Supply Excellence — Tyco takes on a Purchasing “Sacred Cow”

Tyco takes on a Purchasing “Sacred Cow”

September 10th, 2008 · by Steffi Frawley · No Comments · Services Procurement, best practices, contract management, outsourcing, sourcing, supply management

The Economist recently highlighted Tyco’s fundamental shift from paying their outside legal council based on billable hours and towards a system where they pay a flat rate with a bonus for improving “satisfaction” and reducing litigation. On first read, that might not sound like a spend management success story…but it is.

In doing so, Tyco is not only re-writing traditional legal services business dealings, but including a supplier-performance-management component upfront to set expectations and align the supplier relationship with organizational objectives. So you have to hand it to Tyco for having the creativity, cooperation and chutzpa to take on legal spend - a purchasing “sacred cow” - and driving performance improvements AND cost savings in the process.

Purchasing departments routinely run up against such “sacred cows” - untouchable spend deemed too complicated, creative, confidential or mission critical to submit to the principals of spend management. Such spend is usually not managed or controlled by the purchasing department. Typically, the functional department, such as marketing or legal, keeps the spend out of the CPO’s reach. But as we all know, best in class organizations, like Tyco, cooperate at the C-level to drive cost down without compromising the supplier relationships. And with ever shrinking bargaining room on commodities and direct materials, the “sacred cows” provide some of the best viable opportunities for spend management.

Steffi Frawley is a Senior Consultant in Ariba’s Spend Management Services group.

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