Corbus: Transforming SCM
Date: Thursday , August 07, 2008
A leading oil and gas manufacturing company, traded on NYSE, was facing a major challenge within its supply chain as it was growing exponentially year on year. The challenges involved higher operational costs, inflationary cost pressures for materials and equipment, Purchase Order Backlog, timely transaction processing & file maintenance, delivery management and cost increases in logistics and related SCM issues. When considering all available options open to bring immediate and sustainable cost reductions and process improvements, the solution that quickly surfaced was outsourcing some or all components of their supply chain. However, the company was apprehensive to outsource to a third party as their research indicated that many outsourcing programs had fallen short in their ability to provide sustained cost savings, optimized processes, strategic decision-making and bringing continuous improvement and innovation. This company wanted to explore the option to outsource some or all of their procurement functions with the expectation of actualizing a substantial and sustained cost savings for all products and services, improved compliance as well as obtaining best practices, processes and programs for their supply chain. They also expected the outsourcing service provider to innovate their procurement practices and streamline operations by eliminating manual, duplicate, non-value added and inconsistent processes.
It was at this point that the company got engaged in a dialogue with Corbus which specializes in optimizing client’s supply chain management through best in class SCM and IT outsourcing services. What attracted this organization towards Corbus was the quality of supply chain transformation services that they offered were well suited to their requirements. The Corbus team was engaged and quickly provided immediate results by performing a quick business process assessment, detailing the process maps using Six Sigma and prioritizing the deliverables. It also put in a small team of Subject Matter Experts at the client locations to act as an extension of the client teams. These teams immediately started reducing the bottlenecks like Backlog of open requisitions and then maintained that Service level moving forward. Corbus also provided support of the sales order entry and allocation of parts in stock in the system, implemented centralized customer care, best in class commodity expertise, strategic sourcing and incorporated best practices into the supply chain. By doing so, the client achieved operational cost savings of 40 percent and product cost deflation ranging from 6-10 percent. Moreover, the client gained more value in terms of quality, compliance and delivery. The company also recorded the best growth in the quarter in terms of revenue and profitability.
“We always engage with any client by promising 20 percent operational savings, even without moving work out of the country”, explains Rajesh Soin, President and CEO. Soin goes on to share another example of working with one of the fortune 500 companies. “There are 100 engineers working between US and India. We have had no cost increase for the last nine years and internally we have reduced their cost by 40 percent during the course of our engagement”.
Corbus specializes in both tactical and strategic areas of Supply Chain Management. Irrespective of Industry verticals, the procurement function is something, which gives immediate scope of cost reductions. Typically, companies spend from 40-60 percent of their budget on direct and indirect spend for required materials and services. Research shows that in a typical Procurement process flow, we will find that buyers spend almost 60 percent of their time and resources performing non-value added tactical and administrative tasks rather than strategic work. Hence in order to put more focus on their strategic activities, companies are looking at the option of outsourcing their different Procurement functions and processes. These functions and processes may vary from sourcing and commodity specialization to value and product quality engineering. Order management, order fulfillment, compliance management, planning, expediting, material logistics, system and file maintenance, catalogue management, IT and spend analysis are just some of the components.
For one of the large customers (Global leader in aircraft engine manufacturing headquartered in the US), Corbus has successfully managed more than $1.5 billion of spend in direct materials over the period of the contract. “If you look at the productivity benefits and enhancements or even reduction of their cost, we are considered to be one of their Centers of Excellence, despite the fact they have their planning operations outsourced to another firm. This was the first contract in the Supply Chain Management area 14 years ago and Corbus has been a pioneer in providing these services ever since that time” says Soin.
Corbus has brought to market their unique competencies and value proposition in Indirect as well as Direct procurement processes in providing significant improvement in metrics related to Quality, Cost, Delivery, and Compliance (QCDC) and saving hundreds of millions of dollars to clients.
Traditionally enterprises have been more open to outsource the procurement management of indirect and MRO spend categories than for direct materials, such as those used in manufacturing industries. Most of the companies that are outsourcing or plan to outsource are relying on third-party procurement services for computer equipment and peripherals, transportation / logistics / shipping, systems integration, IT, software services, office supplies / furnishings, temporary labor, and travel. These have been a primary target for outsourcing. However, the jury is out on the kind of savings the companies’ have received by outsourcing their procurement function because of lack of a demonstrated ROI model. Most of the time, the approach has been to throw multi-million dollar upgrades in hardware and software applications. But the market will take notice of a Service provider who can offer guaranteed savings from the first year of engagement, like it has happened in several other areas of outsourcing. Interestingly, Corbus offers the complete “Source-to-Pay” lifecycle for indirect and direct products and services. It delivers both transactional and transformational Source-to-Pay outsourcing for fortune 500 companies in diversified industry segments, thereby helping clients convert their fixed costs to variable costs and improve profitability, service levels, internal client satisfaction, and reach greater scales of productivity.
Direct Procurement outsourcing typically includes functions like Buying, Contract Administration, Value Engineering, Quality Engineering, Logistics, NPI and Customer/Vendor support and F&A activties. To date, direct materials have been considered as the Holy Grail and ‘untouchable’ but recently the approach has started changing. It has been realized that there is a significant piece of non-strategic direct procurement, which could be as high as 60 percent by number of transactions (number of parts in discreet manufacturing) with only 10-20 percent in spend. Can this be outsourced? Yes and this can increase the effectiveness of the internal procurement organization significantly. Trends in the automotive industry, which is suffering right now, has been towards outsourcing significant tactical pieces of direct procurement to companies, which can guarantee cost reductions from year one of outsourcing. The savings for large automotive companies can touch several hundreds of millions of dollars, as some of the reorganization experts will include supply chain outsourcing as powerful tool to their advantage. Corbus has also helped several global companies to improve the process effectiveness for most time consuming purchases i.e. the low value purchases or non-core spend. It helps companies by taking charge of such low-value/non-core tasks within the procurement operations and to free internal purchasing team from non core administrative tasks which enables the team to focus on more strategic initiatives including strategic spend.
Corbus capabilities in Procurement Outsourcing of direct spend categories provide significant benefits like enhanced ability to support or accelerate global sourcing activities, lower transactional processing costs, fewer burdens and improved visibility into spending.
The Early Days
When procurement outsourcing hit the business process outsourcing world in the early part of this decade, many analysts recognized that it promised great benefits. Established in 1994, by Rajesh Soin, Corbus is a wholly owned subsidiary of Soin International LLC, a multinational holding company that provides strategic management, administrative systems, and financial support to a diverse array of subsidiaries and affiliates with revenues exceeding $700 million. The genesis of the company can be traced back to the days when Modern Technologies Corporation was a part of Soin International. Rajesh Soin needed software to be developed for Modern Technologies Corporation. The first software was on managing hazardous materials. To build that software, he hired engineers from India. Once that software was developed, Soin saw the immense opportunity to market it to other industries. “We got into SCM, especially outsourcing of supply chain management (SCM), long before it became the trend in the industry. Recently we see a lot of growth in that market and we see lot of people talking about it. We started our first major outsourced SCM project more than a decade ago, with a very large international corporation”, explains Soin.
The first major contract the company was awarded with, worked out as an easier transition for them to establish their name. Soin’s companies used to do a lot of work with U.S. defense industry through one of its former holding company, MTC. In the Defense Department, they started providing services and support for materials procurement and worked with program offices on the procurement side for the Defense Department when they were going to buy an aircraft, or purchase electronic components. The engineers worked with them to do all the procurement planning and support. Having established the name by successfully working with the Defense Department, they subsequently received a contract from one of the market leaders in the jet engine manufacturing industry. This manufacturer contracted with Soin to provide outsourcing services for the procurement of direct materials for their products that were utilized throughout the world.
As the market began to unfold, Soin and his team realized that the real opportunity lay in a combination of several factors which included a robust technology platform and capability, outsourcing methodology, process maturity, industry knowledge delivery capability and demonstrable procurement experience on the top of everything associated with change management in outsourcing.
The company has devised a strong proven engagement model for its clients ensuring complete transparency and seamless transfer of processes and one of the lowest transition costs in the industry. It engages at all three levels - strategic, tactical, and operational; and partners with the client in their outsourcing initiatives.
As a pioneer in the field, Corbus understands that to be really effective, procurement outsourcing has to be evangelized as a big-change program that shakes up the whole business dynamics and brings hefty savings. The company knows that achieving sizable results is possible only by connecting the various procurement areas through the design and deployment of integrated, end-to-end, sourcing-to-settlement procurement processes and providing best-in-class IT tools and technologies.
Hence, Corbus undertook a unique three-pronged approach when they engaged with a client. They went on providing Supply Chain process support to the customer and using the client’s existing system they provided support for global sourcing and low cost country sourcing. Subsequently they expanded the support using global footprints and access to huge database. This is a better route due to two reasons. Firstly the customer feels comfortable since they are not changing their basic structure internally and the risk to business is minimized. Secondly, they also realize that Corbus has demonstrated their capability to successfully deliver these services, be it any system rather than selling them a solution which is already packaged. This gives Corbus a significant advantage over their competitors in the market.
“When we go to any customer we don’t start selling our own in-built SCM system or any other proprietary software. This means, we can work with the customer utilizing their existing systems or we can bring any one of our strategic partners, who fits the customer expectations very well” says Soin. Thus, Corbus provides an immense amount of flexibility to clients and lowers the barriers to outsource. “That’s one big advantage customers feel. First they don’t feel threatened with what they have existing. Second, they also know we can work any system rather than selling them a solution which is already packaged. This also gives us a big edge over the competitors in the market”, adds Soin.
Using the combination of IT services and its strength in SCM, the company has achieved substantial growth in the last few years. Now large corporations are looking at global sourcing as well as trying to outsource their SCM operations by leveraging the global delivery model. Corbus, being one of the pioneers in that industry– has more traction and references due to its history of successfully delivering outsourcing services. “When we started our first outsourcing assignment, our client was extremely insistent that everything be done onsite, with us providing the resource in their facility and it was done in the country itself (1994). Over the years, for the same client, we have 30 percent of people supporting the client sitting in a state-of-art global delivery centre based in Noida, India”, says Sanjay Lakhanpal, Chief Operating Officer.
Procurement Outsourcing is expected to lead the market in outsourcing initiatives in the next five to ten years, saving global corporations billions of dollars. The Procurement Outsourcing market, estimated at $1.1 billion, is growing at about 22 percent annually and is poised to double in about four years. The CAGR forecast for 2010 indicates that though procurement outsourcing was developed along with BPO, it is only now that this stream has shown growth in massive proportions. As a company specializing in this field for the past 14 years Corbus has strategically positioned itself in the market with its expertise, unique engagement models and the transformative value it brings to the clients globally. According to Soin, the company is growing at the rate of 30 – 40 percent year on year. Now Soin has intends to put the company on a higher growth curve, through both organic and inorganic growth, and is actively looking at acquisitions in this space.