Featured Interview – USG Boral’s Procurement Transformation Journey

In a conversation with CPO Innovation Media, Nat Parameswaran, Group Vice President, Global Procurement and Supply Chain at USG Boral Building Products talks about USG Boral’s Procurement Transformation Journey.

A Brief about Nat Parameswaran

Nat Parameswaran is currently the Group Vice President, Global Procurement & Supply Chain, at USG Boral Building Products Ltd., a US$ 1.1 Billion building materials manufacturing company that operates in 12 countries across Australia & New Zealand, South East Asia, China, Korea, India and Middle East geographies. Nat Parameswaran has global responsibility of Procurement and Supply Chain function across the company and is accountable for managing spend of over US$500 Million across a network of 12 countries.

Nat is highly accomplished Supply Chain visionary and leader with extensive experience in Global Supply Chain Strategy and Management, Global Strategic Sourcing, International Manufacturing Start-up Operations, Manufacturing Execution Systems & Strategies, Automation and Business Transformation Programs.

Q. Please provide a brief synopsis of your company and how you launched the transformation program at USG Boral?

USG Boral Building Products is a company that was formed as a joint venture between USG Corporation (USA) and Boral Limited (Australia). Headquartered in Singapore, USG Boral is a $1.1 Billion leading manufacturer and supplier of gypsum-based wall and ceiling lining systems, mineral fibre acoustical ceiling systems, metal framing, joint compounds, high-performance panels and accessories throughout Asia, Australia and the Middle East. USG-Boral operates across 12 countries with over 35 manufacturing locations spread across this vast geography in a complex supply chain environment. USG Boral holds unparalleled leadership in innovating new products that can change the way buildings are designed and built. Our portfolio of products include the SheetrockTM brand of gypsum plasterboard products, joint compounds, acoustical ceiling panels & systems, steel framing, exterior sheathing systems and tools & accessories.

Q. Can you walk us through the Procurement Transformation Journey at USG Boral?

As I had mentioned earlier, USG Boral operates across 12 countries across Australia & New Zealand, South East Asia, China, Korea, India and Middle East geographies. At the time when the company was formed, each of the 12 countries operated autonomously in the Procurement & Supply Chain space. Each country operated in a silo in terms of organization structure, strategic sourcing & procurement, supplier management, demand and supply planning, contract management and handled the tactical execution of the procurement function at a country-level.

In 2015, we embarked on a transformation journey to evolve the Procurement function as an integrated, strategic and center-led operation where collaboration, data sharing, governance and communication across the 12 countries would allow us to leverage the total sourcing power of the entire company, rather than act as individual business units representing each country.

We instituted the philosophy of “Global Sourcing-Local Procurement” across the organization that drove efficiencies in developing consolidated commodity strategies, identifying key leveraging opportunities across the division, driving key cost savings initiatives, managing risk and allowed for mutual sharing of information amongst the different business units. The results of the transformation have been fantastic, both in terms of cost savings and for the team as well that is now driven as one cohesive unit.

We also introduced the concept of Procurement Summits that brought together multi-disciplinary teams internally at USG Boral from Sourcing, Logistics, Marketing, Technology, R&D and key suppliers that allowed for us to collaborate across functions and in driving “Procurement- led innovations” with our supplier base as well.

Q. Describe briefly the main drivers and aims of the procurement transformation and benefits achieved.

USG Boral’s footprint of plasterboard manufacturing plants is spread over a geography of 12 countries in Asia, Australia and the Middle East with a complex heterogeneous procurement and transportation operation. With a combined spend of over $500M in direct raw materials procurement, energy and transportation, it was evident that we need to evolve from a “country-specific” sourcing organization into a “global sourcing” organization.

We also realized that this transformation needed to happen without disrupting the “country-specific” nuances in terms of regulatory and purchasing standards. Hence, we developed a strategy around Global Sourcing-Local Procurement philosophy that transformed USG Boral’s Procurement organization into a truly integrated function.

The key drivers for this transformation were the following:

  • The need to function as One Global Organization
  • To drive global spend leverage with suppliers
  • The need to drive key raw material commodity strategies globally
  • To gain detailed visibility into enterprise-wide spend, thereby driving cost savings opportunities.

Transformation of the Sourcing process into an integrated function yielded significant cost savings across the enterprise and directly contributed to the EBIT performance of the corporation over the past few years.
The total savings we achieved as a company under this transformation of becoming an integrated sourcing function was about US$65 Million in the 3-year period of 2015-2017.

Even after factoring in the favourable fuel prices and deflationary commodity prices in 2016 and 2017, it was still a significant achievement as the Procurement team did not just rely on market conditions alone, but rather it was through combined efforts of leveraging volumes, driving global RFP events and changing the roles of country Procurement managers to be accountable for specific commodities that delivered significant benefits in terms of cost savings, risk mitigation and enabling supplier-partnerships.

Q. What digital transformation really means to procurement and what initiatives you are taking or have taken at USG Boral to create a future-proof Procurement organization?

Our focus on digitization at USG Boral relating to Procurement & Supply Chain has been focussed in a non- traditional manner. Since each of the 12 countries run their own ERP systems (and sometimes in local language), we needed to first focus on how to extract, harmonize and analyze the data that would drive cost leveraging opportunities globally, as well as provide us with benchmarking costs across each business unit. Therefore, we focussed more initially on data extraction tools that would allow for our transformation to be successful.

Now that we have derived significant benefits from this transformation journey, we are now focussing on BI solutions, and exploring the potential of where AI-based tools and Blockchain could be used, and understanding the limitations of the envelope of digitization as well.

In addition, we use “best of breed” digitization through 3rd parties in terms of market intelligence gathering, supplier qualification etc., by working with companies that focus specifically on those type of analysis, which allows us to understand in great detail the macro and micro impact areas for our suppliers’ input costs, thereby allowing us to drive “fact-based and market-based” negotiations.

Q. Can you help and explain the differences between a decentralized procurement models V/S a Center-Led Procurement Model? Limitations and Benefits?

As I had described earlier, we operated in a significantly decentralized model across our vast geography of 12 countries before embarking on the transformation journey. The main limitations of the decentralized model in Procurement & Supply Chain were the following:

  • Lack of scope and clarity
  • Lack of alignment of business strategies
  • Sourcing not considered a strategic function
  • Decentralized supplier relationships (even when the supply base was the same)
  • Governance & Control
  • Skillset imbalance and lack of career opportunities
  • Inherent model of high costs

While there was clear merit in having the tactical part of sourcing & supply chain operations at a country level, there were significant limitations in the model that had to be overcome in transforming the Sourcing & Supply Chain area into a high-performing, strategic and collaborative business function across the entire division.

Moving to a Center-Led model along with executing the philosophy of “Global Procurement / Local Sourcing” framework, allowed us to take advantage of both the decentralized model and centralized model.

The center-led procurement focussed on the following areas:

  • Sourcing as a strategic function
  • Market and competitive benchmarking
  • Single voice to suppliers
  • Global commodity strategy and cost management
  • People development across all business units
  • Standards, compliance and risk management

In addition, we created a matrix organization where the country procurement heads were also made accountable for certain key commodities globally. For Example – The Procurement head of China (that reports to me), is accountable for sourcing activities within China to support the China manufacturing footprint. In addition, as part of the center-led model, he is also accountable for global steel sourcing strategy across the enterprise at USG-Boral. This provides an automatic incentive to work across the countries in driving “enterprise-wide” sourcing strategy for key commodities. This allowed for easier change management and motivated the entire procurement team to work collaboratively across the division.

Q. What are the biggest Procure to Pay challenges that most of the organizations are facing in their procurement domain? What value does digitization bring in here?

I would say that gone are the days when negotiation takes across a table where the supplier and customer present their positions and handshake on mutually agreeable pricing that fits both their budgets. These days, negotiations are extremely complex, especially when it involves global footprint of plants such as in our case at USG Boral.

The impact of macro-economic movements, currency fluctuations, trade wars, fuel volatility, demand and supply imbalances, etc., impact prices of commodities. Therefore, I would say that strategic sourcing these days involve scientific negotiations that understand the above factors and how it impacts the suppliers’ cost input. In addition, since many of the commodities can be “indexed” through published global indices, I would say that negotiations involve a lot of research beforehand to drive a cost position with the supplier that maximizes the benefit and manages the risk at the same time.

While the tactical part of procurement such as RFPs, RFQs, Purchase Requisitions, Purchase Order Release, Approvals, Payments, Supplier performance, etc., can be digitized using AI and other machine learning technologies (that will certainly driver efficiencies in the day-to-day procurement activities), the challenge for tactical procurement professionals is to now perform higher-value role of a procurement “scientist” that would perform the strategic aspect of sourcing as described earlier.

Q. What have been the most significant achievements with the procurement transformation journey at USG Boral?

From USG Boral perspective, we were able to generate significant cost benefits as a result of our transformation journey. Over a 3-year period (from 2015-2017), we were able to save over US$65 Million in procurement costs. This was done due to our leveraging capabilities globally due to the integrated sourcing efforts. In addition, we now have an organization where we have a set of professionals that now can collaborate across the division in any area of Sourcing or Supply Chain to drive efficiencies and improve our cost position.

This journey also has resulted in our transformation being a showcase for other shared service functions within our organization that also embarked on a similar “center-led” model to drive efficiencies and collaboration across the enterprise.

Our transformation is now mature and so successful that collaboration, camaraderie and communication are part of our core DNA of the entire Procurement & Supply Chain team. Each member of our team knows that they are part of a global organization and take pride in being part of a collaborative and high-performing team.

Q. How can a CEO help elevate procurement as a strategic function and add value?

Every CEO understands how costs impact their bottom line in terms of contribution margin and EBIT. Therefore, the onus is on Procurement Heads and CPO’s to elevate their roles to demonstrate strategic value to their organization in terms of providing “cost competitiveness”, not just negotiating a better price than previous year.

CEO’s believe when the CPO’s can effectively answer the “Show me the money” and “Are we doing better than our competition in sourcing costs?” questions. Once that is demonstrated, and the CEOs can see the transformation of sourcing being just an operational procurement function to more of a predictive driver in terms of cost competitiveness, CEO’s will embrace procurement to be a strategic function.