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Staff Reporter
LG Electronics has set to save up to 1.4 trillion won, or some $1 billion, in procurement costs this year, its top purchasing officer says.
"By sourcing effectively, we believe we can save close to $1 billion in purchasing costs this year," Thomas K. Linton, the company's chief procurement officer (CPO), said in an interview with The Korea Times at the headquarter in Yeouido, Seoul, Monday.
"LG is in the process of transforming its procurement operations to achieve greater results with our suppliers by improving our distribution system and reining in spending on the logistics side," said the executive vice president.
The remarks came a month after the company targeted a reduction in expenses of 3 trillion won, or some $2.2 billion, this year by improving its procurement system.
As for a possible target in saving procurement material costs next year, he remained rather cautious about unveiling "numbers."
"The only thing that I can tell you is that competition between suppliers is our target. In the current environment, visibility isn't very clear so forecasting becomes especially challenging," he said.
The 20-year veteran of IBM joined the world's third-biggest maker of handsets and flat-screen TVs as its first chief procurement officer in January 2008.
Since then, he has been tasked to standardize the hodgepodge of procurement processes and systems that LG has developed around the world.
Under his leadership, LG's purchasing system was realigned by commodity across five different business units and was separated among factories and subsidiaries in 110 countries.
"Success isn't about making a huge jump. It's about continuous improvement and momentum. LG is creating momentum for better procurement as the brand goes global," said the 51-year-old executive, adding costs must track with average selling prices in profits.
After watching materials costs soar in recent years, a growing number of consumer electronics companies are looking for new strategies and new kinds of collaboration in an effort to become more efficient.
Leading Korean consumer makers, including LG's cross-town rival, Samsung Electronics, have been undertaking a broad effort to refine and integrate their procurement systems by better realigning planning and execution connections to their customers and boosting ties with suppliers.
The LG officer has been actively driving such trends.
At an annual "Global Suppliers Day," in late March, with LG's 250 suppliers, the CPO promised its major suppliers, including Qualcomm, Toshiba and Hitachi, intensified collaborative strategies in procurement.
"80 percent of materials are purchased which obviously has a big impact on LG's profitability. The challenge I posed to our suppliers is that their success means LG's success," according to the CPO.
LG Electronics targets to increase its global shares in liquid crystal displays (LCD) TVs by 15 percent after selling 18 million units on the back of effective procurement in panels from affiliate LG Display and Taiwanese panel suppliers.
In handsets, where LG is ranked third in the world after Nokia and Samsung Electronics, the South Korean company expects to find one or two more Taiwanese collaborators for mobile phones outsourcing in 2009, according to market research firms.
Although LG's procurement system has seen steady and impressive improvement over the last few years, challenges, however, lay ahead.
"Still, we need to boost our capability outside of Korea," the officer said, adding that organizational balance at home and abroad is "important."
"We have to have much more training in the basics, making people act and think the right way. Procurement is all about people and their capabilities. And we're always looking for ways to improve upon the status quo," he said.
Over possible ways to tackle such drawbacks, Linton has presented "trust" as the key.
"Performance is rooted in trust - internally and externally. You can never understand everything 100 percent. That's why trust is so important."
According to him, communication alone cannot solve every procurement problem. It takes trust, which comes from sharing the same goals and objectives.
From the time the current CEO of LG Electronics, Yong Nam, took the top position in January 2007, he looked for top talent regardless of nationality, as he believed LG needed to be a trendsetter amid the convergence moves of the Digital Age.
yckim@koreatimes.co.kr
