Home improvements

Supply Management, Oct 2, 2008 by Bagshaw, Steve

Homeserve's rapid overhaul of its purchasing department has boosted buying credibility and landed it the overall CIPS/SM award. Steve Bagshaw reports

Homeserve is becoming something of a success story. Its turnover has grown from £121 million in 2003 to £477 million last year. Operating profit was £70 million in 2007 up from £24 million four years earlier. No wonder the chief executive commutes to the Walsall HQ in his own helicopter.

And now its recently re-formed purchasing team is the overall winner in this year's CIPS/SM awards.

And all this from a firm that, the staff are happy to admit, "nobody has ever heard of". But as part of the high-speed transformation, that too is about to change. Later this year it will launch a nationwide TV advertising campaign to highlight what it does.

And, I hear you ask, what is that?

It provides warranty and insurance policies and repairs for home emergencies in the UK, Europe and the US. Part of a former joint venture with South Staffordshire Water established in 1993, it span off in 2004. It has six million customers in the UK and "access to one in 11 households in the US".

A TOTAL OVER HAUL

What it currently lacks in profile it gains in dedication and quick-fire change from its procurement team. In 18 months, under the leadership of Guy Bruce, commercial and business transformation director, they have overhauled the buying function from definition to delivery boosting credibility and confidence along the way.

"Eighteen months ago the board said, 'We need more from procurement, it needs to deliver more to the business'," he says. "There was recognition that although the business was continuing to grow 20 per cent [annually] top and bottom line, our ability to extract value from the day-to-day activities of the business was getting harder."

He said the board had seen glimpses of what was possible in some of the procurement deals that had been reviewed. And then decided to set a target and to do it quickly, identifying a number [£8 million annual saving] that was "tough but achievable".

CEO Richard Harpin then set about hiring somebody to do it. And that person was Bruce. From his first week, he recalls he knew he had a big job on his hands and began establishing the structure "to deliver a larger number [than the £8 million] because at the end of the day it is about credibility". He also realised the costs of attracting the team he wanted would be considerable.

"The baseline £8 million was a given, negotiated with the main board as a function of their agreeing all of the restructuring and the costs associated with that," he says. "We spent a lot of money bringing the people into the business. That had to have a return [on investment]."

It is for him "all about investment and return". And in the first year the team returned savings of £10.7 million - £2.7 million above the aim and described by Harpin as "absolutely fantastic, better than our wildest targets. Currently that return on investment is running at 11:1. The target was originally between 7:1-10:1. Last year we did 10.5 or 10.6."

Did this happen because the Homeserve culture influenced procurement or did this come about because of his personal approach? "The philosophy of finding and hiring the best people you can, individuals who are slightly bigger than the role they are coming into, is a Homeserve thing or a Richard Harpin philosophy, which I share," says Bruce.

"The connection between what procurement does and the P&L is the core of the change I have made and the ancillaries that have made it possible are the process, the discipline and the transparency.

"Absolute discipline on the numbers, the structural approach to determining the problem, designing and executing the change and having transparency around the numbers is my philosophy, borne out of working at the Caudwell group (see box), which was an extremely numbers-focused, delivery-focused business."

And Stephen Holland, head of direct procurement, says: "That has given us the credibility to go about and affect other areas."

PROCUREMENT'S BIRTHRIGHT

And the other senior members of Bruce's team are equally enthusiastic about the Homeserve difference. For William Moult, head of indirect purchasing, it is focusing on procurement's "birthright" to deliver to the bottom line. A right, he says, that is often overlooked elsewhere. "Procurement in a change process can be set on a task. This may be managing suppliers or implementing category management or strategic sourcing. All good stuff."

But focusing on one or even a couple of these elements means some departments "often lose sight of the 'other bit'. I think what we do here, which is different from what I have seen elsewhere, is the other bit," he adds. "And that is to maintain and develop the core skills and not lose sight of our birthright, which is to deliver financial benefit - value to the organisation."

This means, he says, "businessas-usual activity, core procurement, covering all bases and ultimately delivering on the majority of those."