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Monsanto

IHS SPECTRUM Excellence Award

Monsanto’s Procurement Team Saves $680 Million in Costs and Mitigates Supply Risks to Maximize Value to Farmers

When a global agriculture company standardized on one source of market intelligence for purchasing, it surpassed a goal of $500 million in savings by almost 35%. Savings included $9 million from a supplier that was 50% less expensive and $11 million from integrating logistics with procurement, as well as gains from a hedging strategy to manage fluctuating prices.

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Challenge

  • Standardize the process used by category managers worldwide to obtain credible market intelligence
  • Reduce costs through better insights into suppliers and raw material costs
  • Mitigate risks related to price fluctuations of raw materials
  • Achieve strategic goals to benefit customers and shareholders

Solution

IHS Supply Management Solution

  • Pricing & Purchasing

Results

  • Surpassed goal of saving the company $500 million by almost 35%
  • Saved $9 million through move to new supplier that was half the cost of the previous provider
  • Saved $11 million in costs by integrating management of logistics and freight operations with procurement
  • Supported hedging strategy to mitigate risk of fluctuating costs

Monsanto Procurement Team Saves Millions, Mitigates Risk

With nearly 22,000 employees in 66 countries1, Monsanto is one of the world’s leading sustainable agriculture companies and fully dedicated to building trust by positively impacting both the environment and society. Monsanto’s global procurement team plays a key role in helping the company achieve those goals by supplying the products and services that are required to provide superior technology solutions to farmer-customers around the globe. To maximize the value that Monsanto delivers, the global procurement team is committed to using best-in-class processes and tools across its worldwide operations.

“From a purchasing perspective, we’re always trying to source high-quality products at the best costs so that we are able to deliver a very polished product to our customers,” said Paul Foppe, Decision Analysis Finance Lead – Global at Monsanto. “Our partnership with IHS gives our purchasing team consistent intelligence from a credible external source to help us do our jobs better.”

Finding a Global Solution for a Global Enterprise

Until several years ago, Monsanto’s procurement teams around the world lacked a uniform source of market intelligence to benchmark costs, evaluate pricing and understand market dynamics. When the organization decided to standardize its purchasing processes to reflect the increasingly global nature of the enterprise, Monsanto turned to IHS, already a trusted partner to the procurement organization. Initially, Monsanto implemented the IHS Supply Management Solution, with its global pricing and purchasing tool, on a trial basis with 15 users.

“We found a lot of value during the trial, so we now use the pricing and purchasing tool on an enterprise basis around the world,” said Foppe. Today, approximately 120 procurement professionals across 20 countries rely on this online tool to guide both strategic planning and day-to-day decision-making.

With IHS, Monsanto benefits from having a consistent source of market intelligence to support strategic planning across its varied categories of direct and indirect expenditures, including chemicals, logistics and transportation, energy and facilities, and media. “Our global procurement lead wants all of Monsanto’s category managers to be experts in their own categories. Now, they are,” said Foppe.

Foppe credits the use of standardized market intelligence with depth and breadth across Monsanto’s business categories for helping category managers build solid strategies that “set us up for some of the success we’ve had this year.”

Driving Process Improvement with New Insights

Access to a consistent external source of market intelligence supports Monsanto’s NOVO initiative, a cross-functional process of developing and implementing recommendations for process improvements that improve operational efficiencies, reduce costs, mitigate risks or deliver other benefits.

We just accomplished one of our major goals, which was to save the company a half billion dollars over four fiscal years.

Paul Foppe
Decision Analysis Finance Lead - Global Monsanto

“One of the processes we worked on was logistics,” said Foppe. In the past, Monsanto’s many North American warehouses and inbound/outbound freight providers were managed by a separate logistics team. “Through external benchmarking and market intelligence on costs for these types of services, we were able to sell senior leadership on the idea of integrating management of these functions with procurement,” said Foppe. “As a result of working together, we saved $11 million.”

Cutting Costs with Market Insights

Like any procurement organization, Monsanto is always on the look-out for ways to control and reduce costs. Suppliers and raw materials are two factors that go into the cost equation.

In one example of reducing costs, a category manager used the IHS tool to identify sources of raw materials. In doing so, he found a new supplier whose pricing was half that of the previous source of materials. “Switching to the new supplier saved the company $9 million dollars,” said Foppe.

The global pricing and purchasing tool enables better sharing of market intelligence insights. In addition, a senior chemical industry expert from IHS also presented a 90-minute webinar on the outlook for ethylene prices and potential impacts on supply chain management. “It was really a great perspective for members of our team who deal with it daily, especially hearing the outlook for the next few years based on a credible external source,” said Foppe. “Now, the individuals building budgets based on what they should be paying for raw materials really understand what the monumental shift in petrochemical commodity prices means for our business.” Our senior leadership feels more confident in their understanding of the drivers and sensitivity of petrochemicals in Monsanto’s business.

Reducing Risks with Reliable Forecasts

For a large company like Monsanto, it’s critical to reduce the risk of price fluctuations in areas of both direct and indirect expenditures. Hedging is one strategy to mitigate risk. “We relied heavily on forecasts from IHS to understand commodity pricing. We use the IHS forecast to blend into our understanding of the commodity market and hedge accordingly to reduce risk.”

Driving New Business with Solid Data

Monsanto takes advantage of the external market intelligence available through the pricing and purchasing solution when developing or enhancing products and new lines of business. In Latin America, Monsanto’s chemicals team relied on IHS data as an input into new product launches.

In another example, a North American plant was planning to ramp up production of a products. “We didn’t know if the raw materials would be available to meet the scale of production or how much they would cost. We used the tool to build a ‘should cost’ model,” said Foppe.

Achieving Enterprise-wide Strategic Goals

Armed with credible insights into raw materials costs, supplier dynamics and market trends, the global procurement team is now better able to achieve its objectives to the benefit of both customers and shareholders.

“We just accomplished one of our major goals, which was to save the company a half billion dollars over four fiscal years. We’ve already surpassed that goal by almost 35 percent and project to beat it by even more,” said Foppe. Foppe expects the global procurement team to be charged with reducing its addressable spend (spend that can be impacted by sourcing activities) by 10 percent over the next four fiscal years. Monsanto is now well-positioned to meet that goal.

1 http://www.monsanto.com/whoweare/pages/default.aspx

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