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Building the house of procurement

Johan Beer Alex Giacomini

In the last five years, the world’s leading postal

and logistics group Deutsche Post DHL has

started on a procurement transformation journey.

The challenge? To create shared methods and values

across five continents and become an internal service

provider to some 500 000 employees in 220 countries.

Continued overleaf

Cover Story

Efficient Purchasing No 8 2009 – 29

Global logistics provider

Deutsche Post DHL is the world’s leading postal and logistics group. Its integrated DHL and Deutsche Post brands offer comprehensive services in inter-national express, air and ocean freight, road and rail transportation and contract logistics. The Group generated revenue of more than 54 billion euros in 2008 with over 500,000 employees in more than 220 countries and territories.

Deutsche Post went public in 2000. Two major acquisitions (among some hundred companies acquired during a period of five years) were DHL in 2002 and Exel in 2005.

30 – Efficient Purchasing No 8 2009

managers responsible for global sourcing strategy. 600 pro-curement professionals in 45 countries are led by country procurement managers who report to five regional heads of procurement as well as to two heads of global sourcing and their category managers at headquarters in Bonn.

The corporate category manager’s job is not only to develop a sourcing strategy, but also to see that the stra-tegy is put to work. To help them do this, DP DHL has established a centralized organization for procurement tools and methods, which brings best practices and com-mon standards to the procurement community. This de-partment is headed by Chee Kin Lin, who earlier held the same position in the Asia/Pacific region within DHL. “Any new organization model brings confusion at first. In our case, purchasing was lifted out from the busines-ses and centralized, which of course brings a measure of uneasiness. And at the same time, people had to learn how to work in a matrix organization. I would say that today this organization is well understood globally, but you have to monitor change carefully,” he says.

Most of the initial psychological hurdles have now been overcome, Hugo Eckseler and Chee Kin Lin agree. This assessment is based not only on the direct feedback received from procurement’s counterparts in the business line, but also on the Business Partner Satis-faction Survey done every year. “MDs and CEOs now re-cognize the value we bring to their organizations. This is a very positive result and a significant change in how

When the German postal service Deutsche Post went public in 2000, it entered on a strategy of expanding into global logistics operations. In five years, it acquired some 100 companies, most notably DHL in 2002 and British Exel in 2005. Such intense growth comes at a pri-ce – from being a highly centralized German institution, Deutsche Post turned into a global group with nume-rous business cultures. Procurement was decentralized, lacked consistent processes and did not fully leverage the group’s buying power.

In 2004, the management board therefore decided to establish a corporate purchasing organization that would promote best practices and a common culture th-roughout the company. The job was given to CPO Hugo Eckseler, whose earlier experience in quality manage-ment, logistics and supply chain management made him well prepared for the task.

“The decision to centralize procurement was fairly obvious. Everybody understands that it makes more sen-se to buy 50 000 laptops centrally than purchasing them piecemeal. But bringing a common culture to many different environments will always meet resistance, so change management was a main focus when we laun-ched the new organizational model,” he says.

Enter the matrix

Today, procurement at Deutsche Post DHL (DP DHL) is a centre-led matrix organization with 16 corporate category

»Managers now recognize the value we bring to their organizations. This is a very positive result and a significant change in how procurement is perceived.«

What’s it all about: Transformation journey at Deutsche Post DHL.

Reading time: 22 minutes.

What’s in it for you: How to gain recognition for your efforts.

Efficient Purchasing No 8 2009 – 31

Dr Hugo Eckseler

Head of procurement (CPO) at –Deutsche Post DHL since 2004Career in quality management, logistics –and supply chain at 3M and WellaTrained as physicist in material science –

» If I was asked to single out one thing that matters most, it would be people.«

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procurement is perceived,” Hugo Eckseler points out.According to an independent McKinsey survey, the

DP DHL procurement organization today is rated best class in both efficiency and effectiveness. “But we are constantly faced with new challenges, so people have to understand that improvement is a continuous process. Even if we are happy with what we have achieved, no-body can rest on their laurels,” he warns.

The right way

Setting up a centralized department that decides on standard methods and tools is fundamental step for change. At DP DHL, there is a very strong top-down ap-proach when it comes to measurements, reporting and tools. “We have been very strict on that, otherwise you get into endless discussions,” Hugo Eckseler says.

But a big corporate stick will only get you so far. According to Chee Kin Lin, you absolutely need lo-cal buy-in. “For some new techniques you really need ‘evangelists’ with a deep conviction that a new method like e-sourcing really works. So part of our job is also to motivate people,” he says.

Another aspect of change that is often overlooked

is how you communicate with other business functions. “A classical example is how you report figures. If people outside purchasing don’t understand how you have com-piled your figures, they will be doubtful about the value you bring,” Hugo Eckseler reflects. Therefore, a stan-dard procedure for calculating savings throughout the organization was set up in cooperation with the finance department. “Another very effective new procedure is that before anyone can enter savings from a new sour-cing initiative in our reporting system, the savings have to be signed off by the corresponding CFO in the busi-ness unit. In this way we ensure that the finance people understand what has been done,” says Chee Kin Lin.

People mean the most

According to Eckseler, the single biggest challenge in any far-reaching transformation is to find the right people. “If I was asked to single out one thing that matters most, it would be people. To build what we call ‘The House of Procurement’ you use corner-stones like strategy, vision, supplier relationships and so on. Of all these business fundamentals, human resources is the most important,” he affirms.

Efficient Purchasing No 8 2009 – 33

Chee Kin Lin

Head of corporate organization, standards –and tools at Deutsche Post DHLCareer in management consulting and –procurement at DHLTrained as engineer –

» Change won’t happen automatically just because your CEO promotes it.«

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Purchasing at Deutsche Post DHL

The purchasing organization at DP/DHL serves more than 500,000 employees in over 220 countries and territories. Centre-led from Bonn in Germany, the organization is structured in a matrix with a corporate, regional and country level. Some figures (2008):

Yearly indirect spend EUR 9 billion –Number of purchasing professionals: 600 –in 45 countries16 corporate category managers responsible –for global sourcing strategies

Efficient Purchasing No 8 2009 – 35

Finding the right type of people for senior manage-rial positions in procurement is not an easy task, as they need solid procurement and category experience but also a business-oriented mindset. “Mindset is very im-portant. You have to abandon the self-image of someone who just negotiates contracts and re-think yourself as someone that sells a service to an internal customer. Some people find it difficult to do this,” says Chee Kin Lin.

Over the years, approximately 80 percent of higher-level procurement managers have been replaced. Half of the positions have been filled internally and the other half has joined the procurement organization from out-side the company.

One of the first things that Hugo Eckseler did as he joined DP DHL in 2004 was to set in motion an internal training programme, the Fit4Procurement curriculum.

This programme started by analyzing job descriptions and defining skill sets. Today, the training courses in-clude procurement, social, language and personal skills. Standard case studies for different commodities have also been developed in collaboration with universities.

“As I joined the company as a CPO, practically during my first meeting with senior managers, we all agreed that this was one of the things we needed to do at once,” he recalls. Today, the programme is well established throughout the organization.

Another fundamental aspect of success in procure-ment transformation at DP DHL is to encourage the flow of managers between the country, regional and corpo-rate levels. In a global organization, this exchange is vital in order to foster a common culture. “We have many ex-amples of people taking on new responsibilities in diffe-rent parts of the world, and would not have succeeded as well if this hadn’t happened,” Hugo Eckseler says.

At DP DHL nowadays, the career path for someone in purchasing is very clear. There are at present standar-dized job descriptions for 20 types of positions.

Become First Choice

In 2007, DP DHL launched a company-wide initiative called First Choice. Its aim is to ensure that DP DHL becomes the first choice of the customer – not just the biggest, but the best.

For procurement, the goal is to become first choice for the internal customer. Based on the established Six Sigma methodology DMAIC (define, measure, analyze, improve/implement and control) processes are impro-ved in a sustainable way. Efficiency is increased while focusing on the requirements of the internal customer. “We have tried to make First Choice part of our DNA, using DMAIC as a kind of common language through-out the organization,” Hugo Eckseler explains.

Within procurement, the results are measured by a type of balanced scorecard. One part is the annual busi-ness partner satisfaction survey, where procurement gets detailed feedback on overall customer satisfaction. Perfor- mance is also rated on certain activities like sourcing and problem-solving. The second part of the scorecard measures processes by internal KPIs. The third part is

» People have to understand that improvement is a continuous process. Nobody can rest on their laurels.«

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Efficient Purchasing No 8 2009 – 37

financial performance, like savings and internal cost structure. The fourth part is a yearly employee survey that where the 600 procurement staff have their say on a number of questions. “Today we have a 97 percent response rate on the employee survey – this gives you very real feedback on what needs to be improved,” says Chee Kin Lin.

Motivation is key

The final requisite of any transformation process is to work systematically at motivating people. “The change process and establishment of a corporate procurement organization was triggered by our present CEO Frank Appel, who in 2004 was a member of the management board. So we have had top management support from the start, which is absolutely necessary,” says Hugo Eck-seler. Although change on the DP DHL scale can only be initiated from the top down, change won’t happen automatically just because your CEO promotes it, Chee Kin Lin reminds us. “You also have to work systemati-cally to change attitudes, as it’s a big step to evolve from a specialist function into a service centre that has to sell its value to the operating units,” he says. Eckseler agrees:

“It’s not enough to visit people and make a nice speech and ask them to please do this or that. You need proces-ses that motivate.”

One such process is the identification of key accounts and the creation of key account managers within the procurement organization. Throughout the company, a thousand key account managers have been identi-fied, which are managed by 200 managers in the pro-curement organization. These managers have clearly defined duties to interact with the key accounts and to understand their ongoing business needs. “In this way we can address any issues and help the business units to solve them. It makes our efforts much more visible, which is a strong motivator,” Hugo Eckseler says.

After a five-year transformation journey resulting in a complete culture change for procurement, you would think that it was time for the organization to settle down. Quite the contrary, Hugo Eckseler affirms. “In a global economy, change becomes the only constant. You have to structure your organization and processes and so that it adapts to new circumstances. As our company conti-nues to evolve in future fields of business, so must procurement,” he says. EP

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