The second stop on the Supply Management 2.0 Forum tour brought me to Stockholm, Sweden, a region known for its socialist leanings and for hosting the most public holidays of any country.

Considering this backdrop, Sweden might seem an odd place to hold a business conference. But after spending a few moments with attending supply managers from across the Nordics (i.e., Sweden, Finland, Denmark), it was clear that these Forum attendees had an exceedingly shrewd business sense – and an unabashed eagerness to share their opinions on everything from supply strategies the debt American hockey owes to the region.

The Forum featured presentations from supply management executives from across the Nordics, including Perlos, a leading contract manufacturer; Norwegian Defence; and UPM, one of the world’s leading providers of paper and wood products. Perlos and Norwegian Defence showcased how they bootstrapped a successful sourcing program, the latter under the scrutiny of new European Union regulations (more on that later).

UPM’s tale was more involved, showcasing the manufacturer’s transformation from highly decentralized, plant-based sourcing and procurement groups to center-led structure, governing common sourcing and supplier management processes across 68 plants in 15 countries.

“When we started, we didn’t even know how many people we had in the procurement,” said UPM Global Sourcing Development Director Kari Tulisalo. (The correct answer, by the way, is 236 procurement personnel.) “We had no idea how many contracts we had in place. And we had 26 different procurement systems as well as 22 Lotus Notes databases [storing various supplier agreements].”

In 2001, UPM began leveraging spending and coordinating sourcing activities across its regions. “But even this was primarily for our main commodities – primarily chemicals – within our core paper division only,” according to Tulisalo. 

With a corporate goal to cut €300 million from its supply bill, UPM last year transitioned to a new, center-led supply management organization. This new structure established global, cross-functional category management teams which have responsibility for all spend categories across all UPM businesses. The team executed five sourcing waves within the first 18 months. The new strategy also includes increased focus on global sourcing, leveraging low-cost regions, where possible, and buying supplies closer to end markets.

“We have a high initiative for low-cost-country sourcing,” said Tulisalo. “We established a [sourcing] center in Shanghai with local people that are pre-assessing suppliers, supporting e-sourcing events in China, and on-boarding suppliers in the region.”

UPM has enabled the visibility, process standardization, and control required for this center-led model by standardizing on a common technology platform for strategic sourcing, contract and compliance management, and supplier performance management (more on this last point in tomorrow’s post). Tulisalo’s team has ensured smooth technology rollout and adoption through a mix of corporate-supported mandates and the use of regional “centers of excellence (CoEs).”

“More than 200 of our buyers are trained and are active users of the [supply management] system,” said Tulisalo. These users are supported by a core team of well-trained super users that ensure process standardization and optimal results.

In an approach similar to that described here earlier by Barclays, UPM has segmented these strategic sourcing, category, and supplier management activities from the more tactical, procure-to-pay operations. Like Barclays, UPM will continue to leverage existing (and disparate) procurement systems inherent in the businesses for these transactional procure-to-pay activities, overlaying these systems with common processes.

Tulisalo said UPM is attempting to foster some level of procure-to-pay system “harmonization” by transitioning to a regional shared service center for its these operations. (A move that is often a precursor to outsourcing these operations.) This approach is also paying off in the form of more efficient, timely, and better managed cash flow.

“About 45% of all our invoices are in electronic form today,” said Tulisalo. “We will increase that to more than 80% of all invoices being handled electronically by 2008.”

UPM is well on its way to overhauling its supply management operations and delivering on its corporate cost savings goals. But, unlike many supply management transformation efforts (particularly those here in the U.S.), Tulisalo said UPM’s success will not rely solely on initial sourcing savings. Instead, the paper and wood products manufacturer expects long-term and sustainable supply cost savings to be generated from the more than 3,600 supplier improvement initiatives the company has queued up. Tomorrow we will investigate UPM’s supplier performance and improvement management program in more detail.

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