Hitachi Rail Europe on creating a Procurement function
- Case Study
Hitachi Rail Europe’s Jamie Foster offers advice on building an effective new Procurement function.
Creating a Procurement function from scratch while delivering demanding ongoing projects and facilitating growth is a tall order. When Jamie Foster joined Hitachi Rail Europe in 2012 as Procurement Director, he was tasked with building a Procurement function while the business was winning contracts to build, modernize and maintain trains.
Efficio partnered with Foster from the beginning, helping create a complete supplier relationship management plan. Here, he shares his key learnings.
1. Have a clear vision and establish robust procedures from the outset
Starting with a blank sheet of paper may sound like a luxury to the many procurement directors struggling to change an existing system, but Foster is clear that the blank sheet comes with its own difficulties.
“It was very much a case of ‘build it from the ground up’: putting in place a purchase-to-pay system, implementing category management, recruiting all of the staff, establishing the baseline KPIs and procedures to run the business,” says Foster.
The desire to build a ‘best in class’ Procurement function is natural, adds Foster, but it only really makes sense in the correct context. “Where is your business on its evolution curve? Break it down into what is needed at that moment in time. As the business evolves you evolve with it, but you have to understand that you are part of that journey.”
2. Supplier relationship management is key to easing pressure on procurement
Procurement has to source everything related to building trains and the infrastructure Hitachi requires in the UK. With a rapidly growing business and a fully operational Procurement function, one of Foster’s challenges is dealing with the occasional ‘feast or famine’ of timing issues, depending on whether major new contracts get signed before or after the completion of existing orders.
The peaks and troughs can be better dealt with by managing relationships with suppliers so that Procurement knows which suppliers can quickly get products into service. Foster says he wants to find out, for example: “Do they know how we work? Do we know how they work? Is this company a burden to us when it comes to resource or are they self-sufficient? All these things can help us understand ways of reducing the impact on us as a Procurement function.”
Hitachi Rail Europe is a relatively new entrant without a long history of dealing with these suppliers, so Foster says his biggest strategic challenge is “to be robust enough with our selection process and our supplier relationship management process to ensure that the longevity of these relationships meets both our own expectations and those of the supplier.
Building a sustainable supply chain and building it on the right foundations is really critical for us.”
Building a sustainable supply chain and building it on the right foundations is really critical for us.
3. Procurement should uphold your firm’s style, culture and values
Hitachi, as a Japanese company, has a distinct cultural identity. “This allows us to have a very pragmatic perspective on the world,” says Foster. “This is evident in our priorities when selecting suppliers – the quality of the supplier, the interaction, the relationship, the general approach. We’ve worked very hard on really understanding and committing to what our style, culture and values will be when dealing with the supply base and we ensure that is paramount in how we address issues.”
Good relationships within the organization are just as vital, of course. It is not uncommon in capital goods businesses for the project management team to take the lead with the supply base. But at Hitachi Rail Europe, procurement owns the relationship with key suppliers. “We act as the project manager of that relationship. The operations people are comfortable with that structure, but they are watching eagerly to make sure that we will deliver on our promises to them,” he says.
4. Procurement is a decision-enabler, not a decision-maker
The belief that procurement is a decision-enabler, not a decision-maker, is a critical success factor in this sort of structure, Foster explains. “Our job is to ensure that we give the business all of the appropriate information so that they can make an informed decision. And that decision may not always be the one we think it should be. But provided we are robust in presenting the data then our job is to ensure that the business is able to make a decision. We’re not there to dictate what that decision should be.”
Looking ahead, the aim is simple: continue to deliver on the growth expectations of Hitachi Rail Europe. “It’s an ambitious organization,” he says, “and it’s not going to stand still. But for Procurement it’s about not being too far ahead of the business, and ensuring we are structured and agile enough to be able to grow and move with it.”