BRAINTREE, Mass. -- Nancy McDermott, Ahold's senior vice president who heads up BrainTree Sourcing here, the not-for-resale (NFR) division of Ahold U.S. Retail, pointed to the size of Wal-Mart Stores: 2004 sales of $256 billion. She then further contemplated its numbers.
Not-for-resale, or indirect spending, is the nuts and bolts of an operation -- office products, supplies, store equipment and other services not resold to customers. It represents about 10% of a company's gross sales. In Wal-Mart's case, that would be about $25.6 billion, which is just $1.3 billion shy of the $26.9 billion Ahold U.S. Retail generated in total sales in 2003.
"It would take a bunch of us [conventional supermarket operators] to remotely get to that level of clout," said McDermott, explaining where the NFR division at Ahold is headed after two-and-a-half years since its inception.
Moving from the supply chain side at Stop & Shop, McDermott was named vice president of not-for-resale sourcing in 2001 to save Ahold on NFR procurement costs. She was given a "big, audacious goal" of saving the company $50 million in the team's first year of operation. With a lot of hard work and team effort, the saving goal was met in 2002 and repeated in 2003. Another $50 million-plus will be achieved this year, said McDermott. The figures are conservative, she added: When calculating savings from long-term contracts, they add up to much more. BrainTree Sourcing was launched in late 2003 as an Ahold subsidiary so McDermott's team could work with other retailers on managing their NFR spending.
Bill Grize, president and chief executive officer, Ahold USA, who, as previously announced, will soon retire, worked closely with McDermott and her team on re-engineering the procurement process.
"Singularly, BrainTree has been our most successful integration venture," he told SN. McDermott's contribution has been in devising a disciplined procurement methodology and assembling a team of 45 specialists, about 75% of whom have been brought in from outside the food industry.
"This team today is a combination of people," said McDermott. They include consultants, those from the packaged goods industry, retailers from outside the food industry, and people from within Ahold. She said Ahold has made an investment in the team's expertise. "On average, our salary structure is probably higher than in other areas of retail."
Grize described McDermott's team-building skills as collegial, yet disciplined. "It is the old iron fist and velvet glove [management style]," he said.
"Nancy is very approachable, and sets very high standards for herself and for the people around her. They have responded very nicely. I've been pleased with the esprit de corp there, and the way people have worked to achieve very high numbers with good results."
Prior to forming BrainTree, each of Ahold's retail divisions was responsible for sourcing NFR. At times, several divisions would attempt to work together on specific categories to lower costs, said McDermott. Yet no one was really responsible, nor was there a process to keep those involved connected. It sometimes became a corner-of-the desk task, and it was challenging to keep everyone focused on the same goal, she said.
"From the very beginning, we understood this wasn't about sourcing," she said. "This was about transformation." Centralizing NFR procurement required a mind-set change for the team's internal customers: the retail divisions. "For some people, we were now going to do the job they did," said McDermott.
Besides being centralized and under the supervision of a dedicated team, a disciplined "spend management" process is used, culminating in running multiple sourcing scenarios: national, regional, local market, aggregating the purchase across all divisions in the company. The team utilizes analytic tools to assess savings opportunities. They use reverse auctions as a price negotiation tool, as well as soliciting traditional request for proposals.
"This process had to be customer-focused," said McDermott. "In the end, the retail divisions had to pick the suppliers that worked best for their organizations, and consider quality, service and cost, which is often the third component."
BrainTree has broadened its scope when it comes to NFR procurement by going beyond nuts and bolts supplies. It now also sources services, such as marketing communications, loss prevention, IT/telecommunications, construction and others.
Last year, McDermott was charged with the responsibility of sourcing private label, an indication the process can work for resale products as well.
Besides the two Ahold divisions, Stop & Shop/Giant of Landover and Giant of Carlisle/Tops, BrainTree will continue to source for Bi-Lo and Bruno's, which was sold last month to the Dallas-based Lone Star investment group, said McDermott. It also sources for U.S. Foodservice, another Ahold division.
McDermott said when all the BrainTree spending on NFR is combined, it totals $4 billion. While that figure doesn't compare to the clout of Wal-Mart, if others within the food industry worked with BrainTree on NFR sourcing, it would certainly strengthen the purchasing clout needed to cut costs significantly.
"The great thing about this position is the opportunity to build a business within a business," said McDermott. "That's pretty exciting for anybody in their career."
As McDermott looks to transition from the cost side of the business to becoming a revenue stream for Ahold, she sees a huge opportunity for the industry to work together to cut costs using the disciplined approach and research tools that her team has developed.
"This isn't about my accomplishments," said McDermott. "The BrainTree Sourcing team working with our operating company partners have accomplished this. We couldn't have done it ourselves. It's really Ahold being committed to this."
Senior vice president, NFR and corporate brands sourcing/BrainTree Sourcing
Professional background: Began career at Ernst and Whinney as certified public accountant in 1979. Joined Ocean Spray Cranberries in 1982, and spent 17 years with Ocean Spray working in finance, and serving as vice president and senior vice president, in the corporate controller's office, corporate services, value chain and human resources, and sales and marketing. Joined Ahold U.S. Retail in 1999 as vice president of supply chain for Shop & Shop, named vice president of not-for-resale sourcing in 2001, promoted to senior vice president of NFR Sourcing in 2001, promoted to present position in 2004.
College: Graduated from Trinity College with a B.A. in economics; earned a masters from the Graduate School of Professional Accounting at Northeastern University.
Family: married, twin sons age 10; two dogs, two cats and a Guinea pig.
Leisure activities: spending time with family and twin boys; likes sports -- skiing, golf, tennis.
Career mentors: "I don't know if there is anyone specifically. I love the study of leadership. The end game here to be successful is that it's all about people and remembering to reinforce their good performances."