With a background in the electronics, telecommunications and tire industry, Francesco Festa brings a wealth of industrial experience to his present position. Understandably, he is reluctant to touch upon specific purchasing strategies at Alitalia because of current negotiations about the Italian carrier’s future. But the challenges facing different industries dependent on a limited number of high-tech suppliers or subjected to rocketing commodity prices are basically the same, he claims.
“Even if there is only a limited number of suppliers available to source from, you can leverage not only volume but get better overall costs or improve your offering. The idea that it’s impossible to improve your position in such circumstances is simply not true. If you apply the right methodology and most importantly, have done a proper value analysis you can achieve significant results,” Festa says.
Applied to carriers, this might not necessarily mean getter a better price on aircraft, but lower total cost on things like maintenance, repairs and spare parts. “Systematic value analysis will show you where the best opportunities lie,” he says.

One size doesn’t fit all
But beware of the belief that a standard “methods and tools” package can be applied everywhere. The starting point for any purchasing transformation is to do a proper analysis of what benefits the transformation will create, Festa points out. “Some practitioners see the introduction of new tools and practices as a magic formula that should be applied everywhere at once. To me, that approach is wrong. You first have to determine where new practices are necessary, what tools or methods to use and perhaps even more importantly, when it’s feasible,” he says.
In most cases, this means a procurement function with a mix of established practices and new methods, depending on type of commodity and supply-side situation over time. “What I call ‘new economy’ tools can be used for some opportunities, in some market segments, during some period of time. You have to strike the right balance between different risks, opportunities and cultures, otherwise you’ll fail to deliver expected values,” Festa explains.

Surviving by compromise
In Festa’s experience, supply management comes under pressure to deliver value from three equally important stakeholders. First there is pressure from top management. “At the end of the day, what management wants from you is not a presentation about a beautiful new technology platform, they want bottom line savings,” he says.
The second big pressure comes from internal customers, e.g. people in production and operations, who have a completely different perspective. “Speaking frankly, most of them don’t really care about things like total cost of ownership or compliance. They are only interested in getting the right level of service from you, i.e. the proper commodities, parts or services at the right time,” Festa says.
The third pressure applied to procurement comes from suppliers, the external customer. Here, the challenge is to translate total cost of ownership goals and needed levels of service in a language that makes sense to suppliers, i.e. to identify the right specifications, costs, quality, terms of delivery and so on that will match ultimate goals.
“In order to succeed”, Festa says, “You must achieve a balanced response to all three pressures, which means having to compromise. You have to show savings to top management (but not always seek the maximum reduction in cost), you have to supply the right (but not always the highest) level of service internally and finally you have to establish a good (but not the best possible) partnership and dialogue with your suppliers”.

Know what you sell
Understanding how to respond to these pressures or identifying new opportunities becomes much easier if you are aware of what exactly it is you sell, Festa points out. “As a carrier we don’t sell a product, we sell an experience. Your appreciation of this experience as a customer is dependent on a number of factors like crowded terminals, timely departure and arrival, in-flight service and so on. This means that you have a number of areas where you can diversify your offering, even if you are exposed to tough competition,” he says.
There is no mistake in Festa’s use of the word “sell” to describe his own and his colleagues work. To him purchasing is best described as the mirror image of sales, i.e. for each step in the sales process, there is a corresponding step in the purchasing process. “Sales can be described as a three-step process of pre-sales, actual selling and post-sales. Purchasing pros sometimes fail to realize that their own work is a direct reflection of this process, and that there is much to be learned from it,” he says.
The pre-sales stage is concerned with identifying and gathering information about potential customers. Armed with this information, sales representatives come well-prepared to the actual business of selling. Then follows post-sales, which in a sense is similar to maintenance. Maintaining the contract with the customer means improving it for example by increasing volume, increasing service levels and leveraging contacts to get more business.
“If you model your purchasing process on the three steps of sales, you will know more about your supplier market, come better prepared to negotiations and achieve lower total costs over time. Applied systematically, it also helps you to generate business intelligence that can be used to improve your performance in the next round of sourcing and negotiations,” Festa says.

Getting the right mix
Introducing new methods and tools that spring from a new mindset also requires the right team. “Without the right people, you’re lost, so that’s in fact where you should start any transformation effort,” Festa says.
As procurement broadens its scope, the ideal mix of skills and experience also changes. For Festa, members of the purchasing function must therefore be recruited from three different groups: experienced purchasing pros, operational experts and people from the outside with managerial skills. “It’s easier to teach someone with solid operational experience from airport services or maintenance about purchasing skills than the other way around. In the same sense, it’s often better to hire someone from the outside with leadership experience in team-building, project management or change management and teach them about the specifics of purchasing,” he says.

Don’t forget glocal
Another aspect of the new mindset needed in purchasing is to recognize the implications of working in a business environment that is both global and local. “When General Electrics started using the word ‘glocal’ twelve years ago, it became quite a buzzword. Unfortunately, we have forgotten about the insight contained in that expression,” Festa says.
A company has to be global in its vision, strategy, standardisation, contracts, audits and so on. It also needs to be local in levels of service depending on countries or regions, local in aggressivity depending on market segments, local in respect to relations to suppliers or sales representatives in specific countries.
“Such a glocal approach is the only successful path to survive pressure from you three main stakeholders. Savings will be generated at many levels, the internal customer will be supplied with commodities or services that fit local requirements and you will be better prepared for negotiations with suppliers,” Festa explains.

Communicate everything
But all the best strategies, teams, methods and tools won’t get you anywhere if people are not motivated. “To motivate people, you have to communicate. Traditionally, purchasing management has failed or forgotten to communicate visions and goals to its staff. Everyone has to be involved and understand about overall long-term goals,” Festa concludes.