Babcock International Group (BIG) is a £3bn turnover FTSE 250 company with an order book around £12bn. In 2010 Babcock acquired Vosper Thorneycroft and introduced a number of integration initiatives. One of these is the Group Procurement Synergy Programme (PSP) to drive efficiencies out through the introduction of Category Management Procurement across BIG. The Programme lead left in February 2012 and Sue Thompson was selected to lead the Programme on an interim basis.
“It has been very challenging but I am enjoying being back in the Engineering environment where I started my career with British Aerospace.
I have 6 teams to manage covering a wide range of categories from HR to Engineering. Adrian Cook has now joined the company from Tarmac as Group Head of Procurement and I am also supporting him in the transition to full Group led Category Procurement.”
The following article appeared in the May edition of Supply Management – the monthly publication of the Chartered Institute of Purchasing and Supply.
With major acquisitions leading to rapid growth, Babcock International Group has seen its procurement team undergo a transformation to deal with the changes. Paul Snell talks to Tim Clay, procurement director of the Marine and Technology division, about the challenges.
Babcock International Group may have started as a boiler manufacturer in 1891, but today the company operates services as varied as the refitting of warships and submarines and nuclear decommissioning to baggage handling systems at airports.
Employing more than 27,000 staff, it is separated into four divisions: marine and technology (M&T); defence and security; support services; and international. It has grown rapidly over the past decade, making a series of major acquisitions that saw its turnover rise from £424 million in 2003 to £2.9 billion in 2011.
The challenge for procurement has been to harness this additional size and scale and take advantage. As a result, procurement has undergone a transformation process to help it meet the goals of the business.
And the results have been impressive. When the company acquired VT Group for £1.3 billion in 2010, the chief executive promised £50 million in cost synergies as a result. “At the moment, we are looking at contributing about 25 per cent of that £50 million, which is way more than they originally anticipated and I think there is still more there as well,” says Tim Clay, procurement director of the M&T division, who has also had responsibility for some of the cross-group work.
Procurement in M&T spends around £420 million a year with suppliers and Clay heads a team of 192 procurement people, including staff seconded from other divisions currently working on group projects.
When asked about the key challenges of the transformation, Clay cites people development as the biggest and one of the most important. “We have to have the right skilled, motivated people in the right places to be able to do the tasks we want them to do,” he says.
He says procurement staff at Babcock act as “change agents”, responsible for coming up with ideas to create new opportunities in the business. “We are looking for people who can come up with breakthrough thinking, really thorough category management jobs that highlight the opportunities and can also manage those opportunities to fruition.”
This has meant changes to the role of a buyer, evolving from basic transactional contract and order placers into a more strategic position. And Clay points out there is much more of a focus on continuous improvement, supplier development and performance management.
He says turning a buyer into a “change agent” is about showing the business “the art of possible” and advertising where procurement can make a difference – and this should be ongoing. “We have a governance process in place where we review progress on all these projects so we can comment on the part we are doing and test whether we have been questioning enough about the way that we do things.”
To boost staff skills, the company implemented the CIPS Corporate Award Programme, a tailored training scheme that enables employees to achieve MCIPS status (CIPS News, April). There has also been investment in other training such as category management and negotiation skills to help buyers perform this more strategic role. All staff are also given a personal development plan.
In addition to this, a recruitment programme is underway to establish a permanent team to continue the successful group-wide work done by seconded staff, interims and consultants. Babcock is looking to hire a total of 15 category leads, category sourcing specialists and category analysts, a further four roles at group level and a head of procurement position. And former Tarmac supply chain director Adrian Cook recently joined the business as group head of procurement.
Clay highlights the development of category management as one of the team’s successes. Babcock implemented category management a number of years ago, running opportunity analysis to determine where the biggest returns would be, with the help of consultants.
“We broke all our spend down into market-facing categories and we then looked at them and said: ‘Right, what do we think we can make out of this based on the contracts that we have? How well do we think we are buying at the moment? How fragmented is our buying? How fragmented is the supply base?
Taking all those things into account, we made an estimate of what we thought we could save from it. Basically, that gives you what is the biggest return for your buck and what is the easiest to implement as well.”
With the multiple acquisitions the business has made, category management has been important to maximise value from the organisation’s total spend. “It does give us a lot more leverage, as more and more spend comes into the pot. I think as well, though, having bigger spend categories gives you probably more opportunities to take an even more ‘out of the box’ view on what you do and the opportunities are bigger as well, which gives you more leverage with internal stakeholders to get their buy-in to doing something different.”
And this also means regular updates to the spend profile, analysis and reviews of the categories.
“You get to the stage where you are doing implementation, then continuous improvement and then in three or four years, you are going to need a full review again because things change. Our needs change – not only specifications, but maybe the timescales that we want things. And the market changes as well – we know that three or four years can make a massive difference.”
Around 38 staff work in the category management team in the M&T purchasing function, in addition to those working on group projects. Clay says the M&T team has tended to concentrate on four to five categories at a time, with staff working on group projects handling more. “They have probably been working on 12 to 15 at a time because they have had pressure on them to bring synergies in a certain timescale and so we put the resource in there to allow them to be able to do that sort of work, to really blitz subjects,” he explains.
As those seconded to this work return to the business, the aim is to make the group work become “business as usual”. M&T will take the lead on HR, indirects, general engineering and plant hire, in part due to the scale and expertise already available in the division.
Procurement has also taken the lead in applying total cost of ownership (TCO) analysis to other areas of cost. The process has involved establishing a cross-functional team to identify all the costs in a particular area, estates for example. That team works to identify where costs could be taken out of the business in a strategic, inclusive manner. Savings of around 10 to 20 per cent are typical for this sort of project.
Clay uses the work done on tools as evidence of the success. In addition to the £1.5 million the group was spending on outside suppliers of tools, there were three big cost areas in terms of time – dealing with defective tools, because they weren’t the right quality, trying to find tools in the stores and having to switch jobs because the right tools weren’t available. This added an extra estimated £7.5 million. The TCO work in this area has allowed the company to cut the number of items classified as handtools from 42,000 to between 2,000 to 3,000.
The catalyst was a couple of managing directors interested in working collaboratively and procurement was able to drive a successful joint project, which has led to further interest.
This additional work is welcome to those in procurement. “When you look at the sort of returns we get for the investment we have put in, it is well worth doing.” And Clay believes 70 per cent of procurement’s savings next year will come from these projects.
The support procurement receives from the company’s senior leadership has been a key factor in its recent success. This includes Jon Hall, managing director of the technology part of the division, taking the role as “voice of the supply chain” on the board.
“You have to have execs buy-in to what you are doing. Having some allies has helped us and we have had some successes that have sold what procurement can do as well,” says Clay.
But it is procurement’s role in delivering the synergies expected from the acquisition of VT Group that has really raised the profile – and expectations. “[Procurement] was never really on [the executive committee’s] radar in the past, but it is now,” he says. “They get a brief at least every two months on exactly where we are with the procurement project.”
Clay highlights the group work on travel as an example where progress would have been slower without executive support. Spending around £12 million on travel a year, there is a now a single travel management company and a single travel policy across the whole group that has delivered savings of around £1 million.
“We would have struggled to get things like travel policies implemented right across the group,” he says.
Clay says much of his time is spent ensuring the business unit managing directors know what procurement is up to and the benefits they are delivering. His advice for selling the value of procurement to senior execs is straightforward.
“It is no good just talking procurement language, just keeping a ‘silo mentality’. You have to think about how we can contribute to their business and talk about that in their terms.”
Looking to the future, Clay is keen to exploit the opportunities he believes are available. Integrated business planning is one such area, understanding the needs of the business, clients and contractors in advance to develop a supply chain that can become more efficient.
“Integrated business planning is not one of procurement’s main objectives at the moment, but it is an objective that as a business if we can get that in then we can make procurement a hell of a lot more effective,” he says.
A number of projects are underway to help the business units understand this approach. “It is not alien to them, but it doesn’t come naturally to do these sort of plans because they just haven’t had to do them in the past in that sort of detail, whereas in future they will need to.”
And this is not simply about savings, but also generating revenue.
“That is where I see not only supply chain, but procurement helping out hugely in future because we can help the technology business expand its revenues massively while maintaining margins.”
Hunting a goliath
Heavy lifting is involved when shipbuilding – time to call in the world’s tallest crane
Building an aircraft carrier is a big job and to do it you need a big crane. The Goliath is the tallest crane in Britain – 68 metres high with a span of 120 metres and a lifting capacity of 1,000 tonnes.
Babcock is one of the partners of the Aircraft Carrier Alliance, which is producing the UK’s two new aircraft carriers, the HMS Queen Elizabeth and HMS Prince of Wales, which are being assembled at Babcock’s shipyard in Rosyth in Scotland.
The business selected Shanghai Zenhua Port Machinery Company (ZPMC) for the crane contract in October 2008, on the basis of best value.
This involved joint visits by Babcock, ZPMC and Lloyd’s Register to steel mills in China, with three mills selected to provide the material. US standards – the same for bridges – were applied to ensure quality.
Once the parts had been constructed, the crane took a 14,000-mile, three-month journey by boat, squeezing under the Forth road and rail bridges and arriving in Rosyth in March 2011.