Procurative Powers

More and more companies are viewing procurement as a strategic means to gain competitive advantage. They have begun partnering with critical suppliers to jointly identify and realize new efficiencies, increase profitability and promote innovation.

Before IT was corporatized, Telstra managed procurement in the most traditional way. Purchasing officers thought short term, and notions of quality of supply and the desirability of forging long-term relationships with suppliers took a back seat to consideration of cost.

The Corporate Supply Group focused on managing contracts rather than driving value from them, and rarely questioned deals made by departments that chose to deal directly with suppliers. The Corporate Supply Group saw its role as functional and low key, not strategic. Today things are very different. Telstra has drastically transformed the culture of the group, which now operates a strictly fact-based process that takes into account considerations such as a vendor's track record, market position, product availability and Telstra's exact purchasing requirements.

"Two-thirds of the process is around establishing the facts, the stratification, what we want to do, understanding the market, understanding the plans in the market and understanding what we want to get from the relationship with those vendors," says Telstra corporate services director Tom Pearson. "Then we go through a decision-making process that's collaborative with all the key stakeholders in the company. So we have a stakeholder board process that drives involvement of the key players, and it drives a decision-making process that is quick and effective."

Through the life of a sourcing decision, that board will probably meet two or three times before any final decision is made. Pearson says adopting a strong decision-making process has significantly reduced Telstra's procurement costs and created more of a win-win position for vendors by emphasizing longer term contracts that help them to recover more easily their initial outlay and which provide them with a greater sense of security and stability.

Telstra now uses a formal vendor relationships management (VRM) toolkit that sets out the key processes and key policies and disciplines it expects in the way it manages its vendors and the relationship that it has with those vendors.

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