Vodafone Global Supply Chain Management

Abstract

Nowadays, with the evolution of markets and businesses, reaching up globalization levels unimaginable until a few decades before, companies more and more are striving to find efficient ways to carry out their operations. Many researches and real life examples, such as that of Vodafone Group plc, are a living proof of the importance that a properly functioning supply chain management adds tremendous value to any business. For an international company that has its footprints almost all over the world, the proper working solution seems to be a centralized global supply chain management model, which has increased Vodafone’s efficiency from 63% to 70%. The company has managed to reduce costs 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 a successful global SCM model.

Table of Contents

Introduction 3

Company Overview 3

Theoretical view of Supply Chain Management 4

Vodafone Group’s One SCM – A global SCM approach 5

Vodafone SCM Organization Chart 7

Suppliers 8

Supplier Qualification and Registration 8

Supplier Segmentation 9

Supplier Assessment 10

Example of a Scorecard Evaluation at Vodafone 12

Assessment of the VPC’s Performance 12

Exiting Suppliers 12

Procuring at Vodafone 13

Vodafone’s Sourcing Center 14

Conclusions 15

Introduction

Company Overview [1] 

Vodafone Group Plc is one of the biggest international 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 company has more 315 million customers.

Being in the services industry, the company does not do any manufacturing and as such uses its supply chain to purchase the equipments necessary for its networks and IT equipment, as well as for its sourced services.

The company uses a procurement company, called the Vodafone Procurement Company (VPC), which deals with all the suppliers and their contractual relations, at both global and local level.

Theoretical view of Supply Chain Management

In order to operate and succeed in the today’s highly competitive business world, a certain company must maintain a high level of customer satisfaction through providing them at the right time, place, price and quality the products, goods and services demanded by them. As such, Supply Chain Management (SCM) has a crucial role in achieving this objective, given that it involves all the activities performed during the process of transforming a certain raw material to a product that is then served to the end user (Ballou 2004, p. 5). More specifically, it involves the coordination of the above, among various functions of a company (including finance, marketing, sales, technology and IT), as well as across companies.

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Although in the scientific sense of speaking, the term Supply Chain Management was first used only few decades ago by Oliver and Webber in 1982 (Svensson, 2002), which speaks for a relatively knew scientific field, SCM as defined by several academics, has an enormous role in the provision of products to the end customers. According to the Council of Logistics Management, it is Logistics, which as part of supply chain process

“plans, implements, and controls the efficient, effective flow and storage of goods, services and related information from the point of origin to the point of consumption in order to meet customers’ requirements”.

Although many definitions have been provided on SCM, the one from Mentzer et al seems to give a quite comprehensive one:

“Supply chain management is the systematic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole.

Vodafone Group’s One SCM – A global SCM approach

After following an aggressive international expansion plan, through which the company now numbers its presence in 27 countries all over the world, and taking into account the long-ago warned recession times, the global telecommunications giant, seems to have found a Global SCM model which ensures competitive advantages through supplier performance management and procurement effectiveness.

The company has employed e-auctions, e-sourcing, category management system, and a spend analysis tools, among others, to create a global supply chain management model, which involves the selection and approval process of the suppliers, their performance management, and the operations with its Vodafone subsidiaries. Nevertheless, the company recognizes that even if purchasing globally for each of its owned companies is the most advantageous model, this is not necessarily the best case scenario all the time. That is why it has developed more than one purchasing model.

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

• cost reduction, which attempts to reduce to a minimum the costs related to transport, facility locations and storage.
• capital reduction, which aims to reduce the costs of investment made for logistics;
• service improvement; which in simple words would translate into: the better the service the higher the revenue.

Through its global SCM, Vodafone utilises tax efficient opportunities. It has also provided Regional Distribution Centres for devices and network spares, which reduces the costs of storage and facility locations. Also, the employment of a procurement company has helped the company to reduce its logistics investments, following a cost and capital reduction approach. 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, distribution expenses, taxes, duties, and duty drawback.

However, many researchers of the field argue that it is service elements that affect the sales of a company. Among them, Krenn and Shycon (1983) through interviews concluded that distribution at the proper levels in meeting customer needs, may lead to increase sales, hence profit and growth. Similarly, a good service affects customer patronage and loyalty. The company seems to have worked in this direction as well, through improving internal operations and services. For example: low value, high volume transactions are moved to a Shared Service Centre. SCM has moved to a single community and a single reporting line, with a single interface for Network, IT and Services.

Vodafone SCM Organization Chart

The Supply Chain Management community of Vodafone Group plc is referred to as “One SCM”.

It operates through three main categories, which are accountable for all strategic category activities related to suppliers and Savings, and are managed by professionals of each respective field.

The procuring at Vodafone is managed by a separate 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 operations. The VPC procures goods and services centrally, leveraging its purchasing power, to obtain better terms globally than is possible through multiple local deals. 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 strategy for VPC categories.

However, it is observed that this may include a number of key risks in relation to the categories traded through the VPC, such as:

• Supplier Selection;
• Volume discounts;
• Payment terms;
• Hedging, insurance and performance based deals;
• Cash and foreign exchange management;
• Intellectual property management; and
• Warranties.

The operations are managed through a geographic division in 2 main regions, one of which is subdivided in 4 other smaller regions. They have the local accountability for customer management and commercial savings.

The fourth element in the SCM organization chart is the Enablers, which are accountable for the operational effectiveness across all categories and geographies.

Suppliers

Supplier Qualification and Registration

Chen et al (2009) argue that there is no perfect symmetry in the buyer and supplier information exchange. This is basically due to the fact that it is very difficult to get complete information from suppliers and that what they offer cannot all the time be definitely and quantitatively measured. Ellram (1994) supports the above, arguing that costs cannot be quantified all the time.

Vodafone has set up a supplier selection model, through which the suppliers have the possibility to register and to make a self assessment, for finding out whether they meet the company’s selection criteria.

Following these steps, during the sourcing process, the VPC category managers identify potential suitable suppliers for the sourcing activity. If the suppliers identified have not previously been approved for use, the VPC Category Manager invites them to register on Vodafone’s supplier management system.

Registration is the first step in the supplier qualification process which may or may not result in the supplier being added to the Approved Supplier List.

If a supplier is successfully qualified, they may be invited to participate in the sourcing activity. Only qualified suppliers are approved for use in a sourcing activity. The qualification of suppliers is done through a Supplier Self Assessment procedure, which also gives to the company the information necessary to evaluate the supplier. The approved suppliers are registered in the company’s ERP system.

Supplier Segmentation

In a research about supplier segmentation, Dyer et al (2002) have concluded that instead of having a “one-size-fits-all” strategy for procurement, companies should optimize their purchasing effectiveness through strategic segmentation of their suppliers, so that different resources are allocated to various groups.

Vodafone carries out a supplier segmentation which categorizes them based on annual spend and business impact to Vodafone. They are segmented into tactical, approved, preferred and strategic suppliers.

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

Global and local segment classifications may differ depending on the varying impact and spend, e.g. Networks supplier X may qualify as ‘Strategic’ at a global level, but ‘Approved’ in some local markets. Supplier segmentation drives specific supplier relationship management activities.

Supplier Assessment

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

The Supplier Assessment is conducted by a cross-functional team and uses criteria from the ‘Six Pillars of Supplier Performance’ (below).

The ‘Commercial’ pillar includes a review of the total cost of ownership (TCO) created as part of the Sourcing process. In 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 takes into account all activities and cost drivers.

For those suppliers that supply goods or services to the VPC, the purchase price cost analysis and the internal cost review to produce a TCO model is led by the VPC Category Manager. In order to gain a complete review, input and agreement is provided from technical stakeholders and other groups in Vodafone. It is the responsibility of the VPC Category Manager to use the TCO review in its ongoing collaboration with suppliers to drive value out of the commercial relationship.

Following an assessment of the performance of a supplier of goods or services to the VPC, the VPC Category Manager provides Scorecard feedback to the supplier.

Example of a Scorecard Evaluation at Vodafone

In a 0-100% weighting scale, Vodafone defines suppliers that have scored 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 those that have scored 100 as exceptional performers.

The above is a linear weighting model, which Weber et al (1991) describes as the most commonly model to evaluate suppliers’ performance. Through this model, weights are defined as per company’s performance objectives, which are then to define the suppliers’ performance.

Assessment of the VPC’s Performance

The VPC’s performance is evaluated bi-annually. Input is included from the Vodafone Operations Centre, as well as input from the Vodafone Companies. The assessment is done through a scorecard that is relevant to the VPC-VGC supplier relationship.

Exiting Suppliers

The VPC Category Manager monitors their suppliers’ performance, taking input from Supplier Performance Management (SPM) and feedback from Vodafone Group Companies. Any decision to exit a supplier may arise as a result of the supplier’s performance falling short against any of the Six Pillars mentioned above. The decision to exit a VPC supplier is led by the VPC Category Manager and may result in the need for further sourcing activity.

Procuring at Vodafone

According to Fung (1999) the main goals of procurement involve purchasing the best quality at the most competitive price, in the right amount, at the necessary time and from trustworthy vendors.

The globalisation of procurement is the basic concept upon which the Vodafone Procurement Company (VPC) is built. Global procurement through the VPC makes it easier for suppliers to deal with a single Vodafone contact point, enables to streamline the supply chain and creates savings opportunities as a result.

Vodafone’s OpCos can use the VPC in one of two ways, which are known as trading models. Both trading models exploit the fact that procurement expertise sits in the VPC. In the Buy From trading model, OpCos buy goods and services from the VPC as if it were a 3rd party supplier. In the Agency model, OpCos use the VPC to set up global deals, and use those deals to buy directly from Final Suppliers.

Vodafone’s Sourcing Center

Petinis et al (2005) argue that a good management of inventories is directly linked with the success of a company. While many models have been created, they all share common objectives, which include certainly the reduction of costs, optimization of orders and distribution.

China Sourcing Center is acting as the Vodafone Supply Chain Management competency centre for local emerging suppliers. Vodafone brings in best practices to develop and support high potential emerging suppliers to grow internationally. This scenario results in a very advantageous situation for Vodafone, where it not only creates strong relationship with suppliers but also manages to reduce costs through operating with local emerging suppliers, sitting close to its sourcing center. It also provides direct access to and accelerated development of supply base for all Vodafone SCM categories

The company’s mission in having SPM in China is to deliver a competitive advantage through world-class SPM and at the same time to deliver value and benefits by continuous improvement on local suppliers. As 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 built a global, centrally led supply chain management model, One SCM, to procure its networks and IT related equipment, as well as for its sourced services.

Instead of having local operational centers of procurement, the company uses a legally separate procurement company, called the Vodafone Procurement Company (VPC), which deals with all the suppliers and their contractual relations, 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, enables to streamline the supply chain and creates savings opportunities as a result.

Tools such as e-auctions, e-sourcing, category management system, and a spend analysis tools, among others, are utilized in this model to select, approve and evaluate suppliers, their performance management, and the operations with Vodafone subsidiaries.

The company has established its Sourcing Center in China, where it creates strong relationship with suppliers and also manages to reduce costs through operating with local emerging suppliers, sitting close to its sourcing center.

The above initiatives have led to a successful central-led global SCM model, which has reduced tremendously the company’s costs and has increased its operational efficiency.