On the right track

Supply management changes are playing an integral part in transforming the fortunes of Transnet. The South African transport giant has pledged to save R1.6 billion (?120 million) from its supply chain function by the end of 2009.

The project is part of what Maria Ramos, chief executive officer,

But what was her starting point? Transact consists of six main companies covering the rail, port and pipes sector. Rogue spending was a huge problem and an overhaul of the supply management function was essential if the company was to cement its place as an example of top-level procurement in Africa and to build a stronger, more efficient business.

Company focus shifted from procurement and logistics towards a strategic supply management approach and the new supply chain function was launched in October 2005 under the direction of Karen van Yuuren, general manager- group supply management. It aims to turn around the business by generating cost savings and efficiency through strategic sourcing, improved compliance and developing sustainable relationships with suppliers.

"In the past employees tended to do their own buying and often would only contact purchasing to process the purchase order. This had a big effect on compliance," says van Yiuiren. "Of a total spend of RS billion (?620 million), R6 billion (?420 million) was non-compliant, non-controllable spend which was a big problem. However, things are changing."

While proposing to centralise a function previously carried out by individual departments can cause resentment, she insists this was not the case at Transnet.

"We developed the strategy as a team during a three-day workshop last October," she says. "About 55 supply management staff attended, including core operating division chief procurement officers. We jointly decided to work together to implement one approach across all six core businesses."

Establishing processes

What emerged from these discussions was a three-year performance framework designed to establish world-class processes through educating people, developing a rigorous structure, updating reliable and integrated systems and upholding social responsibility.

And how will it be delivered? Targets are ambitious and include a reduction in process cycle times by 20 per cent and customer service level agreements (SLA) will be in place by September 2006. Systems targets include 85 per cent automation of all appropriate processes and achieving 100 per cent data integrity. Organisational concerns include achieving 80 per cent customer satisfaction and exceeding all regulatory preferential procurement spend targets by 10 percent.

The plan is moving forward in "waves" with wave one making savings in areas such as fuel, stationery, security, wheels and sleepers. Wave two covers travel, training, conferences, tyres and scrap metal. The plan has progressed as tar as wave three, but there are five waves in total stretching as far as February 2007. There is a final "post wave five" which continues after this point. Success is measured using so-called degrees of attainment (DOA). Achieving a DOA level of one means that an idea or process is in development while a DOA six is something that has been financially realised on the company's bottom line.

While savings have been identified, van Vuuren knows sustainahle savings cannot be made without everybody signing up.

"Of course you will always save money by putting good deals in place but if you don't do the old-fashioned stuff like compliance then you are wasting the money you are saving.

"We were losing a lot of money to noncompliance - and we knew we had to tighten up our processes and controls."

As a result, compliance Project Shape Up aims to improve the procurement-to-pay process. Spoornet, Transnets rail freight business and the largest rail operator in the region, has been chosen as the pilot of the project. The measures include taking Hill advantage of SAP functionality and achieving a balance between automated and manual activities, as well as achieving or identifying an optimal balance between centralised and decentralised functions.

The project has revealed several challenges, says van Vuuren: "For instance while a SAP system is used throughout Transnet we realised that it was being used in many different ways by different departments. We had to standardise the system to put the right processes in place. Ue now have one standard SAP system to operate across the six core businesses which upholds best practice procedure."

Another example illustrating the difficulty of achieving compliance is the move towards implementing a single catalogue across the businesses.

"It can be very difficult to find things initially as everyone calls them by different names." she says. "To one person they are buying pens, others call them Biros and others ball points. This demonstrates the need tor a standardised system."

Further opportunities

The company is well on its way to developing the kinds of processes that will help it to become a strong competitive organisation. However, the journey has highlighted some learning opportunities.

"We've done a great job at identifying where savings can be made," says van Vuuren. In wave one we targeted savings of R436 million (?34 million) initially but that has since risen to R831 million (?65 million). However, when we moved towards DOA 5, which is the implementation phase, we were lagging as I'm not sure how much understanding there was of the implementation process."

As a result the team went back to the initial plan and added an "embedding wave". This is designed to help everyone get up to speed with the requirements of implementation.

People first

Building strong relationships is integral to Transnet's success and the next step is to develop lasting relationships with important suppliers.

"We need to engage with our supply base and try to understand them," van Vuuren says. "The major capital investment in South Africa is straining the supplier base so we need to work on becoming their customer of choice."

Another aspect close to van Vuuren's heart is having well-trained people to push these initiatives through.

"We cannot change how we do business without developing peoples skills," she says. It's key to our success - it everyone acts inconsistently then we won't get anywhere."

In addition to providing 12 days of training a year, staff are also encouraged to join professional associations such as CIPS and IPSA.

"This is critical in enabling us to get to where we want to go," she says. "The professionalisation of supply chain staff is very important and we can only be successful if we bring the whole team along on the journey. We held our first team-building event for supply chain staff recently and there was so much energy. If we can harness that, then supply chain can make a real difference to where Transnet is going."

'We developed the strategy as a team during a three-day workshop. We join decided to work together to implement one approach across all six core businesses'

Karen van Vuuren (left)