DC Velocity - IdeaBook 2017

2017 dB

Reynolds Associates (RRA) to find the right candidates for these roles. He chose RRA because its global supply chain practice has experience assisting clients across all industries to find leaders who understand the challenges and complexities of operating end-to-end supply chains. The candidates RRA and Boon found for the new procurement executive team came partly from inside Philips and partly from outside the company.

AN ONGOING TRANSFORMATION JOURNEY

While Spalcke has largely won over erstwhile skeptics at
Philips, some elements of his procurement revolution
remain controversial. For example, one of his mantras is
that every organization inside and outside the company
should be treated as a supplier. In other words, he believes
it is beneficial to dissect every piece of the value chain and
have everyone, internally and externally, bid for each piece
of business. Each element of the design and production
process should be examined and many questions asked: Is
it a core Philips element? Or is an external supplier likely to
deliver more value over the lifecycle of the product? How
does the company minimize the total cost of ownership
through the lifecycle?

Some in the company worry that submitting every design
and production element to such rigorous strategic evalua-
tion may lead to outsourcing that compromises aesthetics.
“The consumer expects a certain touch and feel of the prod-
uct,” says Murali Sivaraman. “That’s what I’m sacrosanct
about.”
Spalcke says he understands these concerns. Focusing
ruthlessly on total cost of ownership through the lifecycle
and on maximizing customer value may lead to products
that are cheap and efficient but dilute the brand. Moreover,
allowing purely competitive concerns to decide which ele-
ments should be outsourced can lead the company to give
away too much control over technology and design, and to
hollow out its capabilities. Spalcke thinks the procurement
department can play the role of a neutral arbiter in the DfX
deliberations, because, unlike design or marketing, it has
no vested interest of its own in the shape of the product,

and, he points out, it is the CEO of each product category who always makes the final call. But more importantly, the DfX process gets every role and department collaborating with each other, hashing out the best trade-offs to maximize value.

The procurement transformation program continues, and van Houten, Royal Philips’ president and CEO, sees it—and the procurement organization—as critical factors in ensuring the company’s future. “At Philips, we are building a world-class procurement organization. One that engages early in the design process of our products, that involves suppliers early on, and ensures we take the right decisions to optimize outcomes for customers and improve procurement savings. A procurement organization that utilizes state-of-the art tools and processes to create more value and manage the supply chain better,” van Houten says. “I am proud of our procurement team; they embody what our transformation program Accelerate! stands for.” c

PIETER LIGTHART IS MANAGING DIRECTOR WITH RUSSELL REYNOLDS ASSOCIATES AND LEADS THE FIRM’S EMEA SUPPLY CHAIN PRACTICE.

Philips’ transition to a new procurement structure and to the use of Design for

X (DfX) as the standard model for product design has not happened without resistance. No organizational transformation ever does. Chief Procurement Officer Fredrick Spalcke outlines five key elements that made it work.

1. Setting up processes with clear roles and responsibilities. It is critical to outline clear roles, job descriptions, and reporting lines. Transformation starts with simplifying and clarifying the organizational structure.

2. Having an end-to-end, holistic approach for decision making. Strong communication and leadership between disparate segments of the team is required. At Philips, the DfX process leads up to a “convention” at which binding decisions are taken on every aspect of the product and its lifecycle.

3. Setting ambitious individual breakthrough targets. The organization needs to see that the objectives that have been set for it will require all of its brains and creativity to achieve. The targets need to go beyond incremental “squeezing” and improvement activities. Individuals need a clear line of sight between the organization’s targets and their personal targets. If they win, the company will win, and vice versa.

4. Hiring very good talent. For the organization to change, some of the people in it will have to change. The people you bring in need to have the right skill sets for the roles you’ve identified, and they need to be top performers in those roles.

5. Work to one goal to create a phenomenal “core spirit.” Both rational commitment to the organizational goals and emotional commitment to the vision need to be present and in proper balance, creating an ecosystem that supports and sustains change.