Caltex
Caltex is on a journey to become more efficient and able to adapt to changing market conditions. It is using
SRM to deliver value from untapped areas traditional procurement techniques cannot access.
Baker Hughes, GE’s industrial services company, already had what most suppliers want: a contract, in this case with Australian fuel and service station company Caltex. But Caltex wanted to give something extra. Baker Hughes received Caltex’s ‘Trailblaze Award’, which recognises supplier innovation, for an initiative with Caltex’s team at the Lytton refinery, near Brisbane, to improve the plant processes and output.
The supplier contributed to real business improvement. But it was not the only supplier the Caltex leadership team recognised at the special ceremony during the Caltex Supplier Forum in Sydney. The food processing company Parmalat took home the ‘Serve Award’ for the highly successful Caltexexclusive launch of Frozen Oak, a chocolate milk drink. Energy services firm Wood Group accepted the ‘Win Award’ for establishing and growing a partnership arrangement with Caltex, also at the Lytton refinery.
The awards were part of more than two years’ work to improve value in the relationships between Caltex and relevant suppliers, says Chief Procurement Officer Johanne Rossi. “At Caltex, we’re on a journey to become more efficient and able to adapt to changing market conditions. We’ve always had very ambitious targets. Procurement has long been focused on delivering cost savings as part of its contribution to these targets. However, it has proved difficult to maintain high saving levels year on year. We started looking for new ways to deliver sustained value and decided to partner with our very best suppliers,” she says.
“Our objective was to strengthen our relationship with them, be more transparent about our vision, our objectives, our plans and demonstrate how we can work together to unlock more value.”
Becoming the customer of choice for suppliers
Caltex’s procurement vision is to become the customer of choice of its suppliers. Although suppliers have other valued customers in a worldwide market place, the Australian firm competes for suppliers’ focus with a two pronged strategy, Rossi says.
Firstly, it is becoming easier and more convenient to do business with. Caltex has committed to reducing administrative tasks and simplifying its operational processes. For example, it is making procurement processes more efficient, stripping out tasks that do not add value for both parties.
The second element of its strategy is the launch of Catalyst, its supplier relationship management programme. “The Catalyst programme aims to create more transparent and closer relationships with important suppliers to deliver value from untapped areas that traditional procurement can’t access,” Rossi says.
Caltex launched the new procurement vision and the
SRM programme at its first supplier forum. The programme is designed to create mutual value for suppliers and Caltex. From the procurement team’s perspective, it is not about managing suppliers’ performance and squeezing margins. From the suppliers’ side, it is not about more sales pitches during meetings or selling products or services at noncompetitive prices. “Suppliers who do not align with this purpose will be removed from the programme,” Rossi says.
“We want to be in a situation where we know the market well, from talking to suppliers,
being more curious and more externally focused. We also understand pricing through cost modelling and we choose our supply partners well, so tendering activities are reduced if not removed,” she says.
Engaging the entire business starting from the top
Caltex’s new procurement vision represents a significant change and requires leadership
sponsorship. To demonstrate this level of commitment, both internally and to suppliers, it launched the supplier executive event, a quarterly gathering of top executives from its 15 key suppliers and the Caltex leadership team, which may include a site visit or a roundtable discussion, followed by drinks and dinner.
“These events allowed the senior members of our organisations to create relationships that help the businesses get closer and showcase to the rest of our organisation the commitment of our executives to the
SRM programme,” Rossi says.
Building supporting process and tools gradually
Caltex has also built processes and tools to support
SRM. It started small, with 15 key suppliers and has built its processes incrementally as the
SRM programme was accepted by the business and its suppliers.
It employed a supplier segmentation methodology, an SRM charter and a supplier relationship strategy. In terms of technology, it used The Hatchery – Caltex’s online ideas and collaboration workspace – to ask suppliers how it could “make supplier forum the most anticipated event of the year”. This was a test of Caltex’s understanding of how to use a collaboration platform.
The programme has already resulted in some quick wins. Working with a retail logistics supplier, Caltex examined both parties’ value chains to find activities that could be combined across some of the supplier’s customers. The result was a reduction in the supplier’s overall operating costs, a benefit that was shared with Caltex.
“Working together with key suppliers has created value for Caltex. This is real. It’s incredibly rewarding to see how the programme we launched, has moved from idea to reality. We now have evidence that working together creates more mutual value than going it alone,” Rossi says.
The programme will also help the company manage its progress through long-term macro-trends, she says. “The world is changing. People are talking about the fourth industrial revolution, autonomous and electric vehicles are on the rise, and the sharing economy is growing. We are looking at what these changes mean for us at Caltex and we are making some significant changes as a result. We want to tell our suppliers about where we’re going and what we’re looking for from them along the way,” she says.
Driving Innovation through collaboration
The suppliers able to contribute to Caltex’s progress through these challenges will see a shift from adversarial supplier relationships focused on price, towards a collaborative approach to help the businesses innovate at a faster rate.
Rossi says: “As we shift our mindset beyond cost reduction, we need to formalise the process of how to create value and innovate together. For this, we’ve developed strategies to guide relationships with our key suppliers for generating innovation and creating competitive edge.”
As such, the management and processes of
SRM need to be embedded within both procurement and the wider organisation as a normal part of daily practice. For Caltex, SRM is not an exercise in reaching procurement objectives; it is a means by which it achieves business goals.