The 1991 Gulf War sparked safety concerns, which hit the travel business hard. For the first time in its 150-year history, travel company Thomas Cook recorded a major slump in its profits, resulting in all round redundancies. The signal was clear for action. The consultancy arm of Coopers & Lybrand was contracted to assess the predicament. After examining the cost structure of the company, it became evident that the purchasing function was poorly organized and not taking advantage of the strength associated with the company's overall spend. Buying took place in an uncoordinated manner and there was an absence of policy to drive decision making. An internal study arrived at similar conclusions.

Following the investigation, Thomas Cook appointed Alan Fenwick as head of purchasing. Fenwick inherited a small central department that was handling only a fraction of the total corporate purchasing spend, and even this was dissipated on low strategic value items. His task was to create a new team and to organize the different purchasing activities into a coherent whole and thereby improve the cost structure.

Turnaround actions

The first step that Fenwick took was to improve external supplier quality by closely monitoring the standard of supplier relationships and service. Current relationships and performance were so poor that users often ignored preferred contracts. Fenwick took action to rationalize this in a process that he called ‘hacking through the jungle’. This emphasis on external quality improvement yielded dramatic improvements in the first few years. Suppliers were reduced to 2500 by 1996, from a base of 7000 in 1992 (at a time when the company only had 7000 UK employees). By 1996, the top 10 per cent slice of suppliers accounted for 90 per cent of orders, which was far removed from the earlier position. These simple changes in the purchasing process led to savings of £3.5 million in the first year and £2.75 million in the next.

Internal marketing initiative

By 1995, however, Fenwick realized that for further improvements the company would have to switch to more sophisticated goals. The initial cost savings had been important to stop immediate declines, but long-term success could only be achieved by better ‘internal marketing’. Internal marketing was seen as a way of selling the purchasing function's added-value potential to the rest of the organization. This approach would get purchasing to become more involved and do so in a more flexible and holistic manner. As chance would have it, this recognition, fortunately, coincided with a change in the organizational reporting structure: moving from the financial director to the strategic marketing director instead.

Knowing and managing around attitudes and culture

Thomas Cook's culture of local empowerment meant that purchasing had to win the confidence of internal customers (those employees who may wish to use purchasing) rather than grabbing their current domain through the exercise of power. In one sense, as Fenwick noted: ‘My competitors are the customers; they can use me or do it themselves and if I give them a hard time – through bureaucracy or poor information – they disappear very quickly.’ Given that these internal customers could easily revert back to doing it themselves, as of old, meant that the central purchasing would have to prove itself on results rather than the aggressive self-publicity, which was not likely to go down well in the Thomas Cook culture.

Fenwick quickly became aware that one of the biggest barriers to effective internal marketing was the traditional attitude that purchasing professionals held of themselves. Purchasing agents were pretty brilliant at being customers, but seemed to be almost useless as suppliers and being customer focused themselves. Fenwick attended to this by getting the purchasing team to produce its own mission statement on customer relationships. The team also underwent customer care training to reorient their attitudes to be service-led. The attitude shift also meant moving away from simply recognizing paper-based qualifications, such as CIPS diplomas, to customer-focused attitudes. The comments below highlight the change in sentiment that was slowly coming through as a result of the new initiative.

‘In the old days when I was recruiting, the first on the list of ‘‘must haves’’ was a CIPS diploma. Now the real ‘‘must have’’ is a customer-focused attitude.

The last two people I've recruited hadn't worked in purchasing before and didn't know what the department does. They came from the customer call centre and are red hot on customer service. They have made a major difference to the way the department performs. The best feature they provide is that they really take ownership of the problem – it might be a simple request but they make sure it's done. Those of us from a purchasing background may not be so good at that. They have reoriented our attitude to one of customer focus.

The perfect person is someone with a CIPS diploma and the customer focus, but by God are they rare. We interviewed purchasing managers with 20 years’ experience who were terrible – nothing wrong with their purchasing skills but their attitude to customers was terrible. It's easier to recruit a non-buyer and teach them buying than the other way round. I have six people with CIPS diplomas.. . not short of people who can teach. What I've not got enough of is this customer-focused attitude.

One woman has no experience of purchasing but has a no-nonsense approach and a superb customer-focused attitude. She has asked about going on the CIPS course but I would rather she did more service training – to go on ‘‘train the trainer’’ courses and be the facilitator in this department.’

Developing internal customer consciousness

Internal market research showed the internal customers of purchasing were being let down in some very basic ways. According to Fenwick: ‘People found it hard to do business with us. You ask a buyer what he or she should be providing and they'll say negotiation, sourcing – all the fancy stuff. Ask any customer and they say delivery, troubleshooting, expediting, being informative, having a help desk – all the basic stuff.’ This led to the development of service-level agreement for customers – answering the phone quickly, being available, etc. All very simplistic, yet it was the beginning of the customer focus revolution. Soon thereafter, a tracking system for internal customer satisfaction was introduced and it threw up many insights about the varied and contradictory needs of customers.

This experience brought out that customer care is about the simple things – knowing what they want and providing it – rather than putting all your energy into investing in expensive purchasing systems. In addition, the purchasing department began to learn about customer consciousness by examining others for best practices. One of the best sources for learning was the purchasing department's suppliers and their salespeople. Fenwick noted: ‘They are trooping through the office every day and using the same techniques we need to use. Every buyer can tell you who a good salesperson is – I have encouraged my people to learn from the good ones.’

Internal customer segmentation

As had taken place with supplier relationships, it was just as vital to identify key customers – in terms of spend, decision-making power and current relationship with purchasing. This was addressed by a number of approaches.

One initial exercise was to segment the internal customer base into prospects, crawlers, joggers and racers: prospects being those who avoided the purchasing function and racers being the closest of partners. The task was to focus on the areas where purchasing was getting least work, whilst ensuring they kept the racers fully satisfied.

This segmentation was enhanced by the use of a matrix framework examining value against risk, as used commonly for evaluating products or suppliers. The framework allowed the identification of, for example, customers who were critical for reasons of credibility. ‘A high profile manager, who may not be spending a huge amount of money, but who has purposely avoided us, would be a high level target. We have a few customers like that and they are high on our list.’ At the same time, the framework allows the identification of some customers who are too inefficient to target. ‘You might have a prospect who is so unique that they won't want us and we won't want them either. If the first model was the only analysis they would go high on the list, get a lot of attention and waste everyone's time. My aspiration is not to control every penny of our spend. I tell all our customers I only want to be involved where we both feel I can add value. If the customer is doing a superb job, wherever they are on the matrix, all I will offer is advice and training.’

Internal product development

To be successful, purchasing needed to continuously offer value to their customer. This meant developing internal products and services to fit closely to the changing needs of the internal customers. Customer needs analysis was made an ongoing process to keep track of changes as they occurred in the company and the external marketplace.

Part of increasing the value-adding potential was in identifying the key services that customers want. By considering the issues the team began to offer a tailored solution, with users cherry-picking the areas of purchasing and supply with which they needed most help. It became possible for their customers to either buy a cradle-to-grave product or pick and mix. One of the most popular ‘products’ was checking terms and conditions of contracts. This appealed to many customers who had not considered using purchasing before. ‘The market research manager would spend a lot of money but never dreamt we had anything to add. One of the first things in our selling campaign was health-checking the small print.’

Another popular ‘product’ that was developed was expediting. In this ‘product/service’, the customer chooses the supplier, and sources and organizes it all. However, if they encounter problems then purchasing has the expertise to sort it out. For instance, sometimes internal customers would want purchasing to get tough with a supplier while they remained at arm's length to come in and dress the wounds.

A big advantage of the ‘Expediter product’ approach is that it allows the team to demonstrate its value and win user confidence. This allowed the relatively new purchasing team to increase their own confidence and move up the learning curve. For the new team one big fear was of over-promising and under-delivering. For this reason, one team manager was assigned a specific ‘delivery not promise’ project to ensure contracts perform. Purchasing did not want to get internal customers excited and then fail to live up to their expectations. This would close the door and no amount of internal marketing would reopen it. Fenwick relates an experience of one supplier failing to give a customer the information they needed. ‘In the customer's mind the supplier is useless and it will take years to change that. One bad response can destroy a great supplier. The risks are enormous, so we are going slowly.’

End outcomes

Over the longer horizon, the purchasing team aims to develop close relationships between internal customers and their external suppliers. This is a strategy many traditional purchasing departments are reluctant to follow because they fear that they will do themselves out of a job. Fenwick doesn't subscribe to this belief: ‘I think that's unfounded – we've got better things to do with our time than merely get between customer and supplier.’

Fenwick is intensely proud of the record of the purchasing team at Thomas Cook and firmly believes that internal marketing has been fundamental in creating customer consciousness and ultimately its overall success.

Fenwick believes that the Thomas Cook team's progress presents a challenge to the rest of the profession. As he notes: ‘I haven't found a real customer-focused purchaser, apart from the team working for me. That is the real issue for the profession. Even in manufacturing, more buyers will not have the divine right to purchase, they will have to prove they can add value. Managers who refuse to see that will be at risk... People are waking up to the fact that internal marketing of purchasing is becoming the issue today. And there is more rubbish spoken about it than anything else. There are high profile people in the profession who profess it but don't do it – you just have to speak to the customers!’

Source: Edwards, N. (1997). Selling me softly. Supply Management, 2 (4), 13 February, 30–2.