Purchasing is all about relationships—building and maintaining relationships with suppliers and internal customers. While both kinds are important, it is relationships with internal customers that the global purchasing operation at the Dow Chemical Co. in Midland, Mich., is concentrating on right now. It's the next step in the company's major transformation from tactical to strategic purchasing.

Among its internal outreach efforts: internal customer-satisfaction surveys, recruitment of "the best and brightest" to work in purchasing and regular communication of purchasing successes.

Of course, underlying those efforts are the steps Dow has taken to strengthen its relationships with suppliers. And the first of these is centralization.

In keeping with corporate goals and objectives, management centralized purchasing in the mid-1990s. Since then, purchasing has taken on a more global focus, and provides its services to each of the company's businesses located at facilities in 175 countries.

With these pieces in place, global purchasing next turned its sights to sourcing and:

• Introduced use of a strategic sourcing process called value-based sourcing (VBS).
• Created a center of excellence that helps keep the company's purchasing pros up to date on the latest tools and techniques.
• Added a dedicated rep from the company's HR function to help with recruiting and retaining talented, skilled individuals.

Now, the organization, led by Tim King, vice president of global purchasing, is working on forging closer ties with its internal customers, the Dow businesses or partners as the company calls them.

Management tapped King who was working as commercial vice president for North America, to take the top purchasing role in April 2007. It's the job of this 31-year Dow veteran, who has a strong sales and marketing background, to continue the work of his predecessors and see the transformation of global procurement through to its completion. This means selling the ideas internally.

"We have updated purchasing processes and tools and put the right people in the right jobs to make the best possible decisions for the Dow Chemical Co.," says King. "We've made significant progress in all three areas. In the next two to three years, we will make this transformation a reality. It's all about how we focus our efforts internally with our business partners and externally with our suppliers."

King and his team manage a $15 billion annual buy, which is about 36% of Dow's annual sales worldwide (about $49 billion in 2006). The purchasing tab represents just about everything the company buys except for hydrocarbons and energy. The spend breaks out like this:

• Raw materials, 40%.
• MRO and capital equipment, 25%.
• Logistics, 20%.
• IT and other corporate services (such as fleet management, HR, legal and travel), 15%.

The team is prepared to take on challenges of getting global purchasing's message out to the businesses. Although relatively new to purchasing (just about one year), Elliot, like King, has a background in sales and marketing. She's been with Dow for 27 years, and has worked in R&D and managed two businesses, with P&L responsibility.

Tolliver and Gray have been with global purchasing a bit longer. Tolliver joined purchasing two years ago as sourcing director for corporate services before adding responsibility for raw materials. Her background is in IT; previously, she was IT director for Dow's agricultural sciences and biotech business. Gray has 24 years of supply chain and purchasing experience.

As part of the company's centralization efforts in the mid-1990s, global purchasing became part of a shared services group. King reports to David Kepler, senior vice president of shared services, environment, health and safety and CIO. Kepler reports directly to the CEO.

Global purchasing is comprised of four central groups. The first is sourcing into which Tolliver, Elliott and Gray report. The second is operations where tactical functions such as the processing of Pos takes place. Third is payables which reports to global purchasing. Payables reporting to global purchasing is a best practice recognized by many in the profession as a way to improve efficiency and reduce cost.

Fourth is a purchasing expertise center. Its function is to keep those working in global purchasing up to date on the latest sourcing tools and techniques. When Tolliver first came to global purchasing, she held a dual role, in sourcing (services) and at the expertise center before taking her current post.

Setting up global purchasing this way "helps us accelerate the aggregation of our spend for better leverage, and improve our overall efficiencies as a function within the company," says Gray. "We buy to give Dow a competitive advantage in the marketplace."

Part of global purchasing's objective as a function within the company, he says, "is to help our internal customers and our industry run better, safer and faster. This means selecting suppliers that can actually live up to this statement."

Global purchasing also is committed to helping Dow meet its 2015 sustainability goals, as they relate to product stewardship throughout the product life cycle. As such, it looks to suppliers that share similar goals.

The operation uses a global sourcing methodology that Elliot explains "assures that we are creating value and reducing vulnerability or risk for Dow."

King's team uses this methodology on each category of spend. The methodology approaches the spend from the strategic to the tactical, and provides the company's businesses with sound sourcing strategies for the goods and services they purchase.

At the upper most, or strategic, level, the methodology calls for global purchasing to put together a cross-functional team of representatives from within Dow. Using a sub-category of the logistics spend as an example, the team may consist of someone from the logistics operation as well as individuals from the businesses where the mode might be critical to them. An individual in global purchasing leads the team.

At the tactical level, the team manages the category. It monitors the contract and ensures that purchasing's internal customers are satisfied with suppliers selected by the team. They use customer satisfaction surveys that track sourcing strategies, engagement quality and level with partners and supplier relationships.

At the heart of the methodology is a strategic sourcing process which global purchasing calls value-based sourcing or VBS. Not unlike strategic sourcing processes used by other big companies, VBS has multiple steps, relies heavily on data and uses some six sigma tools. There's also a gate approval process at each stage. VBS takes the cross-functional team through market analysis, evaluation of supply strategies, and, ultimately, supplier selection. Throughout the process, the teams may consult with an internal operation called the Business Intelligence Center.

Timing of this approach no longer coincides with contract renewal. "We are trying to move away from that sort of thinking," says Elliott. "It's part of our transformation, teaching our people to be more like market managers. It's up to the team leader to monitor supply and demand trends and open up a study of the category at the appropriate time, when there are changes in the market." She considers this change a benefit to Dow.

Other tools used by global purchasing are more tactical in nature. The operation uses technology and e-procurement tools to improve efficiency and reduce costs by automating processes such as RFP (request for proposal). It also uses e-tools to monitor supplier risk management.

"We are very confident of our use of technology to further productivity," says Tolliver. "But we feel we haven't tapped into those tools enough when it comes to elevating our effectiveness." Dow is implementing the mySAP application, and global purchasing looks to its capability to help continue its transformation.