Against All Odds: Spend Efficiently In A High Growth Business

Summary: Increased EBITDA $150MM from a $1.5 billion spend.

Problem: Getting ready for slow growth. By 1999, after over 10 years of annual growth rates of +20%, MBNA's credit card market would be saturated by 2003-2004. Business units were not lean and efficient with the profit per employee growing at a rate less than sales and profits. I was hired as a cultural change agent to increase spend efficiency without impacting the current high growth rate. Past efforts at purchasing efficiency projects had not retained initial savings projections as business units were measured and rewarded for growth and not spend efficiency.

Approach: Management's initial plan was vaguely defined as corporate purchasing buyers needed to become better at negotiation. After discovering that the normal buyers were simply order takers at best, and were not involved with the business units, I revised the approach into two main efforts:
1) Develop a team of internal purchasing/sourcing "consultants" who would perform initial efficiency projects and then remain supporting the business units as commodity managers.
2) Institute corporate wide policies and procedures to improve and measure better buying practices.

Results: I built from scratch a 7-member Commodity Analysis group that exceeded goals with an over $150 million EBITDA increase in cross-functional projects involving 20 business centers including Credit, Information Technology, Consumer Deposits, Facilities Management, Consumer Finance and Marketing (Advertising, Loyalty, Sports, Internet, Telesales and Events). The effect was an increase in profits per employee.

The table shows that the MBNA's high loan growth and earnings were declining starting around 2001. The sourcing processes and controls help trend the Purchased Expenses down and supported the earnings starting in 2000.
Note: 2002 earnings reflect an industry wide accounting change.

How we did it: I took an inexperienced team and enabled them to perform at the level of (McKinsey) business restructuring consultants. With a charter to make it happen without a corporate mandate, our performance ranged from "consultative selling" of engagements to measurable financial and performance results. Team development included financial and process analysis, market and supplier research, negotiation, conflict resolution, complex RFP development and evaluation, presentations, and project management. Focus was working with the units to change the way we bought (demand and processes) and what we paid (vendor management).

I led the way by collaborating with the various business units to develop savings without slowing unit growth. By running concurrent projects, we had over 130 people involved at one time. Unlike temporary consultants, my group instituted programs to achieve and sustain long term savings by establishing "key account" type strategic and tactical partnerships with the business units. This delivered continuous process improvements to keep cost efficiency approaches aligned with business goals and customer expectations. We got several recognitions that we significantly helped business unit growth.

Projects included:

	Process streamlining
	Sourcing entire banking systems for international expansion
	New facility construction process re-design
	Transforming how we bought and delivered the more than 8,000 individual marketing mailings per year. One project alone ran $40-60MM in annual cost avoidances and new savings.

Policies established included thresholds for competitive bidding and executive review of all bid exceptions.

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