An innovative supplier relationship management project (HBOS SRM)

When Halifax Bank and Bank of Scotland (BoS) merged to form HBOS plc, the new organization wanted to leverage the synergy between the two companies to generate significant savings in procurement. HBOS plc, the United Kingdom’s largest mortgage and savings provider, has 22 million customers and a relationship with two out of every five households in the UK, with assets totally more than £440 billion. Success in procurement is based on knowing who spends what with which suppliers, yet due to the disparate and conflicting operational systems in place, HBOS was challenged with providing accurate, timely information to decision-makers involved in supplier negotiations and measuring performance across the group.

With a company of such formidable size, manually integrating the records and operations of two major national banks was never an option for day one. To successfully address company-wide procurement activities, HBOS required a flexible solution that could address their specific needs, could be implemented quickly and would be resistant to any business change that might occur later on in the company’s life.

After the wide success of this initial phase, HBOS needed to extend the reach of the system to incorporate further subsidiaries. Additionally, HBOS wanted to include external data on the 20,000 suppliers, giving an even more comprehensive insight into procurement spend, and due diligence information. To maximize the economies of scale made possible by the merger, and drive significant savings, HBOS also needed to gain a better picture of all 10,000 line-items bought through its e-buy system organization-wide. An accounts payable system from Oracle was also being implemented at the same time, so HBOS needed to ensure no business disruption was caused to users.

The core business risks and challenges that had to be addressed were: time limitations; continued flexibility in the face of business change; integration between disparate operational systems; ensuring accuracy and timeliness of information; and business and IT user alignment and coordination.

HBOS required a flexible solution that could address their specific needs and could be implemented quickly. Traditional data warehouses would not fit the bill as they would take a minimum of 18 months to deploy and would be resistant to any business change that might occur later on in the company’s life.

Integration with other operational systems was essential to the success of the implementation. The operational systems used to manage procurement in Halifax and BoS were structured very differently, so HBOS needed to create a flexible data warehousing and business intelligence layer above them. HBOS needed technology that would provide a single, consistent view of procurement data, without the delay or disruption of standardizing source systems, and deliver accurate, timely information to decision-makers involved in supplier negotiations.

The project involved people from several different organizations including Kalido and systems integrator, Acuma, as well as people from the HBOS Procurement systems team and internal HBOS Group Technology experts. A strong team ethic permeated the whole project, making a big contribution to success, but also creating the need for intense corroboration and communication among all individuals/groups involved.

The HBOS procurement department is now able to nimbly drive efficiencies. With the integrated information, decision makers now can make better-informed supplier negotiations, maintain supplier performance and costs, and develop stronger relationships with suppliers across a complex organizational structure.

Enabling the e-procurement system to be extended to subsidiaries that run entirely different ordering processes and are located away from the main centers of Halifax and Edinburgh, HBOS SRM allows the local units - Birmingham Midshires, Clerical Medical and Halifax Life and Pensions – to continue with their normal reporting methods, maintaining agility in the face of complexity and incessant business change.

The procurement department is also now able to compare management information generated by the new accounts payable with that generated by the old – a tremendous benefit as typically it is extremely difficult to compare data spanning the lifetimes of two accounting systems.

In short: The SRM system assists in generating significant procurement savings with spending reports for complex negotiation with suppliers; provides full visibility of group expenditure within just three months; reduces time spent by procurement managers on data sourcing and preparation; produces fast, accurate management information; and enables procurement to be viewed by supplier, category and/or item.

At the time of initial implementation, HBOS plc was investigating every possible way to generate savings and knowing each supplier, exactly what was being spent and with whom, as well as what was being purchased by different areas within the business enabled the procurement area to be an integral part of cost savings achieved. With £2.4 billion in annual procurement spending, this initiative was certainly mission critical to HBOS’ overall success.

HBOS not only achieved, but also surpassed, its primary objectives and goals in relation to saving time and money. Kalido has helped HBOS maximize previously untapped revenue opportunities with suppliers.

Through the SRM system, the organization has developed a consistent group-wide commodity structure, consolidating account codes by eliminating duplicates and re-ordering them into just 27 commodities split into 142 categories. For the first time, the organization has a clear view of all 10,000 line items bought across the entire organization using the e-buy system, with detailed spending and usage patterns. In addition users can ‘slice and dice’ the output to get the information they need in the form most useful to them. The solution allows users to view procurement spend in numerous ways – for example, by supplier, by category of spend, or by item – and to drill right down from aggregated information to the level of individual transactions.

In order to give an even more complete picture of supplier relationships, the procurement team extended the system to include external data feeds. Risk management specialists Dunn & Bradstreet provide HBOS with due diligence insight into its top 20,000 or so suppliers, and now supply a comprehensive data file every quarter detailing risk information. This makes complex procurement information much easier to understand and analyze.

All of this has been achieved in a fraction of the time it would have taken to build the SRM system using traditional methods, which unlike KALIDO software, would have required extensive and costly re-development to reflect the business changes. The procurement teams no longer rely on IT specialists to provide the views they need or to make changes. HBOS SRM gives a more complete picture of the group, with greater accuracy than ever before, and reduces the time spent by users on data sourcing and preparation. It allows HBOS to monitor actual spend over time.

With the SRM system based on corroboration with systems integrator, Acuma, reporting and analysis from Business Objects, Ascential extract/transformation/load tools, and the project lynchpin – KALIDO adaptive enterprise data warehouse – HBOS can now examine procurement by time and region through the merger date, regardless of region or organizational structure changes. This saved the procurement team massive amounts of time and energy, alleviating the need for extensive data reconciliation and research.

Success in Procurement is built on knowing who spends what with which suppliers – acquiring this level of management information was the key to unlocking a whole range of project and cost saving opportunities and the accomplishment of such was the greatest measurement of the project’s uncontestable success.

The SRM system has been a great driver in the organization and is expected to remain a critical component in the years to come – a difficult feat in an industry so prone to incessant business change where the IT components typically can’t keep up with the rapid pace.

The SRM initiative, centered with Kalido’s adaptive data warehouse technology, has been instrumental in delivering the needed business data and insight to make required procurement decisions and changes to fulfill the business’ need for cost savings and internal realignment in light of the merger.

The new application provides an overarching view of the procurement data with granular detail. It enables business users to obtain top-level views across multiple systems. Reconciliation can now be achieved more rapidly and using fewer resources than were previously required, and the application now also provides comprehensive insight on supplier risk.

KALIDO’s easy-to-use components remove many of the management issues of data warehousing. Users can manipulate data within the business models and hierarchies with ease. The application controls access to data and automatically tracks all changes made to the warehouse, ensuring that valuable corporate information is safeguarded at all times.

As the system sits on the corporate Intranet site, authorized users can choose from a list of pre-written Business Objects reports and enter a supplier name, for instance, to generate a report with multiple tabs: from high-level information to supplier invoice lines.

The system provides reliable, secure and timely access to data across the enterprise through reporting tools such as Business Objects.