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Some suppliers were initially sceptical of this process, but Philip Morris invested in time and worked closely with them to identify a fair and mutually acceptable agreement that ensures sustainability and reflects current business conditions. These projects have resulted in significant cost savings and have also freed up budget to be used by the company’s departments. These initiatives were replicated in 2011 across all business areas from marketing and sales contracts to research and logistics agreements. 3. Customer Service To reduce administrative work and to move towards a more strategic procurement process, the procurement function commenced a programme to put in place contracts with suppliers, and establish qualified suppliers for each purchasing category. The focus was the top spend categories, covering more than 50% of the overall third-party spend. Procurement has managed to get involved at the early stages of these projects, achieving increased efficiencies and effectiveness for the respective departments and helping category sourcing plans to be aligned with their objectives. To further increase the service it provides to internal customers, the procurement function launched an internal customer survey at the beginning of 2011 in order to understand how it was perceived within the company. The outcome of this 20-question online survey highlighted a number of areas for improvement and has resulted in enhanced category knowledge and expertise, closer collaboration with internal departments and a more proactive mindset within the procurement team. Aggeliki Davou said that “the outcome of the survey was very useful because it helped us to better understand what areas we have to improve in relation to the expectations of our internal customers”. 4. Risk Management “The biggest challenge is that my crystal ball is worthless,” notes Aggeliki Davou, by way of introducing the fourth pillar of the company’s procurement strategy. The current economic situation has increased Philip Morris’s exposure to supply chain risks and so the team has undertaken a number of steps in order to identify the most critical suppliers and to ensure business continuity. Working jointly with the finance department, the procurement team has stepped its monitoring of critical suppliers in order to spot potential risks and be able to act in a timely way and prevent disruptions to the supply of products or services. In parallel, back-up suppliers have been identified to ensure smooth business operations in case of any disruptive event.
The procurement department at Philip Morris International, which sits within operations, is responsible for the procurement of direct materials (e.g. non-tobacco materials, the leaf required for the production of cigarettes) and indirect products and services ranging from marketing materials and spare parts to consulting services. The role of procurement has fundamentally changed, says Aggeliki Davou, and this reflects the way the company currently operates. “In this volatile environment, procurement’s role is critical and far removed from an administrative and passive mindset. Today, we have to react fast to the new challenges, address strategic business requirements and have a broader role within the organisation by becoming a value-added partner beyond the familiar and the expected”, she explains. Additionally, procurement can support revenue growth and broaden the spectrum of people engaged in it (since they get knowledge and expertise from all the functions of the organisation). The strategy of the procurement function consists of four pillars: 1. Innovation Philip Morris has recognised the fact that added value and results will come through innovation. The procurement function of Philip Morris is playing a vital role in spurring innovation and to this end it has engaged suppliers in a joined-up effort. Procurement has sent its key partners an open invitation to contribute innovative, fresh ideas in a number of key areas such as marketing and sales materials, consumer engagement mechanisms, and cost optimisation solutions. The objective of this initiative was to provide suppliers with a new channel for communication (beyond the standard processes and procedures) and encourage them to come up with new interesting concepts that could bring fruitful results for both parties. The innovative ideas were then shared with the relevant internal customers and further actions were taken as appropriate. By facilitating this process, procurement managed to increase the degree of collaboration with both suppliers and internal stakeholders, and delivered added value to the organisation. 2. Cost Optimisation The economic crisis has affected consumers’ income and, in turn, their buying behaviours. Because “the party’s over”, as Aggeliki Davou puts it, the supply chain has had to respond to the market situation. Procurement reviewed existing procedures and commercial models and re-evaluated and renegotiated some contractual agreements with suppliers to reflect the current economic environment. The procurement team adopted a win-win approach to ensure that contract negotiations would lead to an optimum result for both parties without any compromises in the quality of the delivered products or services.
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