Supply Excellence — Nokia: Journey to a Center-Led Supply Organization

Nokia: Journey to a Center-Led Supply Organization

November 28th, 2006 · by Tim Minahan · 1 Comment · best practices, events, supply management

While at ProcureCon Europe earlier this month, I had the opportunity to lead a track (or in their parlance a “stream”) focused on Organizational Structure and Processes for Effective Procurement. Presenters on this stream included senior supply management executives from Nokia, HH Print, American Express and Navteq. Today, I will share insights into Nokia’s six-year journey to becoming an efficient and effective center-led supply management organization.

The $34 billion Euro mobile communications giant began its transformation initiative late in 2000. At the time, the supply management organization was highly decentralized with little spend leverage or process alignment across its four business units or geographies. Faced with global competition and pressures to reduce costs and increase innovation, Nokia set out to improve the efficiency and effectiveness of its supply management operations.

Alf Noto, Vice President of Indirect Sourcing at Nokia, said his organization set the following three-year plan:

Reduce supply costs by $300 million Euro
Better align supply strategies with business requirements
Reduce purchasing operation and transaction costs
Better integration supply management with supply chain management and product creation

“We recognized that a more centralized organizational structure was the way to drive and sustain value,” said Noto. However, he added that Nokia also recognized the need to support local requirements and to leverage expertise and infrastructure across business units and regions.

Nokia’s transformation plan was defined along five structural dimensions:

Geographical distribution. Noto said Nokia wanted to have centrally defined processes and global spend leverage with geographically distributed support and exectuion.
Category aggregation strategies. While standardization the goal, Nokia recognized the need to support variations by global, regional, business, and category lines.
Process ownership and development for both strategic sourcing and transaction procurement operations.
Strategy. Nokia knew it needed to better define and align its functional strategies and goals.
Reporting lines. Nokia set out to both improve the supply management reporting to senior corporate executives as well as to better align the function with invididual business groups and other functional stakeholders, such as supply chain and product development.

Said Noto: ”Which structural dimensions you employ are influenced by the size and speed of your transformation goals, supply market dynamics, stakeholder location and organization, business growth and expansion plans, and the degree of localization required.”

Nokia set out on a path to transition to what Noto refers to as “a centralized organization with a strong matrix” across regions. This structure is most commonly known as the center-led organization, which blends spend leverage, process standardization, and knowledge- and resource-sharing attributes of centralization with the local empowerment and execution characteristics of the decentralized model. (Transitioning to a center-led or centralized organizational structure is one of the Top 5 Supply Strategies enterprises have prioritized for the next two years.)

Nokia did not make the jump to the center-led model in one fell swoop. Instead, the company’s supply management organization evolved through three organizational phases before reaching its goal: global sourcing, regional, and center-led. I have prepared the below table to summarize the timing, attributes, and intent of each phase (click to enlarge).

During the first phase of its transformation, Nokia achieved its three-year goals — a year ahead of schedule. The company has since driven considerable improvements in supply costs, operational efficiencies, and spend leverage.

Nokia’s approach offers a sound roadmap for other organizations looking to make the jump to a center-led supply management structure.

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