Telecom purchasing maturity analysis

POLITECNICO DI MILANO
Supplier Relationship Management Lab
Prof. Thomas E. Johnsen
A.Y. 2015/2016
Telecom Italia Group
Purchasing Maturity Analysis
Group 20
Vivek Gopalkrishnan – 838037
Fabio Parisi – 838093
Antonio Sannino – 838335
Sushant Tiwari – 840991
Danilo Torretta – 837978

Table of Contents
Executive Summary ..................................................................................................................1
1. Introduction.........................................................................................................................1
2. Methodology .......................................................................................................................1
3. Company Overview ............................................................................................................2
4. Corporate Strategy ..............................................................................................................3
5. Purchasing Dynamics..........................................................................................................4
5.1. Organization..................................................................................................................4
5.2. Purchasing Strategy ......................................................................................................6
5.3. Purchasing Process .......................................................................................................6
6. Maturity Analysis................................................................................................................8
6.1. PSM strategy.................................................................................................................8
6.2. Global sourcing.............................................................................................................8
6.3. Organizational visibility and influence.........................................................................8
6.4. Data, communication and organization........................................................................8
6.5. KPIs ..............................................................................................................................9
6.6. Skills training and development ...................................................................................9
6.7. Basis of supplier selection and evaluation....................................................................9
6.8. Supplier involvement in NPD.....................................................................................10
6.9. Supplier development.................................................................................................10
6.10. Supplier relationships ..............................................................................................10
6.11. Sustainability strategy and implementation ............................................................11
6.12. Sustainability reporting ...........................................................................................11
6.13. Final evaluation .......................................................................................................12
6.14. Further improvement...............................................................................................13
7. Conclusions.......................................................................................................................13

1
Executive Summary
The report analyses the purchasing maturity of Telecom Italia Group, an Italian company operating in the
telecommunications sector. The organization is presented focusing on the role of the purchasing department
and a maturity model from literature is applied in order to assess the level of efficiency and organization of
the company’s procurement service. Points of strength and weakness are highlighted, but results show that
Telecom Italia Group is quite advanced in this regard, as its purchasing function actually contributes to the
firm’s strategic success. Finally, some suggestions on how to enhance the company’s purchasing
management are deduced from the model’s application.
1. Introduction
First, the methodology used in the analysis will be described. Chapters 3 and 4 will present the company,
showing relevant data and discussing corporate strategy. Chapter 5 will introduce purchasing dynamics,
focusing on organization, strategy and process. The application of the maturity model will be the object of
chapter 6: each significant aspect will be analysed in detail and a final evaluation will ensue, accompanied
with few recommendations.
2. Methodology
In order to assess the company’s purchasing maturity, we applied the model theorised by Johnsen et al.
(2014)1
. We accessed all the information available on the corporate website (the specific names and
hyperlinks of documents we consulted are reported in the following pages’ footnotes). Moreover, we
arranged a face-to-face interview, held at Telecom Italia Milan offices, with two resources of the purchasing
department:
 Carlo Pompei – Vice President Vendor Assessment & Processes Governance;
 Fabrizio Bernocco – Operational Planning & IT Demand.
They provided us with insights about their personal experience in the department and also with undisclosed
research material. We want to thank them for their kind and valuable support.
1
Johnsen, T., Howard, M., Miemczyk, J. (2014). Purchasing and Supply Chain Management: A Sustainability Perspective. ed. Routledge

2
3. Company Overview2
Telecom Italia Group (TI) is one of the most important companies in the world, operating in the
telecommunications sector. It is one of the Fortune 500, and, in terms of turnover, it ranks seventh in Italy.
The Group operates through four brands that are clustered in two Business Units.
Fig. 1. Telecom Italia Group: Business Units and brands.
Both BUs, “Domestic” and “Brazil”, operate in the TLC sector, but in different geographical areas. In
particular:
 TIM and TIM Brazil offer voice and data services to business and consumer costumers;
 Sparkle offers a range of IP, Data, Cloud, Data Center, Mobile and Voice solutions to Carriers, Service
Providers, and Mobile Operators;
 Olivetti is a manufacturer of typewriters, computers, tablets, smartphones, printers and other such
business products as calculators and fax machines.
Fig. 2. Financial and general data (2015).
2
“Telecom Italia: Preliminary Results at 31 December 2015 approved”
(http://www.telecomitalia.com/tit/en/archivio/media/comunicati-stampa/telecom-italia/corporate/economico-finanziario/2016/preliminary-
results-at-31-december-2015-approved.html)
“Relazione Finanziaria annuale 2015”
(http://www.telecomitalia.com/content/dam/telecomitalia/it /archivio/documenti/Investitori/Bilanci_di_esercizio/2015/Relazione-finanziaria-
annuale2015.pdf)

3
4. Corporate Strategy3
Telecom Italia has recently presented to the Financial Community a strategic plan to be realized in the next
two years (2016-2018). The operating and financial outlook of the plan includes:
 stabilization and growth of domestic EBITDA;
 increase in market share and EBITDA in Brazil;
 reduction of Net Debt through a strong financial discipline.
The company’s orientation to efficiency actually reveals the intention to raise investments aimed at
innovating the network infrastructure, enhancing the quality of service and offering premium contents.
Moreover, TI has defined a new strategy based on creating economic and social value, leading Corporate
Social Responsibility towards the wider concept of Corporate Shared Value. The main purpose is to link
financial results with social progress, which is created by responding to the needs expressed by the realities
where the Group operates. It surely is an innovative transformation, designed to address the company's
strategic decisions, match financial and non-financial performance and meet the stakeholder’s legitimate
demands at the same time.
Fig. 3. The concept of Corporate Shared Value in Telecom Italia.
3
“Strategy”
(http://www.telecomitalia.com/tit/en/investors/outlook.html)

4
5. Purchasing Dynamics
Within TI, the procurement process is aimed at the acquisition of products and services under the best
market conditions, assuring, at the same time, requirements concerning quality, safety and social and
environmental compliance. The procurement process is based on a competitive comparison of the
technical/economic offerings of suppliers previously selected on the basis of company procedures aiming at
preserving ethics in negotiations. The Group is committed to guaranteeing the quality of its procurement
processes and their continual improvement, including their sustainability.
5.1. Organization
The Purchasing Department (PD), a function centralized since 2000 and counting 135 buyers, is included
in the Business Support Office and directly controls nearly 100% of the Group’s spending. Only specific
items are procured under the responsibility of other functions, e.g. when prices are determined by a State
Regulatory Authority (interconnection costs, mobile licenses, etc.), but the company reports no cases of out
of coverage for items under the PD’s responsibility. The CPO, Eduardo Perone, reports to the Business
Support Officer, who reports to the company’s CEO. Within the PD, The Purchasing Support group deals
with processes’ governance, vendor control, mastering technology and business evolution trends, whereas
the International Purchasing group coordinates international purchasing activities. The department
organization is adapted to the 8 supply markets, which are grouped into three macro-areas (Market,
Factories, Behind the core business). Indeed, every market is scrutinized through a dedicated marketing
analysis and supervised by a category manager in charge of negotiations and contracting with vendors.
Fig. 4. Organization of the Purchasing Department.

5
Fig. 5. Purchase items divided by the three macro-areas.
In 2014, consolidated purchases (for Italy and Brazil) amounted to € 9,430 million.
Fig. 6. Classification of consolidated purchases by BU.
Fig. 7. ABC analysis: contribution of suppliers to consolidated purchases.

6
Fig. 8. Classification of 2014 spending by market cluster.
In 2015, purchases furtherly decreased to € 8,533 million, proving that the department actually strives for
efficiency.
5.2. Purchasing Strategy
In a global and competitive scenario, the supply chain should not only pursue the objective of saving on
purchasing costs, but also play an integrated role within the organization and be capable of improving trends
and performance in order to contribute to the creation of business value. Since 2002, TI’s procurement
function has been undergoing a process of transformation, abandoning the traditional “cost cutting”
approach and adopting a multi-lever integrated strategy based on:
5.3. Purchasing Process
The phases of the purchasing process are seven.
1. Purchase plan definition
a. Purchasing requirements planning
b. Purchase market plan and budget
c. Definition of specifications and technical/economic requirements
PRICE
• The spending target takes into account possible savings on average price levels
RE-ENGINEERING
• Addressing the evolution of the vendors’ ecosystem towards a win-win strategy
DEMAND
• Demand optimization with beneficial effects and economies of scale on total spending
VALUE FOR
MONEY (V4M)
• Total cost control, lead time and service level optimization

7
2. Scouting
The purchasing department periodically scans the supply markets (once a year), in order to assess their
current status and eventually identify potential vendors, which are qualified after undergoing a rigorous
process. Qualification, which is a necessary step in order to start any kind of supply relationship, is
market-specific and a company cannot be approved as a vendor for more than one purchase category. In
order to become a TI’s qualified supplier, a company has to:
a. fill in a technical questionnaire, designed in collaboration with internal customers (e.g. when the IT
department wishes to buy a software, it defines the specifications and prepares the questionnaire with
the purchasing function);
b. pass an economic verification, aimed at assessing the company’s solvency (among other things);
c. meet specific requirements in terms of risk exposure, proportion of Telecom Italia’s business with
them (dependence), sustainability, etc.
3. Negotiation and selection
Telecom Italia may either issue an invitation to tender among qualified suppliers or directly purchase
what it needs. There are two kinds of frame agreement: a “contract” with the supplier is a commitment to
buy a specified number of items across an indefinite period of time (internal customers, i.e. other
functional groups, will issue single orders until the contractual amount is fully purchased), an “order” is
a stand-alone purchase running out in just one transaction. Agreements are specific for each purchase
category.
4. Contract management
5. Delivery of the supply
TI checks (i.e. tests through on-site audits) the effective and compliant execution of deliveries/services,
monitoring the actual situation with respect to agreed conditions (incoming quality control).
6. Delivery acceptance, invoicing and payment
Suppliers of the riskiest purchase categories are assessed by means of structured vendor rating
procedures.
7. Analytics and feedback
In order to collect business intelligence, a set of procurement KPIs is measured using a “Tableau de
Bord” framework.
Fig. 9. Supplier assessment in Telecom Italia.

8
6. Maturity Analysis
6.1. PSM strategy
Within TI, the 75% of costs affecting EBIT are actually purchases and, fittingly so, there is a full integration
between purchasing and corporate strategy. In order to increase profitability, most of the effort weighs on
the purchasing function, which is in charge of almost all the company’s spending (as proven by the very
high level of spend coverage). We can say that containment and reduction of operating costs is pretty much
of the purchasing function’s business.
Moreover, the alignment between purchasing and corporate strategy can be seen also in terms of
effectiveness (purchasing contributes to improving the level of service and the quality of goods/services) and
sustainability.
Our evaluation: Strategic Contributor.
6.2. Global sourcing
The company relies on several vendors located abroad, e.g. devices are bought in China and Korea.
When the purchasing department qualifies TI’s suppliers, it always adopts a global perspective on the supply
markets and selection follows the same standard procedure. Therefore, whether internal customers (i.e. the
other functional groups) are located in Italy or Brazil (depending on who starts the request for purchase), the
application of TI’s specific purchasing strategy is always ensured.
6.3. Organizational visibility and influence
The purchasing function is supervised by a CPO. This figure has a significant influence at senior level
mainly due to the high impact that purchases have on EBIT. Therefore, the department is a key decision
maker in the strategic planning process, suggesting different ways to enhance the firm’s strategic success.
6.4. Data, communication and organization
Thanks to a well structured purchasing process supervised by a centralized department, TI can access to its
full spend information, which is stored in the repository of the ERP system (powered by SAP). Here, digital
contracts, orders and invoices are hosted: 2,000 contracts are signed and 15,000 orders are issued every year;
moreover, contracts are often subject to changes and the IT system allows to make up to 7000 modifications,
without the necessity to stipulate new ones.
As a matter of fact, the purchasing activities are ICT-enabled and supported by a variety of electronic tools
integrated with SAP. Among all, the “RevolAuction” e-sourcing portal is used to issue on-line tenders and
negotiate with vendors, whereas vendors can access to a reserved area with visibility on relevant data and
events in connection with TI through a portal called “Vendors Hub”, which applies the logic of social
networking to a business context.
Fig. 10. Electronic tools supporting the purchasing process.

9
With regard to organizational aspects, the purchasing department is centralized, meaning it is the only
function in charge of purchasing for the whole Group, but it follows the model of a center-led procurement
unit, where strategic decisions are coordinated centrally and transactional activities are decentralized across
the organization. In fact, when a contract with a vendor is signed, the department takes into account all the
internal customers’ needs, who may issue single orders at contractual conditions whenever they need.
6.5. KPIs
The function adopts a structured model composed by a set of KPIs assessing both efficiency and
effectiveness of purchasing. Behavioral factors are not taken into account.
Fig. 11. The Procurement KPIs Controlling Model.
Our evaluation: Supportive.
6.6. Skills training and development
Training in the company is actually constrained by the recent budget cuts. Whenever a new resource or a
new system is introduced into the purchasing function (the latter case is more likely as hiring is not so usual
lately), a training program is activated. There are two approaches to training, usually implemented together
to enhance the effectiveness of these programs:
 frontal lectures given by experts (e.g. IT professionals who explain and show how the new system
works);
 e-learning platforms on which training courses are uploaded.
6.7. Basis of supplier selection and evaluation
Both tenders and negotiations are managed through the “RevolAuction” e-sourcing tool, which is also a
source of business intelligence thanks to its documents repository and thus of informational power.

10
Eventually, supplier selection is based on a competitive comparison of technical and economic weighted
criteria. After issuing requests for information, proposal and quotation, a price analysis is performed and is
assigned a weight of about 30%; then, the company assesses technical aspects and other kinds of
compliances (e.g. capability of a construction company to cover the highest length of fiber optics)
accounting for the 70% of the total evaluation.
6.8. Supplier involvement in NPD
Considering the most important (strategic) purchase categories, there are examples of supplier involvement
in TI. For example, in 2014 the company signed a three-year cooperation agreement with Huawei, which
provides TI with network technologies, to create a Business Innovation Centre in Italy with the aim of
developing innovative technologies and high quality services4
. Moreover, Huawei is also in charge of the
design of Telecom Italia’s central offices, the buildings that house the equipment for telephone exchanges.
6.9. Supplier development
TI’s periodic scouting and qualification of vendors already ensures a high level of professionalism, an
ethical stamp in setting industrial relations and rigid compliance with the local legislation amongst its supply
base. In addition to that, Telecom recommends adopting adequate initiatives for the development of human
resources, but does not implement any specific development action.
Our evaluation: Clerical.
6.10. Supplier relationships
We can say that the company can rely on a varied portfolio of appropriate relationships: there are few cases
of partnerships with key suppliers (e.g. Huawei, which is often involved in NPD processes) and, in general,
TI tries to collaborate with vendors in an integrated fashion. Referring to Cousins portfolio model, we
believe that collaboration with suppliers may be classified as either “Strategic” or “Tactical” (we assume a
high level of confidence as the supply base is under the constant scrutiny of the purchasing department and
supplier qualification is updated every year).
Fig. 12. Cousins Portfolio Model.
4
“Telecom Italia and Huawei: agreement to create a Business Innovation Centre Signed”
(http://www.telecomitalia.com/tit/en/archivio/media/comunicati-stampa/telecom-italia/mercato/business/2014/telecom-italia-huawei-
agreement.html)

11
Supplier assessment includes some elements of relationship assessment (e.g. dependence is taken into
consideration during qualification and kept low for non-strategic items), as a proof that the company is well-
committed to managing interactions with vendors.
6.11. Sustainability strategy and implementation5
TI works on the implementation of processes aimed at improving the Corporate Social Responsibility (CSR)
of the supply chain through a more detailed systematization of sustainability criteria across supplier
qualification, incoming quality control and vendor rating.
In particular, suppliers are ranked on the basis of potential risks associated to their sustainability
performance and this system contemplates rewards and penalties. Aspects under scrutiny, especially during
qualification, include child labour, hard labour, discrimination, health and safety, working hours, salaries,
etc.6
. Riskiest suppliers are subjected to CSR audits, carried out by company personnel or specialized
external parties. TI also participates in a joint initiative with other telephone operators called “Joint Audit
Cooperation (JAC)” to carry out sustainable audits to the factories of suppliers located in geographic areas
with a significant level of socio-environmental risk7
. Thanks to auditing, TI can define and implement
corrective actions and continuous improvement programs, establishing with vendors a lasting relationship
with mutual benefits in terms of efficiency, productivity and risk reduction.
TI continues the implementation of the “green procurement policy”, which provides guidelines for
establishing environmental requirements of purchases. The policy considers all the product life-cycle stages:
design, manufacture, use and end of life.
Electronic exchange of documents with suppliers reduces the environmental impacts connected to paper
consumption, transport and storage of documents.
The Telecom Italian Group has endorsed numerous environmental and social organizations, at national and
international level, to spread universally recognized values such as respect for human rights and labor, and
environmental protection. A few examples of the main associations with which TI collaborates are “Global
Compact”, “GSM Association” and “GeSI (the Global e-Sustainability Initiative)”.
6.12. Sustainability reporting8
TI follows the guidelines provided by the “GRI” for the preparation of the sustainability report, which is
available on the corporate website. Moreover, in 2014 the company was confirmed for the eleventh year in a
row in both rankings of Dow Jones Sustainability Index (World and Europe) with a score of 90 out of 100.
The latter sustainability assessment is carried out by crossing the company’s self-evaluation with business
intelligence collected from different sources.
5
“Bilancio di sostenibilità 2014”
(http://www.telecomitalia.com/content/dam/telecomitalia/it/archivio/documenti/Sostenibilita/Report_di_sostenibilita/2014/Bilancio-
Sostenibilita%CC%80-2014-ITA.pdf)
6
“Relazione con i fornitori”
(http://www.telecomitalia.com/content/dam/telecomitalia/documents/Sostenibilita/it/Politiche/Relazioni%20con%20i%20fornitori_it_22.12.09.p
df)
7
“Sustainability audits on suppliers operating in developing countries”
(http://www.telecomitalia.com/tit/en/sustainability/our-approach/case-studies/progetto-jac.html)
8
“Bilancio di sostenibilità 2014”

12
6.13. Final evaluation
Clerical Developing Supportive
Strategic
Contributor
Score
PSM strategy None Emerging, informal
Formal strategy
supportive of corporate
strategy
PSM integral part of
corporate strategy
4
Global sourcing
None or ad hoc
international sourcing,
only as needed
International (incl. LCC)
sourcing developing
Global sourcing
strategies integrated
across worldwide
locations
Global sourcing strategy
integrated across
worldwide locations and
functional groups
4
Organizational
visibility and
influence
Low, viewed as a cost
saving service function
Gaining (indirect)
visibility
Direct visibility at senior
level, but still limited real
influence
Direct influence at senior
strategic (board) level,
CPO position
4
Data,
communication &
organization
Low level of spend
information, basic ICT,
decentralized
organization
Improving information,
change towards ICT,
centralized organization
Cross-functional & ICT-
enabled, hybrid
organization
Full spend information,
ICT- enabled, centre-led
organization
4
KPIs Price savings
Small set of easy-to-
measure KPIs
A range of KPIs aligned
with PSM strategy
A range of KPIs aligned
with PSM strategy, incl.
soft behavioural factors
3
Skills training
and development
Minimal, low level
tactical
Current popular best
practice
Cross-functional
Cross-functional,
leadership, change
management
3
Basis of supplier
selection &
evaluation
Price & availability
Change towards TCO,
but ultimately cost driven
Multiple weighted
criteria
Multiple weighted criteria
aligned with PSM strategy 3
Supplier
involvement in
NPD
None, suppliers
approached during
prototyping
Attempts at early
involvement i.e. during
early design and
development planning
Close early involvement
of key suppliers, some
even during concept
development
Close early involvement
of key suppliers, including
between NPD projects
3
Supplier
development
None
External accreditation,
reactive problem-solving
Systematic vertical
supplier development
e.g. supplier assistance,
training, one-way
approach
Systematic development
extending beyond direct
suppliers, horizontal
supplier collaboration,
two- way mutual
improvement approach
1
Supplier
relationships
Mostly adversarial Emerging partnerships
High proportion of
partnerships, SRM
A portfolio of appropriate
varied relationships, SRM 4
Sustainability
strategy
No consideration Partial and emerging
Integrated sustainability
and PSM strategy
Integrated sustainability
and PSM strategy 4
Sustainability
implementation
None or limited
Some initiatives to avoid
negative exposure
Ethical supply chain
evaluation e.g. CO2
supply chain
measurement, company
audits. Mostly direct
suppliers focused.
Ethical supply chain
evaluation e.g. CO2
measurement & audits but
also supplier
development. NGO
involvement. Extends to
indirect suppliers
4
Sustainability
reporting
None
Ad hoc mention of e.g.
sustainability policy or
code of conduct
Some disclosure
including online reports.
Still elements of ‘green
washing’
Fully transparent
reporting incl. online
reports and video clips
from supplier factories.
Honest self- assessment
4
Fig. 13. Johnsen et al. (2014)’s maturity model.
Given the final score (3.5, computed as the arithmetic mean of all scores), TI’s purchasing department is
mid-way between a “Supportive” and a “Strategic Contributor” function in terms of purchasing
maturity.

13
6.14. Further improvement
Supplier relationships management is an activity to which the company is surely devoted and contributes to
defining appropriate sourcing strategies, but there are still margins for improvement. When we interviewed
two resources working in TI’s purchasing department, they confirmed that soft, behavioral factors (e.g.
mutuality and trust) are not taken into consideration during supplier assessment.
An area where the company could focus its attention is Supplier development, but, in reality, TI
compensates the low commitment in this regard by implementing a rigorous qualification process and
approving only compliant, best-in-class suppliers.
7. Conclusions
Results show that Telecom Italia Group is really well developed in different areas of purchasing maturity,
which led us to focus on its key success factors. Indeed, we can stress that the purchasing department relies
on a well-structured ICT system, allowing an efficient implementation of procedures, sustainability is
carefully regarded and the company’s mind-set leads them to spend efforts in managing supplier
relationships. TI’s supply base is selected in a way that ensures vendors are compliant with the company’s
culture and policies. Considering the analysis carried out, we may suggest some actions to introduce supplier
development in the company’s practice, but TI appears to prefer implementing a very selective qualification
process. In conclusion, the Group demonstrates to be well ahead in its path towards full purchasing maturity
thanks to its 50-year experience and a strong orientation to efficiency.

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