Procurement management and indirect spend can have a profound impact on an organization's ability to save money and be agile. Jorge Torres Perez, Chief Procurement Officer at Coca-Cola FEMSA, the largest Coca Cola bottling company in the world, shares his procurement and purchasing transformation story.

As the CPO of a $13 billion business with 48 manufacturing facilities and almost 300 distribution centers, Jorge needed to find a way to centralize communications between buyers, sellers, and manufacturers. With so many workers in so many different regions, procurement was done in a reactive, ad hoc way that was too “slow” and “bureaucratic,” according to Jorge.

Watch this video learn about the manner in which Jorge and his team leveraged SAP Ariba to enable end users to be more proactive during the buying and selling process. Find out how Coca-Cola FEMSA undertook a massive operation spanning multiple countries, both from a technological perspective, as well as from a leadership and change management standpoint. Jorge offers advice to executives in similar positions about how to initiate complex change, when to move forward with subsequent initiatives, and how to handle inevitable complications.

Transcript

Jorge Torres Perez: Coca-Cola FEMSA is the largest Coca-Cola bottler in the world. We operate in ten countries in Latin America, going from Mexico to Argentina. I've been the CPO, the Chief Procurement Officer, for five years now. I used to be in finance.

It's been an exciting time in these five years. We have undergone a very huge transformation in procurement.

What is Procurement Volume at Coca-Cola FEMSA?

Jorge Torres Perez: We are an organization of $13 billion, and we have under control, under expense, $4 billion. In this case, we're handling direct materials on a strategic procurement basis, but we couldn't get the indirect on scope because we didn't have the tools necessary to do it. This is where we embark into establishing a new business model to tackle the indirect spend.

This is what we have done in the last few years. It took us a couple of years to design the model, to gather the need specifically because it was a huge movement in all the countries where we operate. Finally, we're on the implementation. We haven't finished, but we have very good progress.

Michael Krigsman: What's the relationship between the technology as the enabler and all of these process changes, culture, and even business model changes?

Well, the thing is this. When we embark into this, what we had in mind is to tackle the indirect spend and how we were organized in this fragmented organization. The aim that we had, it was a business model that we needed to change. In order for us to change that business model, we needed a tool, an enabler that will get our centralized negotiations and get it down exactly to the end user. This is where we use Ariba. It was part of a bigger system, a bigger change in our business model.

Michael Krigsman: If we have a hierarchy, it starts with the business model at the top and then what flows down from that.

Correct; completely correct.

What are the Challenges Associated with Transformation in Procurement Management?

Well, let me put it in this perspective. We have 48 manufacturing facilities in a little bit less than 300 distribution centers. We had buyers everywhere and, when you work in one of our facilities, when one engineer needed something, he approached one buyer, a person, a physical person. He would explain what he wanted. Then the buyer just went ahead and did the purchasing by himself, making the scouting in the market, looking for the product, and finally getting it into our SAP system.

This process was very slow, very bureaucratic. It took a lot of time for our people to cover all these expenses and it had a huge procurement organization was what I can call a reactive basis. We went into a proactive model in which what we wanted to have is the end user didn't need to approach anybody. We collect all the buyers and centralize the operation in the countries and then in corporate.

With this centralized organization, what we did is that the buyers, now they have time to devote to make the strategic procurement of the indirect. They were supposed to be doing it, but they couldn't do it because they spent a lot of time speaking with our internal customers, chasing POs, chasing shipments with suppliers, so it was very difficult for them.

What happened is that now, when the buyers have time, they can establish better negotiations with a strategic approach. They put it into catalogs. Then our end user was able, in the Ariba platform, to find what they need, put in the request, and it went to his approval, the supervisor or director that they had. Once it was approved, it was all the way gone to the vendor.

The interaction with the vendor, they no longer needed to approach the buyer to see where their shipment was because they could see it directly in the system when the shipment was going to be done, when it was ready and, if it was an import, what's on the customs and when it was in the plant. The interaction, the user experience, it was much greater. The people are so happy now because they have control over whatever they are expending and they know exactly where the goods are.

Our buyers are more focused into the negotiation. They can do it better and are capturing a lot of savings.

Michael Krigsman: I can see the enormous change because you went from a very labor intensive system where the procurement person was chasing down every possible permutation of buying and now it's self-service. This type of change involves both technology, as well as process and even a cultural shift.

Correct. Correct. We didn't really get rid of the people. We only reorganized. We put them on a centralized basis. It's exactly the same people, but now they have a lot of time that they can focus on the strategic negotiations, go and have very fruitful negotiations with the vendors, go and chase new vendors, in some cases, that they couldn't attack. It was great for them.

Along those lines, we also established the budget control on the line items that we wanted to focus the most. Our management is also very pleased because, in the past, whenever they approved something, they didn't know exactly how much of their budget was consumed already. Now, with this Ariba solution, they know exactly, before they are approving, how much of their budget is going to be spent. That's great for them too.

Michael Krigsman: It's good for employees. It's good for management. What's the impact on the suppliers?

Jorge Torres Perez: In a lot of cases, they didn't know exactly how much volume they were going to get, how much of the piece of the pie they were getting. Now that we have a strategic approach and that the buyer can be able to see, more or less, how much they are going to be spending, we can establish long-term negotiations, and we can establish a better approach with the suppliers because also they get a lot of synergies.

Once we are able to accumulate all the volume from the different pieces, then we are able to gather bigger negotiations with them. For them, it's better because they have a long-term perspective with an accumulation of volume, so they are able to give us better pricing.

How did you Manage Implementation of this Large Transformation Project?

Correct. Well, that's why I told you at the beginning that we were still in the middle. Let me tell you where we are. We started this implementation in Columbia. It was a little bit more than a year ago when we went live. Then we moved into Mexico, which is our largest market. Then, from Mexico, we went and did all the countries in Latin America: Nicaragua, Costa Rica, Panama, and Guatemala. This is where we're at with the system in place.

Now, we are implementing in Brazil. We hope to finish by July of this year. Then, towards year end, we are going to do Argentina and Uruguay. Lastly, Venezuela; we might do it next year. It all depends on the country situation.

Michael Krigsman: How do you think about the transformation aspects since it involves technology; it involves changing processes; it even involves changing the culture, both on the part of your internal employees as well as on the part of your vendors?

Let me tell you; we did some mistakes at the beginning. The problem is that we didn't realize the size of the change that it was. At the beginning, we just went ahead and did it, but we learned that we needed a mindset change, so we established a communication program through all the stakeholders, the end users, the buyers -- the buyers, by themselves, they knew, but they didn't realize all of the change -- the suppliers, and the management by itself.

Once we established this communication program, things were starting to flow correctly. We learned a lot in the first implementation. Out of that, the second implementation was better and the third one was better. I think the fourth one is going to be even better.

It was not only the communication but, also, we needed to react to their concerns. In some cases, they had some valid points because they needed to do it in waves and not do it just one time. We started with small pieces, learning. Then once it was firm and consolidated, then we could move to the second phase, the third phase, the fourth phase, and then we're finished.

What Advice Do You Have for Running a Procurement Transformation Project?

Well, first of all, you need to establish a plan, a strategic plan, with a purpose, with intent, what you're looking for. It's not easy. You need to review exactly your model; what is your current model and what's the model that you want to end up with? You need to keep that in mind because, if you don't have the purpose very clearly and the objectives that you're looking for, you can get lost.

Let me tell you. To us, the Ariba solution, it was the enabler of our strategy. We didn't take all the suite completely. We took what we needed out of the suite. The solution, it's huge. It has a lot of options, so we took only the pieces that we needed for our strategy.

Michael Krigsman: A narrow or, let's say more accurately, a precise focus at the outset is the key to having the right outcome as you go through the project and, ultimately, complete the project.

Correct; completely correct.

Michael Krigsman: The business model was the driver. The technology was the enabler. The execution steps were around culture change and process change.

Correct. You had it correct.

Michael Krigsman: Great. Jorge, thank you so much.

You're welcome. Thank you for inviting me.

Jorge Torres Perez: Coca-Cola FEMSA is the largest Coca-Cola bottler in the world. We operate in ten countries in Latin America, going from Mexico to Argentina. I've been the CPO, the Chief Procurement Officer, for five years now. I used to be in finance.

It's been an exciting time in these five years. We have undergone a very huge transformation in procurement.

What is Procurement Volume at Coca-Cola FEMSA?

Jorge Torres Perez: We are an organization of $13 billion, and we have under control, under expense, $4 billion. In this case, we're handling direct materials on a strategic procurement basis, but we couldn't get the indirect on scope because we didn't have the tools necessary to do it. This is where we embark into establishing a new business model to tackle the indirect spend.

This is what we have done in the last few years. It took us a couple of years to design the model, to gather the need specifically because it was a huge movement in all the countries where we operate. Finally, we're on the implementation. We haven't finished, but we have very good progress.

Michael Krigsman: What's the relationship between the technology as the enabler and all of these process changes, culture, and even business model changes?

Well, the thing is this. When we embark into this, what we had in mind is to tackle the indirect spend and how we were organized in this fragmented organization. The aim that we had, it was a business model that we needed to change. In order for us to change that business model, we needed a tool, an enabler that will get our centralized negotiations and get it down exactly to the end user. This is where we use Ariba. It was part of a bigger system, a bigger change in our business model.

Michael Krigsman: If we have a hierarchy, it starts with the business model at the top and then what flows down from that.

Correct; completely correct.

What are the Challenges Associated with Transformation in Procurement Management?

Well, let me put it in this perspective. We have 48 manufacturing facilities in a little bit less than 300 distribution centers. We had buyers everywhere and, when you work in one of our facilities, when one engineer needed something, he approached one buyer, a person, a physical person. He would explain what he wanted. Then the buyer just went ahead and did the purchasing by himself, making the scouting in the market, looking for the product, and finally getting it into our SAP system.

This process was very slow, very bureaucratic. It took a lot of time for our people to cover all these expenses and it had a huge procurement organization was what I can call a reactive basis. We went into a proactive model in which what we wanted to have is the end user didn't need to approach anybody. We collect all the buyers and centralize the operation in the countries and then in corporate.

With this centralized organization, what we did is that the buyers, now they have time to devote to make the strategic procurement of the indirect. They were supposed to be doing it, but they couldn't do it because they spent a lot of time speaking with our internal customers, chasing POs, chasing shipments with suppliers, so it was very difficult for them.

What happened is that now, when the buyers have time, they can establish better negotiations with a strategic approach. They put it into catalogs. Then our end user was able, in the Ariba platform, to find what they need, put in the request, and it went to his approval, the supervisor or director that they had. Once it was approved, it was all the way gone to the vendor.

The interaction with the vendor, they no longer needed to approach the buyer to see where their shipment was because they could see it directly in the system when the shipment was going to be done, when it was ready and, if it was an import, what's on the customs and when it was in the plant. The interaction, the user experience, it was much greater. The people are so happy now because they have control over whatever they are expending and they know exactly where the goods are.

Our buyers are more focused into the negotiation. They can do it better and are capturing a lot of savings.

Michael Krigsman: I can see the enormous change because you went from a very labor intensive system where the procurement person was chasing down every possible permutation of buying and now it's self-service. This type of change involves both technology, as well as process and even a cultural shift.

Correct. Correct. We didn't really get rid of the people. We only reorganized. We put them on a centralized basis. It's exactly the same people, but now they have a lot of time that they can focus on the strategic negotiations, go and have very fruitful negotiations with the vendors, go and chase new vendors, in some cases, that they couldn't attack. It was great for them.

Along those lines, we also established the budget control on the line items that we wanted to focus the most. Our management is also very pleased because, in the past, whenever they approved something, they didn't know exactly how much of their budget was consumed already. Now, with this Ariba solution, they know exactly, before they are approving, how much of their budget is going to be spent. That's great for them too.

Michael Krigsman: It's good for employees. It's good for management. What's the impact on the suppliers?

Jorge Torres Perez: In a lot of cases, they didn't know exactly how much volume they were going to get, how much of the piece of the pie they were getting. Now that we have a strategic approach and that the buyer can be able to see, more or less, how much they are going to be spending, we can establish long-term negotiations, and we can establish a better approach with the suppliers because also they get a lot of synergies.

Once we are able to accumulate all the volume from the different pieces, then we are able to gather bigger negotiations with them. For them, it's better because they have a long-term perspective with an accumulation of volume, so they are able to give us better pricing.

How did you Manage Implementation of this Large Transformation Project?

Correct. Well, that's why I told you at the beginning that we were still in the middle. Let me tell you where we are. We started this implementation in Columbia. It was a little bit more than a year ago when we went live. Then we moved into Mexico, which is our largest market. Then, from Mexico, we went and did all the countries in Latin America: Nicaragua, Costa Rica, Panama, and Guatemala. This is where we're at with the system in place.

Now, we are implementing in Brazil. We hope to finish by July of this year. Then, towards year end, we are going to do Argentina and Uruguay. Lastly, Venezuela; we might do it next year. It all depends on the country situation.

Michael Krigsman: How do you think about the transformation aspects since it involves technology; it involves changing processes; it even involves changing the culture, both on the part of your internal employees as well as on the part of your vendors?

Let me tell you; we did some mistakes at the beginning. The problem is that we didn't realize the size of the change that it was. At the beginning, we just went ahead and did it, but we learned that we needed a mindset change, so we established a communication program through all the stakeholders, the end users, the buyers -- the buyers, by themselves, they knew, but they didn't realize all of the change -- the suppliers, and the management by itself.

Once we established this communication program, things were starting to flow correctly. We learned a lot in the first implementation. Out of that, the second implementation was better and the third one was better. I think the fourth one is going to be even better.

It was not only the communication but, also, we needed to react to their concerns. In some cases, they had some valid points because they needed to do it in waves and not do it just one time. We started with small pieces, learning. Then once it was firm and consolidated, then we could move to the second phase, the third phase, the fourth phase, and then we're finished.

What Advice Do You Have for Running a Procurement Transformation Project?

Well, first of all, you need to establish a plan, a strategic plan, with a purpose, with intent, what you're looking for. It's not easy. You need to review exactly your model; what is your current model and what's the model that you want to end up with? You need to keep that in mind because, if you don't have the purpose very clearly and the objectives that you're looking for, you can get lost.

Let me tell you. To us, the Ariba solution, it was the enabler of our strategy. We didn't take all the suite completely. We took what we needed out of the suite. The solution, it's huge. It has a lot of options, so we took only the pieces that we needed for our strategy.

Michael Krigsman: A narrow or, let's say more accurately, a precise focus at the outset is the key to having the right outcome as you go through the project and, ultimately, complete the project.

Correct; completely correct.

Michael Krigsman: The business model was the driver. The technology was the enabler. The execution steps were around culture change and process change.

Correct. You had it correct.

Michael Krigsman: Great. Jorge, thank you so much.

You're welcome. Thank you for inviting me.