by the executive sponsors and stakeholders of the commodity (see below).

  Councils initially go through a rigorous four-day kick-off process. During this stage, the "global team" (drawn from sites around the world) comes together to establish market intelligence, spend management road mapping, strategic planning, and strategic sourcing actions to be taken. Sourcing actions are developed via a Diebold process called "3 W’s": "who is doing what, when…?"

  We also provide training in the kick-off session, for example commodity intelligence and team building, for helping the process of managing sideways. The agenda for each day is jam-packed with exercises and may include guest speakers who contribute focus and value on specific topics.

  The aim of this kick-off session is to provide clarity, establish goals, set expectations and develop strategic planning for the next six months. We also establish meeting guidelines, a code of conduct, and set roles and responsibilities during this session. Team leaders have an opportunity to establish their expectations and requirements, as well as understand team members’ concerns and issues, as they commit themselves to this overall effort.

  Our teams meet every week for the first six months to establish momentum. Then, as momentum builds and significant improvement in spend management is achieved, meetings are cut down to every other week only.

  Improvement Metrics & Measures

  Diebold utilizes a measurement process called "DBIS Charts" (Diebold Business Improvement System) to measure improvement trends against pre-set goals. DBIS Charts mark an effective way to monitor the teams’ progress. They are reviewed during each session and form the main focus of discussion. Most of the measures are created and developed during the kick-off week, or prior to the kick-off session, and are then modified during the session.

  How Does a Commodity Council Fit into a Corporate Strategy?

  At Diebold, the Global Commodity Council process marks one of the strategic initiatives under the Enterprise Spend Management (ESM) program, itself sponsored by the corporate CFO. Each Council reports to an executive sponsor group made up of key stakeholders, as well as the CIO & CPO.

  We are in the process of developing an Office of Enterprise Spend Management to manage and support all corporate initiatives for enterprise spend.

  Managing the ESM process from a corporate strategy approach may have a stronger impact upon the organization by creating higher global visibility for ESM strategies.

  Advantages of Global Commodity Councils – How They Work

  Global Commodity Councils add capabilities to any organization which must manage commodities throughout the world. The advantages we have gained through implementing Commodity Councils are:
  

• developing global commodity strategies, including contingency planning;
  
• gathering requirements and demand management data, thus influencing product design in the early stages of development;
  
• providing technical planning, strategies and technology sensing;
  
• providing commodity market intelligence;
  
• reducing commodity costs, thus improving competitive advantage;
  
• leading cross-functional evaluation of suppliers (services, products and value/non valueadded activities);
  
• negotiating global contracts and managing supplier relationships;
  
• communicating contract guidelines to all affected parties; and
  
• resolving major supplier performance issues.

  A number of misconceptions exist regarding the role of a Commodity Council, and it is important to clarify – from the start – what Councils do not do:
  

• place purchase orders;
  
• resolve invoice discrepancies;
  
• establish & manage local site replenishment activities.

  Ongoing Effort

  The transformation to Commodity Councils is an on-going and multifaceted strategy. Our constant efforts focus on six different dimensions:
  

• reorganizing for optimization;
  
• enhancing professional skills;
  
• improving governance and compliance;
  
• instituting a sound supply chain process;
  
• building a unified stakeholder technical infrastructure; and
  
• spend and savings visibility management.

  Key Learnings

  Over the past year, we have learned a couple of valuable spend management lessons via our Council approach and have instituted some useful rules.

  First, commodities have to be managed one way or another. You can choose a silo approach, with different departments and functions managing the traditional way (under different leadership and strategic goals), or a "managing sideways" approach, with a cross-functional team guided by common strategy, leadership and goals.

  Second, leaders of a Commodity Council must be involved full time in leading the team and its activities. If team members cannot provide 100 percent of their time to the Council, then they need to commit a minimum of 25 percent of time to team activities. It is important that team member leaders support the overall effort, and provide incentives for team members when goals are met.

  Third, during the kick-off process, it is key to produce a strategic road map and to establish clear tactics and actions. It follows that strong team leaders with good communication, team management and problem-solving skills are vital. Select a strong facilitator to guide the overall process and to assist team leaders.

  Fourth, savings visibility and spend visibility processes should be core to the organization. Dollar savings are remarkable if you can keep the team focused on the eight to 20 percent savings potential! It is also important that enterprise spend strategies have high global visibility world-wide, among the executive team. Similarly, ESM and Councils should have a high profile among executives and form a key component of the corporate strategic plan.

  Fifth, failure of a team is not an option. If additional guidance and support is needed, third party consulting – for example for market intelligence, team building, or auditing – may be sought, especially given the complexity of some commodities, such as software and telecomms.

  ---

  John (Jack) M. Hess is Director of Global Procurement Innovative Processes & Business Transformation, at Diebold Inc.. He joined Diebold, Inc. in June, 2001, as Director of Business Transformation with focus on Business System Improvements and Transformation in Supply Chain Management. His initiatives in Organizational Alignment, Enterprise Spend Management and Supplier Management opportunities within Diebold’s international supply chain and indirect spend, have created cost reduction opportunities in the millions of dollars. Jack has provided quality systems and supply chain technology presentations in several regions, including Eastern and Central Europe, South America and China.

  ---

  What Is a Commodity Council?
  

• A cross-functional team (global representatives, functional representatives, procurement, finance,subject matter experts, dedicated team leader, executive sponsorship).
  
• Provides technical expertise and strategies for the commodity.
  
• Provides sourcing strategies for the commodity.
  
• Deploys technical and sourcing strategies to meet Council goals.
  
• Manages policies, standards; drives compliance through enterprise.
  
• In summary, a Council manages enterprise spend

  How to start a Commodity Council in your Enterprise
  Assess the organizations readiness and need
  

• spend visibility for the commodity
  
• estimate the cost reduction opportunity
  
• validate your cost reduction opportunities

  Assess organization’s alignment & ability to solve cross-functional issues
  

• develop a detailed start-up plan (project scope; business model; team members and executive sponsors; initial goals, objectives and deliverables; kick-off session planning (training & teambuilding; market intelligence; Council operating standards; opportunity list...3 W’s; measurements)

  Executive approval for the New Business Model

  Consider bringing in expertise? (Diebold worked with IBM)

  Formal kick-off, and company wide communications plan.