Change Management in Purchasing – rolling out an eProcurement-system.
Using eProcurement The LEGO Group has managed to increase Purchase Order Compliance from 50% in 2005 to 70% in 2006 in Denmark. Over the same period they have reduced the number of suppliers by 4400, through sourcing, the e-procurement implementation and other activities. The streamlining of procurement on a strategic level is one of the factors behind The LEGO Groups renewed strength as a leading, global, quality toy brand.
BUSINESS CHALLENGE
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Bertil Brink Pedersen, Director at Corporate Finance - Procure to Pay |
In 2004 The LEGO Group was facing major difficulties on various fronts. The management realised that it would take more than sales alone to regain the former position of the LEGO brand. One of the key challenges was the lack of transparency across the supply chain due to the low efficiency and poor quality of internal purchasing processes.
The management recognised that they urgently needed to control the large number of suppliers being added to the rapidly growing supplier list every month. With a corporate culture focused almost entirely on innovation, production and sales, increasing scrutiny over purchasing flow, supplier numbers and contract compliance was going to be a major management challenge.
LEGO addressed this challenge by focusing far more seriously than before on procurement and supplier contracts at a strategic level. Being already familiar with IBX and its competitive range of solutions within the field of procurement the management chose IBX as their development partner to map out their needs and design the company’s internal eProcurement system – Easy Buy, a one-stop-shop.
VALUE DELIVERED
- Transparency in buying and discipline in spending
- A 38% reduction in quantity of suppliers
- A 40% increase in Purchase Order Compliance
- Organisational awareness and ownership of procurement on all levels
- Increased efficiency and reduced costs in administration
- One–stop-buy-system (Easy Buy) implemented in major departments of LEGO worldwide
KEY SUCCESS FACTORS
- IBX’ experience in procurement process and implementation
- The management’s focus on the potential savings of streamlining procurement
- The LEGO employees’ embracement and ownership of the eProcurement platform
- Control with the Vendor base
THE SOLUTION
The LEGO Group chose IBX to implement their eProcurement system Easy Buy which went live on 1st December 2005. The LEGO Group already had some knowledge of IBX’s solutions and know how: “We chose IBX as we knew they deliver a very thorough implementation from the initial meetings to roll out, and we weren’t disappointed” – says Director in Corporate Finance - Procure to Pay - Bertil Brink Pedersen, who was responsible for the implementation of Easy Buy across the LEGO organization on all levels.
From system to process
Mr. Brink Pedersen furthermore emphasizes that the whole process of renewing the focus on procurement, has brought a positive organizational change and new perspectives to the company:
“The eProcurement project has turned out to be more than merely a system to manage suppliers and purchasing procedures. It has helped us as a whole to realise the potential of thinking beyond system and into the mindset of process – the eProcurement system makes everybody across the LEGO Group see what positive things change can bring, and that everybody can contribute by altering old habits to new and better ones.”
Demolishing the ‘silos’
According to Mr Brink Pedersen, the eProcurement system developed with IBX, has helped breaking down barriers between departments: “A strong sensation of ownership with the employees is one of the key factors of our success in making purchasing more transparent for everybody. The company as a whole stands more united now than ever, and that is in part thanks to the obvious advantages of transparency and overview in purchasing. When the company begins to realise that efficiency and discipline in purchasing helps creating a surplus in the process of creativity etc., we all begin to break down the ‘silos’ within the company, and start thinking as one. It’s a cultural turnaround for the better”
Savings, efficiency and discipline spawn success
“We are a company living off innovation and creativity. But that shouldn’t deter us from focussing on discipline and efficiency where it is needed, without spoiling the spirit of creativity,” adds Mr. Brink Pedersen, and continues: “And that is exactly what the eProcurement system has brought to light; A reduction in suppliers and an increase in efficiency in purchasing helps stabilize the company, helping provide creative space where that is needed. Furthermore IBX’ tools have fermented a continuous process of knowledge sharing across the organisations various levels.”
Visible results speak for themselves
Mr. Brink Pedersen underscores, that apart from uncovering blind alleys within the organisation and helping it to understand its needs and bad habits even better, the exercise of streamlining procurement within The LEGO Group, has clearly brought visible hardcore, bottom-line results: ”A reduction of 38% in number of suppliers in just two years, a doubling of Purchase Order Compliance and a vast support of the process among employees, count as a tangible success in my book.”
Follow up on Implementations
“Even though that we have achieved great result until now, we are not finished with our implementation. A follow up structure has been made, to make sure that our POC target will be met. Based on monthly reports send out to Corporate Management, we ensure that the company remains focused on harvesting the advantages created through EasyBuy.”
On the horizon
“Our ambitions over the long term are further reduction in the amount of suppliers by 50%, Purchase Order Compliance on all invoices and a further integration of the eProcurement system into consumer billing, etc. For example, now we can effectuate a strict policy of payment only on delivery. Before we weren’t sure whether the goods purchased and paid for had actually been delivered,” adds Mr. Pedersen. He expresses his optimism for the future development of LEGO’s never ending process towards excellence both inwards and as a leading provider of quality toys worldwide. Since 1st June 2006 Mr Pedersen has been the director in LEGO Finance responsible for orchestrating the whole process from Procure to Pay.
