Ericsson deals with around 30,000 suppliers worldwide, and their products and services often account for a large part of the deliveries to our customers. Sourcing plays a vital role in ensuring these deliveries live up to our high expectations on quality, speed and innovation, as well as helping to increase margins, thereby contributing to profitability. On top of this, sourcing contributes to our top line by acting as a commercial function, extracting value from the suppliers, and pursuing business opportunities that good knowledge of the business, the suppliers' capabilities and the market enable.
To get a good overview and control of the supplier base, the suppliers have been divided into around 300 categories. Each category has a leader, who is responsible for optimizing the category, so that the right suppliers are chosen based on their numbers, quality, geographical spread, price and risk. The target is to minimize the number to get the most out of the supplier base based on economical, value creation and risk perspectives. To begin with, the idea is to concentrate on the 30 or so biggest categories, which together represent around 90 percent of the total spend. One of the important and most efficient tasks is to "cut the tail;" in other words, replace small local suppliers with larger, global suppliers, thereby simplifying negotiations and giving Ericsson greater leverage, as well as minimizing the costly and time-consuming administration of having numerous small suppliers. The work that has been done to achieve this has resulted in a 10 percent reduction of suppliers year-on-year, as well as increased margins.
Once their numbers have been reduced, the remaining suppliers are segmented depending on their importance and potential to Ericsson. A Supplier Relationship Manager then makes sure that maximum value is extracted from the suppliers, and that they can contribute to Ericsson's business through their innovation and ability to complement the Ericsson portfolio with. A range of tools and processes are developed for this purpose.
Apart from increasing margins and extracting value from suppliers, Ericsson Sourcing also works with demand management to get involved early on in the sales process to be able to contribute to the top line as well as the bottom line. One of the initiatives to become a commercial function contributing to growth is the creation of the Sourcing Business Partner (SBP) role. The SBP supports and works closely to the sales organization, adding value to the process by contributing their knowledge of the supplier base, the market and different business models. This could include identifying that a customer can improve the supply chain by using other suppliers in preparation for an offer to take over a service, or identifying suppliers that can contribute to a new solution.
When category management, supplier relationship management and demand management work together, sourcing contributes to Ericsson by cutting costs, minimizing risks, extracting value and improving the top line. These are obvious benefits for an organization aiming to be the World Class Sourcing Organization.