As CPO of Rio Tinto, Ramsay Chu has a few challenges on his plate – a commodities industry in turmoil and intense competition in particular. But while it’s certainly a challenging environment, it also offers the opportunity to impact the business in more creative and innovative ways.
As CPO of Rio Tinto, Ramsay Chu has a few challenges on his plate – a commodities industry in turmoil and intense competition in particular. But while it’s certainly a challenging environment, it also offers the opportunity to impact the business in more creative and innovative ways.
In his keynote presentation at the Miami Congress, Chu took delegates on a journey through some of the initiatives he is working on – and the title of his session, Non-traditional value creation from procurement, provides an insight into how he sees his function contributing to the business.
Procurement in Rio is part of a shared service centre, with includes finance and people management among others, and the balance of his function has been evolved to the extent that almost half – 49% to be exact – of his team are now offshored. Some might expect this to have reduced the overall costs of running his function. But it hasn’t, and purposefully so.
Instead, any savings that offshoring the more transactional elements of procurement provides has been ploughed straight back into the more strategic, retained procurement team in terms of both training and the recruitment of more capable staff. As Chu told the Miami Congress, “smart people cost more”.
Having a more capable, strategic procurement function at his disposal means Chu is able to pursue more value-add opportunities, and key to this was developing an internal consulting division that would be used to do “fly in, fly outs” to spot opportunities for procurement to add value.
One of the key deliverables from this, was a move from output-based contracts to outcome-based contracts – instead of buying goods, Chu’s team moved to an approach of buying solutions. Another was the use of RFID tags that collect data, in order to understand in minute detail how equipment is used, why it gets replaced when it does and whether there were alternative approaches.
One example was rather than replacing expensive tyres on trucks, why not repair the roads instead!
Another key area of focus of Chu was working-capital management, and he worked with his team to recognise 114 initiatives that addressed 15% of the working-capital balance. He now has a three-pronged approach to addressing payables:
- Top-down supplier negotiations, which provides a commercial advantage.
- Systems and controls, including locked-down vendor master files, which protect terms, and centralised decision making, which provides greater governance.
- Bottom-up payment control, an accounts payable team was established to review transactions in advance of payment to improve discipline.
Chu’s work continues at Rio Tinto, and by his own admission there is still much to do, but he is well on the road to ensuring that Rio Tinto procurement brings far more value to the business than traditionally might be expected of it.
And in this, he summarised with three key takeaways: invest in people, but obviously the right people; focus on cash, even the most administrative tasks lead to positive financial outcomes; and make use of data, because Big Data and analytics improves decision making and reduces costs.
from Procurement Leaders Blog http://ift.tt/1EgLoSY
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The views expressed in this post and throughout the series are the autor's own and not intended to reflect the views the YQ Matrix platform, its users or any associated organisations.
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