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Vodafone Global Supply Chain Management

Abstract

Nowadays, with the development of markets and businesses, achieving up globalization levels unimaginable until a few decades before, companies increasingly more are striving to find efficient ways to handle their functions. Many researches and true to life samples, such as that of Vodafone Group plc, are a living proof of the importance a properly functioning supply chain management brings tremendous value to any business. For a global company that has its footprints almost all over the world, the correct working solution seems to be a centralized global supply string management model, which has increased Vodafone's efficiency from 63% to 70%. The business has were able to keep your charges down and increase operational efficiency through utilizing this model for its main categories, Network, IT and Services. This paper will present the tools and models used by the company, which have resulted in an effective global SCM model.

Table of Contents

Introduction 3

Company Overview 3

Theoretical view of Resource Chain Management 4

Vodafone Group's One SCM - A global SCM way 5

Vodafone SCM Business Chart 7

Suppliers 8

Supplier Certification and Subscription 8

Supplier Segmentation 9

Supplier Assessment 10

Example of any Scorecard Analysis at Vodafone 12

Assessment of the VPC's Performance 12

Exiting Suppliers 12

Procuring at Vodafone 13

Vodafone's Sourcing Centre 14

Conclusions 15

Introduction

Company Analysis

Vodafone Group Plc is one of the primary international marketing communications company in the world. It operates in Europe, the Middle East, Africa, Asia Pacific and the United States through its operating companies (OpCo) that function under the brand name Vodafone. As per June 2009, the business has more 315 million customers.

Being in the services industry, the business will not do any making and therefore uses its source chain to buy the equipments necessary for its networks and IT equipment, as well as for its sourced services.

The company runs on the procurement company, called the Vodafone Procurement Company (VPC), which handles all the suppliers and their contractual relationships, at both global and local level.

Theoretical view of Source Chain Management

In order to use and succeed in the today's highly competitive business community, a certain company must maintain a higher level of client satisfaction through providing them at the right time, place, price and quality the merchandise, goods and services demanded by them. As a result, Supply String Management (SCM) has an essential role in reaching this objective, considering that it includes all the activities performed through the process of transforming a certain fresh material to a product that is then dished up to the end individual (Ballou 2004, p. 5). More specifically, it will involve the coordination of the above mentioned, among various functions of the company (including funding, marketing, sales, technology and IT), as well as across companies.

Although in the methodical sense of speaking, the term Supply String Management was first used only few years back by Oliver and Webber in 1982 (Svensson, 2002), which speaks for a comparatively knew scientific field, SCM as defined by several academics, comes with an great role in the provision of products to the finish customers. Based on the Council of Logistics Management, it is Logistics, which within supply string process

"plans, implements, and manages the efficient, effective movement and storage space of goods, services and related information from the idea of origins to the idea of consumption in order to meet customers' requirements".

Although many meanings have been provided on SCM, the one from Mentzer et al appears to provide a quite extensive one:

"Supply chain management is the organized, tactical coordination of the original business functions and the methods across these business functions within a specific company and across businesses within the supply chain, for the purposes of improving the long-term performance of the average person companies and the resource chain as a whole.

Vodafone Group's One SCM - A worldwide SCM approach

After following an ambitious international growth plan, through which the business now figures its presence in 27 countries all around the globe, and taking into account the long-ago warned tough economy times, the global telecommunications giant, appears to have found a Global SCM model which ensures competitive advantages through provider performance management and procurement effectiveness.

The company has employed e-auctions, e-sourcing, category management system, and a spend evaluation tools, amongst others, to make a global supply chain management model, which involves the selection and approval procedure for the suppliers, their performance management, and the functions with its Vodafone subsidiaries. Nevertheless, the company recognizes that even if purchasing internationally for every single of its held companies is the most beneficial model, this is not necessarily the best case scenario on a regular basis. That is why it is rolling out several purchasing model.

Ballow (p. 36) suggests that there are three main pillars in depicting the logistics strategy:

  • cost lowering, which attempts to reduce to a minimum the costs related to transport, facility locations and storage.
  • capital lowering, which aims to reduce the expenses of investment designed for logistics;
  • service improvement; which in simple words would result in: the better the service the bigger the income.

Through its global SCM, Vodafone utilises tax efficient opportunities. It has additionally provided Regional Distribution Centres for devices and network spares, which reduces the costs of storage and center locations. Also, the employment of the procurement company has helped the company to reduce its logistics assets, following a cost and capital reduction methodology. In favour to the above, Arntzen et al (1995) argue that a Global SCM minimizes cost and time, where cost factors would include production and inventory charges, syndication expenses, taxes, duties, and duty disadvantage.

However, many research workers of the field claim that it's service elements that have an effect on the sales of the company. Included in this, Krenn and Shycon (1983) through interviews figured distribution at the correct levels in meeting customer needs, can lead to increase sales, hence income and growth. Similarly, a good service affects customer patronage and loyalty. The company appears to have performed in this direction as well, through bettering internal procedures and services. For instance: low value, high size transactions are changed to a Shared Service Centre. SCM has relocated to a single community and an individual reporting lines, with a single interface for Network, IT and Services.

Vodafone SCM Firm Chart

The Supply String Management community of Vodafone Group plc is known as "One SCM".

It functions through three main categories, that happen to be in charge of all strategic category activities related to suppliers and Cost savings, and are been able by professionals of each respective field.

The procuring at Vodafone is managed by another legal entity within the Vodafone Group, the Vodafone Procurement Company (VPC), which is responsible for sourcing goods and services for Vodafone Group, i. e. trading businesses. The VPC procures goods and services centrally, leveraging its purchasing power, to acquire better terms internationally than can be done through multiple local offers. All VPC sourced goods and services are grouped into Level 1 categories:

  • Services and Service Platforms
  • Information Technology
  • Networks
  • Terminals
  • The VPC is responsible for developing category technique for VPC categories.

However, it is detected that this can include a number of key risks in relation to the categories exchanged through the VPC, such as:

  • Supplier Selection;
  • Volume savings;
  • Payment terms;
  • Hedging, insurance and performance centered offers;
  • Cash and forex management;
  • Intellectual property management; and
  • Warranties.

The businesses are managed by using a geographic division in 2 main areas, one which is subdivided in 4 other smaller parts. They have the local accountability for customer management and commercial savings.

The fourth component in the SCM company graph is the Enablers, that happen to be accountable for the operational success across all categories and geographies.

Suppliers

Supplier Qualification and Registration

Chen et al (2009) dispute that there is no perfect symmetry in the customer and distributor information exchange. That is basically because of the fact that it is very difficult to get complete information from suppliers which what they feature cannot at all times be definitely and quantitatively assessed. Ellram (1994) helps these, arguing that costs can't be quantified on a regular basis.

Vodafone has create a dealer selection model, by which the suppliers hold the possibility to register and also to make a home assessment, for finding out whether they meet up with the company's selection conditions.

Following these steps, during the sourcing process, the VPC category professionals identify potential appropriate suppliers for the sourcing activity. In the event the suppliers identified have never previously been approved for use, the VPC Category Director invites them to join up on Vodafone's supplier management system.

Registration is the first step in the company qualification process which may or may well not lead to the provider being added to the Approved Supplier List.

If a company is successfully qualified, they may be invited to participate in the sourcing activity. Only trained suppliers are approved for use in a sourcing activity. The qualification of suppliers is done through a Dealer Self Assessment process, which also offers to the company the information essential to evaluate the company. The approved suppliers are recorded in the company's ERP system.

Supplier Segmentation

In a study about distributor segmentation, Dyer et al (2002) have concluded that instead of having a "one-size-fits-all" technique for procurement, companies should maximize their purchasing effectiveness through tactical segmentation of their suppliers, so that different resources are allocated to various organizations.

Vodafone holds out a supplier segmentation which categorizes them predicated on twelve-monthly spend and business impact to Vodafone. They are simply segmented into tactical, approved, preferred and proper suppliers.

The spend thresholds used for supplier segmentation are defined by the VPC in conjunction with the Group Distributor Performance Management (SPM) team.

Global and local segment classifications varies with regards to the varying impact and spend, e. g. Sites provider X may define as 'Strategic' at a worldwide level, but 'Approved' in a few local markets. Dealer segmentation drives specific distributor relationship management activities.

Supplier Assessment

For those suppliers that supply goods or services to the VPC, the table below shows by segment, the regularity of and duties for supplier relationship management activities, including the Supplier Evaluation.

The Supplier Analysis is conducted by the cross-functional team and uses conditions from the 'Six Pillars of Company Performance' (below).

The 'Commercial' pillar includes a review of the total cost of possession (TCO) created as part of the Sourcing process. Within an activity-based costing system, Degraeve and Roodhooft (1999) define total cost of ownership as a quantifier of all costs associated with the purchasing process, which considers all activities and cost individuals.

For those suppliers that supply goods or services to the VPC, the purchase price cost evaluation and the internal cost review to produce a TCO model is led by the VPC Category Director. In order to gain an entire review, input and arrangement is provided from specialized stakeholders and other groupings in Vodafone. It is the responsibility of the VPC Category Director to use the TCO review in its ongoing cooperation with suppliers to operate a vehicle value out of the commercial romance.

Following an evaluation of the performance of your supplier of goods or services to the VPC, the VPC Category Director provides Scorecard reviews to the supplier.

Example of a Scorecard Analysis at Vodafone

In a 0-100% weighting scale, Vodafone defines suppliers which have obtained 0-49% as having had a very poor performance, from 50-69 as poor performers, 70 - 89 as good, from 90 - 99 as very good and the ones that have have scored 100 as exceptional performers.

The above is a linear weighting model, which Weber et al (1991) explains as the utmost commonly model to evaluate suppliers' performance. Through this model, weights are thought as per company's performance targets, which can be then to specify the suppliers' performance.

Assessment of the VPC's Performance

The VPC's performance is examined bi-annually. Input is roofed from the Vodafone Businesses Centre, as well as insight from the Vodafone Companies. The diagnosis is done through the scorecard that is relevant to the VPC-VGC supplier relationship.

Exiting Suppliers

The VPC Category Director displays their suppliers' performance, taking source from Distributor Performance Management (SPM) and feedback from Vodafone Group Companies. Any decision to leave a provider may arise because of this of the supplier's performance dropping short against the Six Pillars mentioned above. Your choice to exit a VPC dealer is led by the VPC Category Director and may cause the need for even more sourcing activity.

Procuring at Vodafone

According to Fung (1999) the key goals of procurement entail purchasing the very best quality at most competitive price, in the right amount, at the necessary time and from reliable vendors.

The globalisation of procurement is the essential concept upon that your Vodafone Procurement Company (VPC) is made. Global procurement through the VPC makes it easier for suppliers to deal with an individual Vodafone contact point, permits to streamline the source chain and creates personal savings opportunities because of this.

Vodafone's OpCos can use the VPC in another of two ways, that happen to be known as trading models. Both trading models exploit the actual fact that procurement experience sits in the VPC. Inside the Buy From trading model, OpCos buy goods and services from the VPC as though it were a 3rd party supplier. Within the Agency model, OpCos use the VPC to create global bargains, and use those discounts to buy straight from Final Suppliers.

Vodafone's Sourcing Center

Petinis et al (2005) argue a good management of inventories is immediately linked with the success of a business. While many models have been created, they all share common aims, such as certainly the reduced amount of costs, optimization of purchases and circulation.

China Sourcing Center is operating as the Vodafone Source Chain Management competency centre for local growing suppliers. Vodafone brings in best practices to build up and support high potential emerging suppliers to develop internationally. This scenario results in an exceedingly effective situation for Vodafone, where it not only creates strong romantic relationship with suppliers but also handles to reduce costs through working with local rising suppliers, sitting close to its sourcing centre. In addition, it provides immediate access to and accelerated development of source base for all those Vodafone SCM categories

The company's objective in having SPM in China is to deliver a competitive benefit through world-class SPM and at the same time to provide value and benefits by ongoing improvement on local suppliers. So far as concerns local suppliers, this levers Vodafone's experience for company improvement, in terms of CSR, quality Control, delivery and Service, etc.

Conclusions

Vodafone Group plc has generated a worldwide, centrally led supply string management model, One SCM, to procure its systems and IT related equipment, as well for its sourced services.

Instead of having local functional centers of procurement, the business uses a legally separate procurement company, called the Vodafone Procurement Company (VPC), which deals with all the suppliers and their contractual relationships, at both global and local level. Global procurement through this company VPC makes it easier for suppliers to deal with a single Vodafone contact point, allows to streamline the supply chain and creates personal savings opportunities because of this.

Tools such as e-auctions, e-sourcing, category management system, and a spend examination tools, amongst others, are used in this model to choose, approve and assess suppliers, their performance management, and the functions with Vodafone subsidiaries.

The company has established its Sourcing Centre in China, where it generates strong romance with suppliers and also manages to reduce costs through operating with local growing suppliers, sitting near to its sourcing centre.

The above initiatives have led to an effective central-led global SCM model, which has reduced tremendously the company's costs and has increased its functional efficiency.

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