DC Velocity - IdeaBook 2017

I n Mid-2012, Peter Jeeninga, a product engineer at the Dutch electronics company Philips, sat down for an eight-week stretch with two dozen other engineers, designers, marketing representatives, and procurement managers to figure out how to disassemble and redesign the way the company makes juicers. There was nothing particularly wrong with the existing juicers; customers liked them, and the company’s kitchen appliances had a reputation for quality. But Philips, then Europe’s largest electronics company, was in the middle of a major restructuring, the latest stage in an ongoing battle to retain its leadership position in an era of global competition fueled by low-cost Asian challengers. As part of that initiative, Philips was taking a fresh look at virtually all of its products and processes.

A new chief executive (CEO), Frans van Houten, had
taken over the previous year, and he had already shifted
the company’s portfolio away from businesses where it
could no longer compete, spinning off its loss-making
television unit and ultimately its entire audiovisual divi-
sion. In addition to making strategic decisions about
which businesses to drop, Philips needed to squeeze
more value out of every product it made. Van Houten
had announced a multiyear transformation program,
called Accelerate!, that would save 1. 8 billion euros
by 2016. In addition, he had a new initiative he was
counting on to generate an additional 1 billion euros
in cumulative savings within three years. That initiative
had come out of Philips’ procurement department.

Philips had always relied on its procurement staff to drive production costs down by negotiating better prices from suppliers. But what they were embarking on now was something different. Van Houten worked with the advisory firm Russell Reynolds Associates to bring in a new chief procurement officer (CPO), Fredrick Spalcke, previously executive chief procurement officer

When Royal Philips implemented a new product design and procurement process, it also completely reconfigured its procurement organization. The author, who worked together with Philips executives Fredrick Spalcke and Ad Boon on the project, explains the initiative’s origins, challenges, and successes.