Nokia’s indirect sourcing function is expected to deliver double its usual level of cost savings this year in response to the economic downturn but with 50 fewer staff.
A 15 per cent across-the-board savings target – equivalent to €300 million – is in force under the title “Program Fox” and the function’s €24 million operating budget has been cut to €19.5 million.
The result, said Mikko Kivisto, vice-president of indirect sourcing at Nokia, is that staff levels have been reduced from 460 to 410.
Speaking at the ProcureCon Indirect event in Amsterdam, Kivisto admitted that the function, which he has led since October 2008, had become “a little bit expensive”.
In 2002, Nokia employed 120 staff to manage indirect spend – of which marketing, at €1.5 billion annually, is the biggest category. By 2005 this had grown to 300, and last year it peaked at 460.
“We could have been a little bit smarter in the past,” Kivisto told the audience. But that was with the benefit of hindsight, he added, and the business environment had also changed dramatically since the fourth quarter of 2008.
Earlier this month, Nokia announced that revenue in the first quarter of 2009 was down 27 per cent year on year and net profit for the period was just €122 million, compared to €1.2 billion.
Kivisto said that when he took over from Alf Noto, who now heads up customer care for Nokia, the company’s CFO – his boss – told him: “I want you to do more with less.”
Although some activities had been dropped or put on hold, no sourcing projects had been axed as a result of the staffing decrease, he said.
A total of 1,200 savings opportunities had been identified, 820 had been prioritised and €215 million of the €300 million target was expected to come from 500 projects, he explained.
New categories such as legal and consultancy were being addressed; e-auctions were being conducted for items such as hotel rooms in China and India; existing sourcing strategies were being implemented; and some collaborative sourcing was taking place with sister firms Nokia Siemens Networks and Navteq.
Kivisto added that indirect sourcing was moving away from a traditional category focus to a knowledge focus, which meant more interaction with other functions and more of a consultant role for procurement staff.
This approach gave his team “more flexibility across categories” and would lead to “a more dynamic” sourcing function, he argued.
Speaking at the same event, Kees Gerretse, CPO of steel maker Corus, said he had actually gained 24 full-time staff despite many jobs being lost in other functions.
A 50 per cent fall in demand for its products and a plunge in the price of steel from a peak of $1,200 a tonne to $390 meant the company was in “survival mode”.
A £600 million savings programme was in place for the second half of 2009, of which a third would come from procurement, mostly in direct materials, he said.
Corus’s procurement spend would plunge from £7.5 billion in 2008 to around £4.9 billion this year – a situation that was having “a huge impact on suppliers”.
Despite this, the cash crisis meant that his function had no choice other than simply to cancel contracts, Gerretse explained.
If that led to suppliers taking the company to court, “fine, but [it means] we pay next year,” he said.