The procurement function at FCC Group underwent a major transformation to define and implement a Global Purchasing Management Model. Key aspects included establishing a centralized global purchasing organization, mandating the use of an eCommerce solution (Ariba) to manage the end-to-end procurement process, and gradually expanding the model's scope across business units and countries. The transformation strategies focused on achieving immediate cost savings while ensuring successful initial contract awards. After several years of implementation, the new model helped achieve over 50 million euros in consolidated savings.
2. Introduction: FCC Group (I)
FCC is one of the main European groups in Construction
and Citizen Services.
Highly diversified activity:
Construction of big infrastructures, building and industrial,
Environmental services and full water cycle management,
Power generation from renewable resources,
Cement, concrete and derivatives production,
Urban equipment, logistics and others.
3. Introduction: FCC Group (II)
Revenue:
11.755 million.
Employees:
90.000 employees.
International presence:
Over 50 countries worldwide.
Over 50% of turnover from international markets outside Spain, mainly Europe and USA.
4. Purchasing activity in this sector
Sector which has developed the less a methodological approach to the purchasing
activity and with the biggest resistance to change.
According to external reports, only ahead of Public Administrations.
Main characteristics:
- Highly diversified set of products and services to buy
- High atomization of needs (over 1,000 working sites only in Spain)
- Low standardization of specs.
- Highly decentralized negotiation and awarding processes.
- Assumption that working site manager are responsible for the purchases.
- Scattered awarded supplier base.
Specifically, in FCC
- Existence of small purchasing unit through different business units.
- Existence of an ERP (SAP) for the accounting management under roll-out.
- Low visibility of executed purchases.
5. Project targets
Transform the Purchasing operation by defining and implementing a Global Purchasing
Management Model that provides:
• Cost efficiency and competitive improvement to the businesses in the Group in a
context to which two thirds of the generated revenue are applied
Net Profit
Human Resources
Suppliers and
subcontractors
Averaged P&L during last 3 years
• A structural solution to facilitate the integrity of the relationship with suppliers
and subcontractors
6. Purchasing Model Design (dec 2009)
A purchasing model is proposed to the Steering Committee based on:
A. Global Purchasing Organization, and of Spain, located within the Corporate company FCC
SA. And Country/Regional Purchasing Organizations to be created later.
B. eCommerce solution to manage the process end-to-end from Source to Pay: sourcing
management, contracts, purchase orders and invoices.
C. Common processes and regulation focused in a shared decision between all units
involved within the Purchasing Committee.
The approved model defines the principles of the function based on which the internal rules
are developed. It is initially applied to Spain.
PURCHASING MODEL
Global Purchasing eCommerce
Organization Committee Solution
7. Start up
A. Internal process to select candidates for the purchasing team, starting from a
reduced team of external professionals with experience in the matter.
B. Exhaustive assessment of the technical solution. Options were:
- SAP solutions. SAP ERP was already in use at FCC to cover the accounting function and
was starting to be used to register purchase orders.
- Ariba integrated with SAP for the accounting and financial processes.
The decision was the use of Ariba as a Service model (Ariba On demand).
C. Preparation of the Purchasing Rules, to set:
a)The principles,
b) The roles and responsibilities of each participating unit,
c) The processes and the relationships among them,
d) The mandatory transactions to be executed as per the Purchasing Model,
e) Criteria for decision making, etc.
8. eCommerce solution
Electronic end-to-end process:
Supporting the Sourcing and procurement chains
Integrated with SAP for accounting and payment
ARIBA
Sourcing
FCC Suppliers
Contract 2.456
FCC Users
2.822 ARIBA
Purchase Order NETWORK
Receipt
Invoice
Master data
SAP
Accounting and Payment
9. Implementation process
nov/dec 2009 2010 2011
Team PLs managers appointment Construction Purchases Integrated
Selection
23 people 30 people 37 people
Ariba Electronic Negotiation (17 Feb ).
Electronic PO (1 April).
Interface with SAP and Electronic Invoice (17 July).
Ariba
selected
Internal Rules
Model
Internal Rules approved by the Steering Committee (Threshold: 5 millions €)
From 0,5 to 0,1 M€
Approved 1 million € From 0,75 to 0,25 M€ UTEs incorporation
1st Purchasing Committee (23 February 2010). 1.000 millions € negotiated
10. Strategies used for transformation.
Premise: Get immediate savings and be successful during first awarding decisions.
1. Execute the transformation gradually:
Start in Spain and, once consolidated, expand to the rest of countries.
Start with high value purchases and those widely consumed
2. Set mandatory the operation under the Purchasing Model making each business unit
responsible through the Purchasing Rules.
3. Deploy the Purchasing Model and Ariba simultaneously. Training on and access to
the tool as it is required by the threshold to purchase.
The sourcing process in executed using the tool since the beginning.
Electronic PO and invoice only used for purchases under the Purchasing Model.
Set mandatory through the Internal Rules.
This eases the compliance with the awarded terms, and sets mandatory the
management of the potential changes on it under the Purchasing Model.
11. Key management principles applied
1. Focus in triple management orientation:
Price/cost. Savings measurement.
Supplier quality. Survey to business units about awarded suppliers.
Internal user’s satisfaction. Satisfaction survey to business units about Purchasing
Department’s performance.
2. Additional criteria to award beyond price: total cost, supplier risk, validation by the
managing direction (in working sites, it represents the final client), etc.
3. Care of the Corporate Social Responsibility. Additionally to the model’s principles,
spread of FCC’s ethic code, United Nations Global Compact, etc.
4. Regulated treatment of purchases with FCC’s companies as suppliers.
Others:
Execute with a high level of operational efficiency. The ratio managed annual spend
volume per buyer is over 30M€.
Tracking of key indicators and reporting to Directions organs.
12. Resistance management
• The strategies and criteria applied are facilitators for the resistance management.
Shared decision and awarding criteria.
Surveys about supplier quality and internal client’s satisfaction.
Gradual deployment by amount and geographic region.
Training and end user support with Purchasing department’s own resources.
• A big effort is put to avoid errors and potential reasons to be against the
Purchasing Model.
• Internal Rules non-compliances are made evident to the Steering Committee:
Purchases by the business units outside the Purchasing Model.
Requests for offers previous to the communication of the needs to the Purchasing Dpt.
This allows to significantly reduce non-compliances.
• Those paper invoices that should be electronic are rejected.
13. Evolution of operations (cumulative)
500 Number 463
1800 Amount (MM €) 1.702
1500
Negotiation 400
1200
• 100% electronic bids. 300
900
• 81 Product Categories. 200
600
• 25% of Spain Amount 100
300
0 0
Jan-10 Sep-10 May-11 Jan-12 Jan-10 Sep-10 May-11 Jan-12
15000 600
13.785 500 520
Electronic Order 10000 400
• Good rate of growth. 300
• 20% of Spain Amount. 5000 200
100
0 0
Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12
15000 250
Electronic Invoice 14.121 236
200
10000
• Good rate of growth. 150
• 10% of Spain Amount. 5000 100
50
0 0
Jul-10 Jan-11 Jul-11 Jan-12 Jul-10 Jan-11 Jul-11 Jan-12
(*) Time lag order and invoice. Overlapping operations.
14. Awarded amount and economic improvement.
Per year of life of the contracts.
Current year
Consolidated savings: savings:
52 M€ 59 M€ Budget savings: 87 M€
600
500
400
Adjudicado
Awarded Mejora
Savings
300
200
100
0
2010 2011 2012 2013 2014 2015 2016 2017 2018
The savings are calculated based on previous cost in every case in which there is an existing reference, that is in 70% of the amount.
TOTALES: Managed amount: 1.701,6 M € Awarded: 1.503,3 M€ Savings: 198,3 M€ (12%)
15. Oriented to business
A. Awarded suppliers evaluation B. Satisfaction of the Business Unit
Quality of the product or work performed with the Purchasing Function
Unsatisfactory Controversial
Excellent Total
Acceptable (out of
Satisfaction per concept 7)
1. Awarded product / service. 6,3
Satisfactory 2. Service provided by the buyer. 6,0
3. Management timelines. 5,8
4. Economic conditions. 6,0
5. Global satisfaction. 5,9
Note: 270 evaluated awards (198 suppliers)
Average rating (out of 7) 6,0
376 evaluated awards, in 635 surveys
(242 users surveyed).
16. Lines of evolution in 2012
Priorities I. Extend the scope of the Purchasing Model in Spain:
• Enhance the Framework Agreements of atomized high consumption.
• Manage the relationship with key suppliers.
• Reduce thresholds.
II. Deploy the Purchasing Model in others countries:
• Central Europe: implementation of a Purchasing Committee in Austria.
• Central America and Mexico : initiated the purchase management in Panama.
• Portugal: initiated with some products: fuels, reagents, office supplies, …
III. Extend the electronic order and invoice process:
• To purchases not managed under the Purchasing Model (Started).
• Applying the electronic process to suppliers of greater amount.
IV. Provide the Procurement Organization of the necessary resources.
17
17. The keys for transformation
Promoted by the Board. Decisions approved by the Steering Committee.
Professionalism and integrity of the Purchasing Department’s team
Purchasing Model design: well defined pillars and coherence among them.
• Global Purchasing Organization and team selection.
• Mandatory use of the Purchasing Model as per Internal Rules, making the business responsible.
• Leading technology solution integrated with the accounting and financial backend. Using
OnDemand model.
Assure compliance to awarding terms: electronic process up to the invoice.
Applied strategies: gradual, Model-Solution simultaneity , self training, etc.
Management criteria: rational and objective balance between cost/quality/client.
18. A good Procure is:
a) Get the best possible conditions, and
b) Assure compliance.
Ariba tool is helping us with:
- Getting those conditions, through the electronic offers,
- Assure compliance, through the use of electronic purchase orders
and invoices.
And also with the transformation, through its friendly use and
capillarity towards user base