In the heavily regulated industry of agriculture treatment products, manufacturer Nufarm Ltd. is cultivating new electronic ways to control its international network of suppliers—while also saving millions of dollars by better managing spending by its own buyers.
Farmers worldwide use Nufarm’s agriculture protection and treatment products to grow healthy corn, soybeans,cereal and other crops, and the Melbourne, Australia-based manufacturer relies on a global network of suppliers to run its factories, distribution centers and offices.
But while spending more than a billion Australian dollars a year on supplies—including the chemicals that go into its crop treatment products and the “indirect” goods ranging from office supplies to professional services—it has had to deal with tough challenges in managing that procurement and ensuring the quality of its suppliers.
Now, a move toward a new web-based procurement system and related processes is changing things for the better, producing AU$10 million (US$7.4 million) in savings in the first year through more efficient and targeted purchasing, says David Bury, global strategic procurement manager. “These savings will pay for the procurement system multiple times,” he says.
Going forward, he adds, Nufarm expects the new procurement system, from SAP Ariba, to help the company’s plans to better manage organic growth—and nearly double annual sales of about 2.5 billion Australian dollars (US$1.8 billion) through its complex international operations.
Growing through acquisitions
Launched more than half a century ago in New Zealand, Nufarm has grown over the years through acquisition of many smaller companies. But while that strategy developed an international presence, it also resulted in a collection of disparate software systems that didn’t share information and made it more difficult to manage procurement across Nufarm’s far-flung operations, Bury says.
Its old procurement system ran on several instances of home-grown and commercial software dedicated to specific regions around the world, under the brand names SAP, JD Edwards and Oracle. Lacking an ability to share data, this collection of discrete software applications left Nufarm without a good centralized way to view and manage overall procurement operations, as teams of buyers within each region focused only on their local needs. “Some of our buyers were competing against each other for the same products, driving the price up,” Bury says.
Under another remnant policy, buyers too often paid invoices without matching purchase orders, making it difficult to reconcile stocks of purchased items. Following years of acquisitions, Nufarm operated with a number of procedures for procuring indirect products and recording transactions, Bury says. “There were different purchasing policies for different managers; the indirect procurement space was never seen as a real focus for the company,” he says.
Restructuring for organic growth in sales
Bury joined Nufarm in 2015 as its new global strategic procurement manager, arriving at a time when the company was restructuring its management team to grow more organically instead of by acquiring smaller companies as it had in the past. With annual revenue now at about AU$2.5 billion, Nufarm has set a goal of reaching AU$4.5 billion (US$3.3 billion) within a few years.
From where Bury sits, that will require a more effective and efficient way of managing how the company sources suppliers, sets up purchasing contracts and manages the actual purchasing done by its own team of dozens of buyers, he says.
In June 2017, Nufarm launched a new two-part internet-based sourcing and procurement system from SAP Ariba—a Source to Contract application for managing the on-boarding of new suppliers and setting up procurement contracts, for both direct and indirect products; and a Procure-to-Pay application for managing how Nufarm’s buyers and procurement managers conduct purchasing transactions. SAP Ariba is a unit of business software company SAP SE.
While providing Nufarm more control of contracts and spending, the new system also lets Bury and his procurement management team shift to less restrictive spend management procedures when it suits the needs of both the company and its individual buyers, he says.
“It gives you a lot more visibility and control of the system, but it also allows you to get out of the way,” Bury says. “We’re here to serve the business—not get in the way of business.”
The new sourcing and procurement set-up is designed to work in multiple stages from initiating and managing contracts with suppliers, to providing buyers with tools to complete purchase transactions for items under contract or outside of contracts but from approved suppliers.
Better buyers save $10 million—so far
Among the initial benefits of the system has been a decline in what Bury calls “addressable” spending on indirect goods, or costs that can be recouped through “better buying” practices and more targeted purchases of what Nufarm needs. Figuring its addressable spending at $150 million per year, Bury made the business case for investing in the procurement system by planning on an initial reduction of that by about 13%, or $20 million. After a year, it’s halfway there. “We’ve realized about $10 million of that now,” he says.
Buyers use the system to procure supplies and materials under contracted pricing terms from approved suppliers; they also can make “spot buys” of uncommon items from approved supplier catalogs with negotiated discount pricing. For unusual “long-tail” items not found in an approved catalog, buyers are free order to order from other suppliers.
The procurement system includes spending authorization workflows, which route pending high-value purchases to managers and executives authorized to approve particular transaction values. “We minimized maverick spending,” Bury says.
The procurement system also requires invoices to have matching purchase orders, except for some things like government tax bills. But for most payments, “now we have a no-purchase-order, no-pay policy,” Bury says. As a result, Nufarm has realized in the past year an 80% reduction in the number of invoices its procurement department has processed without matching purchase orders.
Sourcing ‘sustainable’ suppliers
While the improved procurement operations produce near-term financial benefits, Bury says he’s also looking to longer-term benefits of working with a more “sustainable” supply chain. As Nufarm gets more of its thousands of suppliers connected to its Ariba applications for setting up contracts and managing procurement, it’s “investing in relationships” with them, he says, sharing among them and its buyers extensive information on such matters as orders, payments and shipping status.
“It gives us the ability to move above the transaction activity and take a more collaborative approach with suppliers,” he says. “It helps lift the discussions from daily operations to be more strategic.”
Part of the collaboration arises through the ability of Nufarm and its suppliers to view the same invoices, payment notices and business documents and transaction data online. “We’re dealing with one set of data,” Bury says. “In a meeting, we’re not asking if your data is right or my data is right. We can focus instead on how to improve our relationship, such as learning about what new chemicals are available.”
Nufarm is also learning the benefits of sharing more wide-ranging information among the companies throughout its supply chain. Many of them are in the far reaches of China, where the Chinese government has been working to improve manufacturing processes and quality standards, Bury says. By compiling data on the performance of these companies, including delivery times and product quality, Nufarm is able to not only choose among the best performers for its own purchasing, but also advise its suppliers on choosing their own suppliers.
Nufarm also uses its supply chain network to share information ranging from international laws against slavery to compliance with environmental regulations and standards of employee wellness and workplace safety, Bury says. As Nufarm does more business internationally in markets including China and India, sharing such information helps to build a reliable network of suppliers, he adds.
“The overall change in our processes is not just in transactional activity, but a more sustainable supply chain,” Bury says.
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