Emotional Intelligence in Negotiations by Tom DePaoli
Purchasing and Supply Chain professionals must be aware of and strive to improve their emotional intelligence. A definition of emotional intelligence is the capacity to be aware of, control, and express one’s emotions, and to handle interpersonal relationships judiciously and empathetically. Some would say that emotional intelligence is the key to both personal and professional success.
Emotional intelligence is especially critical in negotiations. I classify three general types of negotiations and I will try to discuss the importance of emotional intelligence skills in each type.
The three types of negotiations that are generally recognized are:
- Adversarial or the win-lose approach
- Win-Win where both parties win on certain issues or concerns
- Information-Based Negotiations where a deep understanding is obtained by both parties and often a strategic partnership can evolve
The adversarial approach requires some emotional intelligence but often degenerates into a shouting contest with great histrionics, intimidation and a brutal battle of wills. Since both parties are often acting, exaggerating and pushing their own agenda, relationship building or empathy takes a back seat to just one party getting its way or out bullying the other. In summary, emotional intelligence skills required are very low or non-existent.
The Win-Win approach starts with a discussion of the respective parties wants and needs. The goal is a mutually satisfying agreement. People are separated from the problems; a variety of possibilities are created and the results are based on some objective standard. There is a fairly strong commitment to empathy and no blaming is allowed. Both parties are involved in problem solving and there is a focus on each parties’ interests. The focus is then redirected to mutual interests or common ground. The objective is to be trustworthy but not totally trusting. This approach does require a moderate level of emotional intelligence skills from the purchasing professional.
An information-based negotiation is a radically different approach to negotiations. (See Information-Based Negotiations: A Different Approach) It emphasizes deep knowledge of the supplier and their industry. It transgresses from some traditional approaches to negotiations but in information-based negotiations the purchasing professional gains a deep understanding of the supplier’s industry, their margins and their culture. In essence this is an immersion or empathy with the supplier and their competitive landscape. The best way to describe it is that the purchasing professional knows as much or more about the supplier and their industry as they do! Some would argue that this approach is highly analytical. Information drives decisions not emotions or one-upmanship. However, the purchasing professional in essence becomes highly tuned emotionally with the supplier. A deep mutual understanding of their competition, margins, challenges and constraints is mastered. Trust issues are quickly overcome and resolved. Trust becomes nearly total. It requires the purchasing professional to become the resident expert on a market and an industry (just like the supplier). It tends to yield much more significant long term gains than adversarial or even win-win approaches. Using this approach is one of the best methodologies for transforming your supply chain and developing true mutual breakthroughs with your supplier. Below is my summary table:
|Negotiation Tactic or Strategy||Degree of Emotional Intelligence Required|
|Adversarial||Little or none|
My conclusion is that a purchasing and supply chain professionals must not only work to develop their emotional intelligence skills, but realize its degree of usefulness and appropriateness in each different type of negotiations strategy.
Dr. Tom DePaoli is the Management Program Director at Marian University in Fond du Lac, Wisc., and the Principal (CEO) of which does general business consulting in the supply chain, Lean Six Sigma and human resources areas. Recently he retired from the Navy Reserve after more than 30 years of service. In other civilian careers, he was a supply chain and human resources executive with corporate purchasing turnaround experience and Lean Six Sigma deployments. He is the author of eight books and numerous articles. His Amazon author’s page is https://www.amazon.com/author/tomdepaoli
Autonomous Vehicles (Robot Trucks) Will Redesign the Entire Supply Chain
By Tom DePaoli
Many supply chain professionals do not completely understand the disruption and improvements that autonomous vehicles, specifically what I call robot trucks, will create. Most cannot get past the pitfalls and possible barriers to robot trucks and push back any pre-thinking about the impacts. I define robot trucks with a broader perspective. I include trucks of all sizes and even internal plant material handling equipment like fork-lifts and automatic guided vehicles (AVGs).
The biggest leap that will happen is that robot trucks will learn! Many doubters cannot get past this. Although not complete artificial intelligence (AI), robot trucks will adapt on their own, to conditions and circumstances, and build a memory of what to do. Major advances in Simultaneous Localization and Mapping (SLAM) are accelerating. Here are some aspects to think about.
Warehouse placement and location will be completely challenged. Many logistics people spot warehouses placement based on a 500-mile deliver radius or circle. Robot trucks will at least double this radius to 1,000 miles. Some warehouse placement is to enable the semi-truck drivers to return home for the night. Obviously robot trucks do not need this.
Robot trucks will directly compete with domestic air freight and rail. Next-day delivery of 1,000 miles or more is feasible with robot trucks. In fact, rates may be based on how fast a material is delivered down to the minute. Some trucking companies may even adapt a spoke-hub concept or meld with an air freight company.
Labor shortages of truck drivers will become less of an issue. The design of a robot truck will not have to accommodate for creature comforts (driver) which can be as much as one-third of the total cost of a manned truck. Driver limitations of 10-11 hours driving will not be a factor.
Smaller local delivery robot trucks will compete with more exotic delivery methods such as drones.
Truck delivery dock design and layout may have to be modified or adjusted to meet robot truck capabilities.
SLAM will be enhanced for internal plant vehicles, like fork-lifts, and automated guided vehicles. (AVGs). Material handling costs can be as high as 30-40% of a product’s cost and is pure waste. The greatest leap will be the interconnect-ability of the equipment and communication with inbound and outbound freight delivery vehicles.
I believe one of the biggest barriers to robot trucks will be that fact that we are a litigious society and accidents will be aggressively litigated. However all the data point to fewer accidents with robot trucks not more. Legislation will be needed to deal with this issue. Unfortunately, legislative bodies are rarely proactive in creating laws for emerging technologies.
I offer as evidence of this failure to act legislatively with this statement, “Heavy-duty rigs make up between 7% and 10% of vehicles on the road but consume more than 25% of the fuel”, according to Dave Cooke, Senior Vehicles Analyst at the Union of Concerned Scientists. Yet there is still no coherent national energy policy to consider alternate fuels for these rigs.
Fuel choices include hydrogen, natural gas, electricity and methane. They all have distribution and environment footprint issues that need to be addressed.
In summary, supply chain professionals must rethink their entire logistics strategies both eternally and internally with the emergence of robot trucks.
Why Haven’t The Terrorists Attacked the Supply Chain Yet? Vary Your Inbound Ports Now!
By Tom DePaoli
Many terrorist attacks focus on the spectacular, spreading fear and taking as many lives as possible. One of their purposes is to have governments spend enormous amounts of money for terror prevention and to demoralize the populace.
- Why haven’t terrorists focused on the supply chain which could be much more disruptive?
First let us look at little history. During the American Revolutionary War, Francis Marian (the Swamp Fox) understood the impact of attacking the British supply chain and was a pioneer in this type of disruptive supply chain warfare. He attacked two particular “choke points” on the supply lines on the Santee River near Charleston and the Black River near Georgetown. He also attacked British forts which were in essence also supply depots. This was very effective. Note that on average it took a sailing ship 6-7 weeks to sail the Atlantic one way. So British resupply with manufacturing and procurement in England conservatively took 18-20 weeks! Many terrorists lack a historical perspective or do not understand the importance of the supply chain.
- What about now, is our supply chain secure especially container ports?
The Southern California ports of Los Angeles and Long Beach led the North American inbound container trade with a combined volume of 7.6 million TEUs (Twenty Foot Equivalent Unit) is the unit of the capacity of a container ship, representing 30.3 percent of the overall North America inbound container trade. If terrorists decided to disrupt these two ports the impact on the United States would be almost immediate. Two of the most obvious ways to disrupt the ports would be to mine the ports or plant a container or multiple containers with hazardous materials either biological or radioactive.
- So what is the point here for supply chain professionals?
With the expansion of the Panama Canal, the time is now to not only consider the new costs of logistics, but the risk of a major container port being shut down! Supply chain professionals should consider using multiple inbound ports to alleviate this risk. Currently many supply chain professionals’ factor in the risk of natural disasters to supplier selection and backup suppliers. This is commendable, but there is more work to be done.
Again, the time is now, with the expansion of the Panama Canal, to look at the entire inbound logistics network and alleviate the risk of a major container port or ports being shut down; by judiciously dividing up your inbound flow between container ports of arrival.
Future Purchasers Will Become Conductors of the Digital Supply Chain Orchestra
By Tom DePaoli
Predicting the future role of purchasing or the supply chain is always fraught with uncertainty and of course dependent upon the latest advances in technology. Here are three major trends that we will all have to adapt to:
The digital supply chain will virtually eliminate forms and much of the bureaucratic work that purchasing does. It will provide instant access and powerful visibility throughout the supply chain and all the networked components and people. With the tools of virtual reality, a purchasing professional will be able to “visit” a plant or organization anywhere in the world in real time. Adjustments will be made based on artificial intelligence and pre-determined rules of action. The purchasing professional, like a conductor, will coordinate the harmony and efficiency of the entire supply chain.
The logistics of the supply chain will become self-driving or robot controlled. Modes of transportation like trucking, trains, ships, planes etc. will be self-directed and automatically adjust to updated times of delivery or changing conditions. Real time visibility will be the norm. A supply chain professional can be on the virtual deck of a container ship in the Pacific Ocean and view their container. The cost of logistics will continually drop. Nearly completely automated and green factories will dramatically influence outsourcing decisions. Factories will be placed closer to the consumers or market with total recycling capability built right in place.
Artificial intelligence will be common in many machines and organizations. The level of artificial intelligence will increase at an even faster rate than Moore’s law. The biggest breakthroughs will be with predictive analytics which will forecast behaviors and developments based on big data and trends. Purchasing professionals will be able to see tendencies even before they happen and embrace the change. Instead of reacting to the bullwhip in the supply chain network, supply chain professionals will have their hands on the whip or orchestra baton and fine-tune its impact.
The future purchasing professional will have increasingly thorough control of the supply chain and be able to anticipate and view any disruptions. As a conductor of the supply chain orchestra, future professionals will not only provide harmony and predictability for the entire supply chain, but interact with it live, in real time.
How to Avoid a Supply Chain Apocalypse
By Tom DePaoli
What are some tactics to avoid a supply chain meltdown, especially an unforeseen or calamitous event? None of us wants to experience a supply chain zombie-like apocalypse. Many organizations are starting to use ISO 28000 certification to assist in reducing supply chain risk. I recommend an alternative multi-faceted approach.
There is no one-size-fits-all. As the importance of supply chain management grows leaps and bounds, the supply chain professional must develop multiple options and proficient tactics to ensure the continuity of the supply chain. A key element in lessening supply chain risk is to have an alternative or backup supplier. With many organizations sole-sourcing now, having a backup supplier may seem like an antiquated traditional tactic, which has no place in a deep relationship or partnering strategy with a supplier. Be advised: It is necessary.
There are also many risk assessment methodologies available for the supply chain professional. The insurance and investments industries have many models to assess risk. The issue, as usual, for the supply chain professional, is finding the time to assess the risk and to plan for alternatives. Here, a gradual stair-step approach works. First, ensure your sourcing methodology addresses risk and the need for backup suppliers. Focus on your critical materials and services, not the typical off-the-shelve items. Do not be afraid to ask your prime supplier or a distributer for a recommendation for a backup supplier or alternative materials. Complete a small actual order from the backup supplier to ensure their capability to deliver.
In my book, Avoiding a Supply Chain Apocalypse, I note that there is no single silver bullet or quick fix. The supply chain professional must be creative and diverse in their tactics to sustain the supply chain.
Many organizations have in place a crisis management team that has written procedures for incidents like threats to employees, gunmen intrusions etc. Often they are led and formulated by Human Resources.
The supply chain organization should also have a crisis management team that creates written documentation for various supply-chain meltdown scenarios. This is a great subject to network with and gain knowledge from other supply chain organizations.
Finally, a supply chain organization can never completely eliminate risk, but it can plan ahead for the inevitable disruptions to the supply chain.
Purchasing Professionals Need Teamwork That Builds on Their Strengths
By Tom DePaoli
Purchasing departments are usually close-knit organizations that must endure constant crises, challenges and rapidly changing supply chains. The need for teamwork is especially important.
In a previous blog, Purchasing Leaders Need a Combination of Exceptional One-Off Leadership Skills, I noted that a purchasing leader needs to be trusted and trust his team members. Having unimpeachable integrity is key. I then listed various tactics to accomplish this. More noteworthy, usually because of a lack of resources, and constant firefighting, a purchasing leader must carefully coach his professionals. One method to do this is by placing them in areas where then can succeed and not fail.
One tool that I have used to discover what purchasing professionals are good at, or what makes them stand out, is the Gallup organization’s StrengthsQuest. This testing instrument helps people discover their strengths (also called themes) and appropriately use them. Each individual has five strengths identified. There are 34 total identified themes or strengths. These are placed in four domains: Executing, influencing, relationship-building and strategic-thinking. For a team, it is essential to share these strengths so that team members can realize what they are good at and what their teammates have as their strengths. The purchasing leader can then assign purchasing tasks to people based on their strengths and what they are not only good at, but likely actually prefer these tasks. In other words play to the strengths of your team members.
Let me give an example. One of my strengths was identified as strategic. The general description of this theme is: People exceptionally talented in the strategic theme create alternative ways to proceed. Faced with any given scenario, they can quickly spot the relevant patterns and issues.
A more specific description about me is: “It’s very likely that you might generate certain types of ideas quickly. Occasionally you draw links between facts, events, people, problems, or solutions. You may present numerous options for consideration. Perhaps your innovative thinking fosters ongoing dialogue between and among associates, committee members, teammates, or classmates. Because of your strengths, you might have a knack for identifying problems. You might generate alternatives for solving them. Sometimes you consider the pros and cons of each option. Perhaps you factor into your thinking prevailing circumstances or available resources. Maybe you feel life is good when you think you may be choosing the best course of action.
“Chances are good that you may be viewed by some people as an innovative and original thinker. Perhaps your ability to generate options causes others to see there is more than one way to attain an objective. Now and then, you help certain individuals select the best alternative after having weighed the pros and cons in light of prevailing circumstances or available resources. Instinctively, you sometimes know what has gone wrong. You try to uncover facts.
“Perhaps you are not intimidated by an overwhelming amount of information. Like a detective, you might sort through it, attempting to identify pieces of evidence. Following a few leads, you might begin to see the big picture. Maybe you generate schemes for solving the problem. You might choose the best option after considering some of the prevailing circumstances, available resources, or desired outcomes. By nature, you may see solutions before other people know there is a problem. You might start formulating answers before your teammates, coworkers, or classmates understand the question. Sometimes you generate numerous ideas before sorting to the one that makes the most sense in a particular situation.”
This strategic strength or theme has done me well in my purchasing career. I focused more on strategic relationships with suppliers, creative projects with suppliers, long-term strategic plans, and being prepared with options when things go wrong. As we all know, in purchasing things unfortunately, do sometimes tend to go wrong.
But enough about me!
The point that I am making is that a purchasing leader should take the time to understand the strengths, skills and talents of their professional team and mesh them into the goals and tasks of the organization. The key point is to give purchasing professionals clear chances to succeed by using their strengths, rather that berate them for their weaknesses.
StrengthsQuest is an excellent tool, which I recommend, to help the purchasing leader build stronger and more powerful teams.
Also see other blog posts by Dr. Tom DePaoli at My Purchasing Center:
Can Purchasing Use Some Aspects of Broken-Windows Theory?
By Tom DePaoli
Broken-windows theory is primarily used in law enforcement. It is not a complex or very complicated approach in concept. When a neighborhood starts to show disorder, decay or even minor crimes occur, the police force acts aggressively to prevent further disorder and increases in crime. Then significant statistical analysis recommends where and how to deploy police resources. More enlightened law enforcement also tries to improve its personal connection, presence and understanding of the neighborhood at risk. This is to help uncover the root causes of the decline. Town hall and community meetings are used to listen to and solve neighborhood issues.
Can purchasing use any elements of this theory to be more effective? Yes, it can. Unfortunately, many organizations are not empowering employees, quite the opposite, they are ignoring them or at war with them.
In my most recent book, Broken Windows Management in Business, I state,
“The analogy is this. In many cities of the country there’s a fear of the streets especially if there’s disorder and things are in disarray. In many organizations there is a fear of management. No small part of this is due to employees not understanding the actions of management….Prevention of disorder and actually fixing things that employees say are wrong; goes a very long way in establishing trust and credibility with management.”
The empowerment aspects of the broken-windows theory require taking the time to listen to what employees want fixed and their issues. Fixing what is broke, no matter how minor, expeditiously and showing meaningful progress is critical. This requires a management commitment, but purchasing can contribute by ensuring that its suppliers can perform under pressure and quickly. Purchasing can also provide the resources to employees and maintenance personnel to easily fix the problems that they have identified. By providing a quick uncomplicated way to enable employees to handle such repair transactions on their own, purchasing can insure that it is not a barrier to fixing issues but rather a catalyst.
Purchasing can also encourage the use of quick process improvement tools. In one of my previous blogs Procurement Needs to Lead Process Improvement, I noted that purchasing should employ and lead rapid process improvement tools like kaizens and some principles of lean. In fact the 5S concept can be used to help create order out of disorder much like the core principles of broken windows theory.
In 5S the five steps are as follows (Courtesy of the Kaizen Institute):
- Sort: Sort out and separate that which is needed and not needed in the area.
- Straighten: Arrange items that are needed so that they are ready and easy to use. Clearly identify locations for all items so that anyone can find them and return them once the task is completed.
- Shine: Clean the workplace and equipment on a regular basis in order to maintain standards and identify defects.
- Standardize: Revisit the first three of the 5S on a frequent basis and confirm the condition of the Gemba using standard procedures.
- Sustain: Keep to the rules to maintain the standard and continue to improve every day.
In summary, although purchasing cannot make the corporate-wide decision to implement the principles of broken-windows management, purchasing can play a strong role in facilitating a broken-windows approach to management. I remain convinced that fixing a company’s broken windows, or listening to employees’ issues and fixing the issues quickly, does more for management credibility and trust, than any other approach.
Also see at My Purchasing Center, Can Appreciative Theory Work for Purchasing?
Can Appreciative Inquiry Work For Purchasing?
By Tom DePaoli
Most purchasing professionals have never heard of appreciative inquiry. It is a systematic discovery process to search for what is best or positive in an organization or its strengths. These strengths are then improved upon to create an even stronger and more dynamic organization. Implementing change remains positive and thus springs from an organization’s strengths, not its weaknesses, or deficiencies.
All too often in my purchasing career, I have experienced a new purchasing leader or consultant, who comes from an outside company, then sweeps into a purchasing department and castigates purchasing professionals for, “doing everything wrong, unlike their former company, that did everything right.” This negative reactive approach to change often results in people becoming even more resistant to change. Traditional reactive methods to implementing change emphasize fixing what is broken or weak in an organization. This approach almost never works and causes even more fear.
One of the tools of appreciative inquiry is the sharing of stories about an organization. Employees are asked to describe a time when they were really engaged and excited about their work. Employees are asked to list what was great or memorable about the time. The themes or actions that the organization used are carefully studied and grouped. Common themes of these stories may evolve or confirm a major strength of an organization. These strengths then become skill springboards from which the organization needs to use and embellish.
I have previously discussed the storytelling techniques in a blog at My Purchasing Center titled Use the Storytelling Method to Train Supply Chain Professionals.
As a review, here are some of the advantages of storytelling:
- The brain stores information by stories.
- Stories are humanizing and stimulate creativity.
- Storytelling improves listening skills.
- Storytelling builds a team culture.
- It encourages collaboration.
Appreciative inquiry takes storytelling to the next level. The memorable stories and positive results become the dynamic building blocks of an organization’s competitive edge. It makes the vision or mission become actualized or reach their full potential!
Here is an example. One of the strengths of a purchasing organization that I led was sourcing and the use of cross-functional teams. The vast majority of the team members felt good about the sourcing decision and the transition plan to the selected supplier. A systematic methodology was used and modified as needed. Team members were well equipped to defend the selection and present the reasoning to other non-team members. Most members could defend and justify the selection and did it consistently and with enthusiasm. To my surprise the non-purchasing team members were even better at justifying the selection. The metrics almost always supported the supplier selection.
I, like many purchasing professionals, was initially very skeptical of the appreciative inquiry approach. Who has the time for it? Purchasing spends an inordinate amount of time fixing what is broken like expediting orders, handling bad quality parts, fixing bad suppliers, chasing down supply chain interruptions and overall upsets. These are all in the realm of fixing what is broke. The fact is that purchasing spends too much time as a firefighters putting out fires. Living in this type of hectic atmosphere or culture does not encourage a different positive approach to change. In fact, it encourages skepticism and the avoiding of risk.
In conclusion, appreciative inquiry can be a useful approach for positive change in purchasing. The challenge to purchasing is to make the time to discover the strengths of the purchasing organization. It requires patience and the gathering of memorable stories. Purchasing should build on its strengths rather than tear down its image by constantly fixing what is “broke.” In purchasing you are what you are perceived. Too often purchasing is viewed, as the harried firefighter who can never put out all the fires. Appreciative inquiry is a good approach to start to change this negative traditional image.
Can Purchasing Bootstrap and Lead the Transformation of An Organization?
By Tom DePaoli
Purchasing’s role in an organization touches across many departments, suppliers, countries, and competitors. This situation requires that purchasing professionals possess excellent communication skills and the ability to quickly adapt to different cultures, perspectives and crises.
Transforming your own organization’s culture is a grueling challenge. Expecting purchasing to “bootstrap” or use its own resources rather than external help, in organizational transformation, is a demanding goal. Purchasing, however, has many of the qualities and capabilities to act as the prime catalyst for this quest.
In fact many, purchasing organizations have radically changed or reengineered themselves from traditional clerical type organizations. The supply management or supply chain concept is rapidly becoming the norm. This type of change was monumental and transformative.
Could purchasing pull the bootstrap off? Most would say highly unlikely, but below are some tactics that could lay the groundwork or accelerate a successful transformation of an organization. Many have been previously used to transform purchasing into supply management.
One of the best ways is by breaking down department silos by involving diverse cross-functional teams in sourcing decisions. Including internal and external customers in as many decisions as possible is a sound empowerment tactic that pays off dramatically. Teamwork in such efforts deepens the understanding of participating employees in the overall purchasing cycle, and helps imbed the concept of total cost of ownership.
Incorporating grassroots efforts to ask internal customers what they want to help simplify purchasing transactions is another powerful tool. People usually appreciate colleagues who try to make their jobs easier and are not afraid of criticism. Making all transactions pain free, fast and intuitive is a strong way to increase value of and improve respect for purchasing. Acquiring strong base business knowledge for purchasing, by working side-by-side with production and sales, both improves product knowledge and enhances purchasing professionals’ credibility and business perspective. This helps expand the understanding of the voice of the paying customer.
Marketing the importance of purchasing and the supply chain with visible metrics creates a clear focus that others appreciate. Purchasing has to aggressively market its importance to the organization and develop a formal internal marketing plan of its goals.
Crafting a long-range purchasing plan that aligns with the organization’s vision, mission and strategic plan helps to justify purchasing’s efforts to the rest of the organization. Communicating with as many colleagues on a one-on-one basis should be especially encouraged. This gives purchasing professionals a chance to make their pitch to as many folks as possible and develop strong relationships.
Conducting training and inviting people from other departments to participate helps sell purchasing’s goals and metrics. Vital feedback can be obtained on the usefulness of purchasing systems and procedures in such sessions.
Finally, but most important, developing leadership skills and practicing leadership in groups is a good long-term skill-building course of action for all of purchasing. Most experts agree that one skilled leader can turn an organization around. Purchasing needs to be ready with leadership skills to help lead or encourage the organizational transformation process.
Any department would face and probably fail at the nearly impossible task of bootstrap transformation of an organization. Purchasing however would be the best place to start the transformation quest and develop the passionate and powerful leaders required to execute it.
How to Convince Top Executives of the Value of Purchasing
By Tom DePaoli
Purchasing has continuously demonstrated their impact to the bottom line of an organization. It has been well documented and universality recognized. Then why do many companies refuse to take advantage of this cost-saving resource? Why do executives still remain skeptical of purchasing’s value? In many organizations purchased materials and services account for over 50% of the cost of goods sold; yet purchasing is often relegated to a bureaucratic mundane dungeon of clerical functions.
Some of the fault lies in purchasing itself. Purchasing personnel are notoriously inept at marketing and selling their ideas and suggestions. They are often a harried bunch running around from firefight to firefight. Most do not even have a good or comprehensive communication plan. They fail to “toot their horn” or market their successes. Purchasing fails to tell their story compellingly and neglects to sell their importance. Other departments either ignore or politely humor purchasing. Purchasing remains the chief cost driver or cost saver for many companies, yet often purchasing is remarkably under-resourced and underappreciated.
One-way to sell purchasing’s importance is to empower as many other employees as possible to participate in purchasing especially on cross-functional sourcing teams. Involving as many personnel in constructive purchasing activities educates them on the value and importance of purchasing. This is a bottom-up approach to educating employees on the value of purchasing. It encourages them to contribute their ideas about improving services and products. Purchasing needs to strongly persuade other departments to participate in purchasing processes and decisions. Purchasing all too often fails at what I call the empowerment of employees and internal public relations.
But what can purchasing do about the top executives or top-down? Many executives have stereotype views of purchasing. One of our most successful methods to convince top executives of the value of executives is to encourage direct one-on-one collaboration with executives of your suppliers; especially ones who you are partnering with who realize the relationship is long-term. Exchanging ideas at this level not only yields great results, but also expedites decisions and removes bureaucratic barriers to success.
The fact is that purchasing also runs its own Research and Development (R&D) department. Suppliers, in collaboration with purchasing, are perhaps the most cost effective R&D function in a company. Jointly they often come up with leaps in technology and transformations in products. When they cooperate they can transform a company and its products. Breakthroughs that occur via this method should receive as much publicity if not more than those developed internally!
In summary, getting purchasing valued for its great contribution to revenue requires both a bottom-up and top-down approach. Empower as many employees as possible to participate in purchasing and solicit their ideas and suggestions. Set up one-on-one executive exchanges with your supplier executives. Finally, systematically create a strong marketing plan to communicate your successes.
Purchasing Leaders Need a Combination of Exceptional One-Off Leadership Traits
By Tom DePaoli
Running a purchasing or supply chain organization poses unique challenges to a leader. Purchasing organizations are constantly “fighting fires”, handling unique crises and influencing a broad network of people internally and externally. The range of personal contacts, cultural differences, emotions and challenges is global. In two of my books I have used poetic license and characterized the so called normal purchasing day as “zoo-ee”. Although many of the skills that I discuss are also required by other leaders, the sheer nature of the purchasing beast demands a special combination of these skills.
One of the most valued characteristics of a leader is integrity. A purchasing leader needs to never waiver in being honest to everyone in all their relationships. The quickest way to demoralize your team is to not keep your word. There can be no compromise on this trait.
One of the first things a purchasing leader must make clear is what is acceptable ethical behavior. Publish and conduct classes on purchasing ethical standards. I have been fortunate to work for companies that have clear standards and strong ethics. I personally condone a zero tolerance of any gifts or gratuities including lunches or dinners from a supplier or anyone. I recommend purchasing actually budget dollars for these events and strive to not even give a semblance of any favoritism.
Because of the frenetic atmosphere, a purchasing leader must be a working leader or “hands on” resource especially when a crisis develops. Leading from the front is a requirement.
Clear goal setting and the flexibility to constantly adjust goals is a skill that must be repeatedly practiced and communicated. This goes hand in hand with the ability to provide discipline and structure to the team in light of all the pressures and deadlines. Along with this, the talent to delegate and not to micromanage is essential. This encourages team members to take risks and grow. Purchasing leaders need to show that they truly care for their team by personally conducting training in many areas.
Curiosity and the drive to wander around and find out what is really happening, especially in other departments and with suppliers, often yields useful knowledge and actionable projects. Being visible and approachable cements relationship building which is the linchpin of the art of purchasing.
Sheer drive and the perseverance to not quit seizes the imagination of team members and other employees as well. I call this “indomitable spirit” and it is contagious. Below is my list of one-off purchasing leadership traits along with additional complimentary traits that develop from them. Finally never lose sight of the fact that leading by example is not working unless your team is following and exceeding your example.
Market Your Purchasing Successes with the Use of Storyboards
By Tom DePaoli
Purchasing professionals need to realize that they must not only market their purchasing strategies but their successes. Many purchasing professionals neglect to create a marketing plan for their organization. I use the term marketing plan synonymously with communication plan.
Some of the goals and techniques of your marketing-communication plan should be to educate top management on your strategic plans, publish results of supplier performance and surveys, publish internal customer survey results, educate personnel on purchasing and supply chain principles, emails, hold roundtables, hold town meetings, use social media, utilize newsletters, use a supply chain specific web page, monthly letters, and announcement of successes.
Storyboards are a great way to market your successes. Storyboards require you to be disciplined in your message and fully understand your results and assertions. You must limit your words and concentrate on the essentials. Thus you must communicate explicitly and right to the point for your audience. You need to strip away the technical argot and make sure the audience can easily grasp what you have accomplished, even with a very limited knowledge of purchasing.
Storyboards should adhere to a lean principle of visibility. Storyboards must be understood quickly with the maximum use of graphics, not words, spreadsheets or numbers. This is not an easy task, as a consultant we would often spent hours and days trying to accomplish this with a storyboard. Obviously purchasing often does not have the talent (full-time illustrator) or resources to do this meticulously, but this is intended to be a guide.
There is no one catch-all formula or template for storyboards. Often how you employ them and your particular style depends on the culture and communication norms of your organization. The important aspect is to make sure that you communicate your successes in a manner that can be readily understood by both purchasing and non-purchasing personnel. Think of storyboards as intelligent commercials that must be brief, easily remembered and upbeat.
I have provided an example of a storyboard that we used to communicate a purchase order success story. The organization that it was used in was very heavily into Lean Six Sigma, Kaizens and the DMAIC methodology (Define-Measure-Analyze-Improve-Control). We used this familiar DMAIC format to help people understand and follow what we did. It still has too many words and numbers but we needed to ensure people realized the scope of what we had accomplished. The storyboard was well received and readily understood by employees. I highly recommend purchasing and supply chain professionals consider using storyboards to communicate your successes.
Five-Year Strategic Plan Guide for Purchasing and Supply Management
By Tom DePaoli
Over 95% of purchasing or supply management organizations do not have a long-term strategic plan. This is not surprising given the dynamic and hectic pace of purchasing organizations. Many of the plans that are completed are done once, and put in a three ring binder or a hard drive to never be referenced again.
These plans do require a lot of effort and support from top management to become useful and meaningful. They are essential to keeping purchasing on track and focused on the most important supply chain improvement efforts. Long-term plans serve as a great focal point for purchasing and ensure that constant firefighting and other upsets do not overwhelm their efforts. They can serve as guides for the stages of organizational transformation that a purchasing department wants to achieve, and reveal to non-purchasing personnel, purchasing’s long-range direction.
First off, create a vision and mission statement that aligns with the organization’s vision and mission statement. Be bold and make sure people realize that you are aiming for supply management not traditional bureaucratic purchasing. Try to gain a broad consensus and gather input from surveys, one-on-one meetings, research and as many employees, suppliers and customers as possible.
Editor’s note: You may download your copy of the Five-Year Strategic Plan Guide for Purchasing and Supply Management. It contains recommended and possible goals and benefits to consider for such focus areas as performance metrics, world-class supplier strategies, reporting structure, communication plans, information system upgrades and end user empowerment, among others.
There are limitations to this guide. I am certain that I have missed some areas but I have tried to be as comprehensive as possible. Use this document as a guide and checklist not a dogmatic methodology. It is extremely difficult to predict the future as technology and the macro environment are rapidly changing. Global events can radically alter the supply chain and require new innovative strategies. Collaboration is the norm now, but collaboration can also be cyclical and have peaks and valleys of cooperation. People are the strength of an organization and any strategic plan that does not focus on people development is woefully inadequate. Many companies also have to cope with dealing with multi-generational group differences.
New products can require new supply chain tactics and alter your product mix landscape. Competitive pressures can often dictate rapid responses and major changes in product marketing and sourcing. Communication is becoming even more critical in this rapid paced world. The selling or marketing of the strategic plan is even more crucial.
Once in place, a strategic plan is much easier to update, review and fine tune. It is important to keep it dynamic, up to date and a living document. I hope this guide motivates the reader to take the journey of completing a strategic plan. Good luck in the journey!
Strategies to Limit Backdoor or Maverick Buying
By Tom DePaoli
Backdoor or maverick buying is a perplexing problem that plagues many purchasing organizations. The methods to counteract this behavior are highly dependent upon the cultural climate and ethical standards of your organization. There is no universal solution. People’s behaviors are influenced by consequences. If there are no consequences for backdoor buying the behavior will continue and grow. Some of my suggestions are drastic, others are more reasonable. Purchasing professionals must use their judgment to select the appropriate actions that fit their particular organization.
An important aspect to solving this issue is to remain objective and to try to gather data on the costs of backdoor buying. These could include lost discounts, lost rebates, and extra transactional work by purchasing and others. Many purchasing organizations know the average transactional cost of a regular transaction with an approved supplier. Try to calculate the extra cost with an unapproved supplier. Always control your emotions when discussing this issue.
Here are some reasonable tactics to create an organizational atmosphere and climate that helps discourage backdoor buying. In my experience the biggest offender is usually the engineering department. So involve engineering in cross-functional supplier selection teams and standardization initiatives. Make them a stakeholder in approving suppliers. Get the vice president of engineering on board with OEM (Original Equipment Manufacturer) standardization and have them participate in OEM standardization processes.
Consider establishing a policy of no gifts or gratuities to be accepted from suppliers by both purchasing and all other employees (zero tolerance). This discourages lunchtime promises or promise buys to suppliers by non-purchasing employees. Another alternative is to have purchasing have their own modest budget to entertain, socialize and conduct work sessions with suppliers.
Get your compliance employees on board with your policy i.e., your legal department and accounting. Craft an approved supplier only purchasing policy and make it clear that unauthorized purchases will not be honored by accounts payable. Keep the list of approved suppliers visible and updated. Use your software safeguard controls to limit buying privileges and cross reference the approved supplier list. Many purchase cards can be limited to specific approved suppliers and or categories of goods. Meet with your approved preferred suppliers and ask them to use the grapevine to communicate any purchases from unauthorized suppliers directly to you. Most will gladly do this.
One of the most effective drastic actions occurred when I worked for a global chemical company. The company had just spent over $200 million on a worldwide ERP system. The CEO sent out a strong memo saying that all purchases must be made on the ERP system and only from the approved suppliers in the ERP system. Employees were required to use the new ERP system. The very first day four employees went off system to purchase some items from a non-approved supplier. The CEO personally fired them and publicized the results of the incident to all employees. Needless to say there were no more such purchases.
Do your networking and informal work before you institute your policy. Meet one-on-one with stakeholders or in small meetings to explain your reasons for your policy and get their buy-in before you roll it out.
Establishing a policy against backdoor buying requires some deft maneuvering by purchasing that correctly judges the culture of your organization. Instituting the appropriate policy will help reduce backdoor buying. More important, you must enforce the policy and reprimand employees who violate it. A backdoor buying policy unenforced, is both hollow and meaningless.
Strategic Performance Metrics for Purchasing and the Supply Chain
By Tom DePaoli
“Unless you have clear goals you are a nomad, not an explorer.”
Many purchasing organizations struggle with the appropriate metrics to use. They often neglect strategic metrics and favor more tactical and transactional ones. This type of approach just encourages a stereotypical view of purchasing that is traditional and bureaucratic. Emphasizing strategic metrics encourages a different image of purchasing and, more important, strategic-like behaviors by purchasing professionals.
One key strategic metric is the number of supplier alliances. These should be not many, and ideally be limited to suppliers that have a key impact (significant dollar spend percent) on your total cost of goods sold. Often 20% or fewer of your suppliers account for 80% of the spend. The emphasis should be on suppliers that can differentiate you or give you a distinct competitive advantage. Characteristics of such alliances should include long-term evergreen contracts, participation in new-product design sessions, joint process improvement efforts, exchanges of executives, direct electronic links and cycle-lead time reduction.
Another measurement should be the number and percentage of suppliers that are certified: ISO 9001, ISO 14001 etc. These are not guarantees that a supplier is perfect, but they do indicate that they are pursuing excellence and at least have an understanding of their processes and how they perform their work. This is a significant first step in any joint supply chain process improvement effort. If the supplier is dedicated to its own program of process improvement via Lean or Lean Six Sigma, joint cooperative ventures are more likely.
Besides purchasing having its own mission and vision statement that aligns with the corporate plan, leading-edge purchasing departments should have their own five-year strategic purchasing plan. Elements of this plan should include all future initiatives, projects, metrics, goals and resources needed.
A noteworthy area to include in the plan is professional development. Purchasing team members should be encouraged to get professional certification, become industry, not just materials experts, and improve their overall knowledge of the business. The most vital area, that is often neglected, is getting more knowledge of what is critical to the paying customer of your product or service. Purchasing professionals should have close ties with sales, marketing, marketing research and shadow them on customer calls.
Another strategic measure is to have a sourcing methodology and to constantly update it based on market and global conditions. A critical aspect of this methodology should be sourcing with cross-functional teams, use of the Porter five forces model when appropriate, and high visibility along with transparency during the selection.
Ideally these strategic metrics should be put on a corporate dashboard to be seen by all employees. Strategic metrics should also be the catalyst for developing a balanced scorecard for purchasing. Unfortunately purchasing often neglects strategic metrics and focuses of fire-fighting and tactical metrics. Strategy always trumps tactics and strategic metrics need to become a valued tool for all purchasing organizations.
Roadmap to Supplier Relationship Success
By Tom DePaoli
Supplier relationship management is the process of developing a deep collaborative partnership or alliance with a supplier. The supplier becomes a true and trusted business partner. The relationship is characterized by open disclosure, cultural calibrating and joint beneficial projects. Ultimate alliance partnerships are at the highest level. These should be reserved for a few suppliers, with criteria for selection being that the supplier can help a company obtain a dominant competitive advantage.
Use a five-stage model or roadmap to develop your relationships with suppliers. The deeper the relationship desired the further along the roadmap one progresses. Suggested activities for the supplier are listed at each stage of the relationship. Of course there must be willingness for the supplier to enter into a relationship and clear quantifiable metrics must be used. Trust is not always easily quantifiable. Good luck with the roadmap and your relationship building!
Stages of Supplier Relationship Building
This stage is characterized by initial meetings where small tasks are attempted or reviewed. The process is primarily task related and the mutual needs are slowly being discovered. This is the stage were socialization takes place with a supplier via visits, dinners, mutual presentations and sharing more information. This is a low key problem-solving stage. No major decisions are made. The emphasis is on sharing information and checking if the relationship can become deeper.
Examples of activities are:
- Sharing understandings of administrative and IT procedures.
- Understanding procurement rules, transaction flows invoice rules, purchase order format. Minimizing the upsets before they can happen.
- Comparing some base data, like on time deliveries. Discussing the differences in transactions and discrepancies.
This stage starts to intensify the relationship. The emphasis here is to experiment with problem-solving activities that are fun. They should have a low risk of self-disclosure. The purpose is to discover if a deeper partnership is possible.
Examples of activities are:
- Each partner maps the other’s actual supply chain. This in a learning activity and not meant to be critical. Potential partners present their understanding to each other. Both parties increase learning during the exercise. We developed a visualization technique in the paper industry where the group imagined they were a wood chip and then discussed all the transforms and processes that were happening to the wood chip until it transformed into a toilet paper roll. The “how” the supplier chain is presented, such as props, methods are up to both parties’ discretion.
- The administrative, transactional or paperwork supply chain is mapped in a similar manner.
- One mutual low-risk problem is agreed to and a joint mini-case analysis conducted. Topics such as electronic communication, pay-on-receipt, receiving etc., are compared and parties agree to a common solution or understanding. This is usually an issue where both parties are close but a few loose ends need to be tied.
At this stage trust and support with open disclosure start to become the norm. Feedback on the status of the relationship is frequent. Rules of relationship behavior are developed.
Examples of activities include:
- Some mutual cost sharing and cost driver sharing information.
- Intensified effort to streamline administrative bottlenecks in supply chain and to eliminate all non-value adding discrepancies so both parties can focus on more important issues and the relationships. Eliminating the “irritants”.
- Mutual work load or administrative reduction agreements and negotiations on any stickler performance measures.
- More thorough reviews that concentrate on new mutually beneficial projects.
Both parties start to recognize the special relationship and exchange symbols of the relationship. Terms like “us” and “we” become the norm. The partners tend to rely on each other more and start to integrate processes.
Examples of activities include:
- Full financial disclosure.
- Exchanges of corporate symbols such as pins, awards etc.
- The integration of some business processes. One partner may lead the sharing of a process or skill with the other partner such as assisting in electronic communications setup. Actual assets may be shared.
- Some mutual marketing or campaigns are started.
- Employee sharing and exchange of executives becomes standard.
This is the final stage of coming together and the deepest relationship.
Examples of activities include:
- Joint R&D ventures and sharing of innovations all along the supply chain simultaneously as they are discovered.
- Full design stage collaboration.
- Mutual executive development and career path plans.
- Sharing of IT resources and customers information.
Follow this roadmap to ensure SRM success!
Use the Storytelling Method to Train Supply Chain Professionals
By Tom DePaoli
One of the oldest methods of passing down knowledge is oral storytelling. Usually an ancient sage would be the keeper of the stories and pass them down to other tribe members. I highly recommend this method for supply chain professionals.
Here are some advantages of storytelling:
- The brain stores information by stories.
- Stories are humanizing and stimulate creativity.
- Storytelling improves listening skills.
- Storytelling builds a team culture.
- It encourages collaboration.
First, creating the right atmosphere and teamwork is essential in order to establish the validity of this method. The trust of all members of the team and non-attribution is essential. The leader of the team should lead off and share personal supply chain stories of success and failures. There should be a general framework for the stories. In our framework, we structure the stories to first give a background of the situation or issue, then tell how resources are gathered to address the issue (approach), and finally reveal the results. Often the approach to solving the problem is more important than the actual results. Colleagues are encouraged to ask questions and to suggest more appropriate approaches. Supply chain professionals have many touch points or people involved throughout the supply chain. Stories should not be limited to paying customers but include suppliers, colleagues, competition, other departments etc.
Here is an example:
Background: We went through comprehensive sourcing selection process with a cross-functional team. We involved all the key stakeholders and were very meticulous in our research and selection. We were highly confident that we had selected the right water pump supplier and were expecting significant hard and soft savings. The supplier had prior experience with partnerships and alliances.
Approach: Much to my surprise after two weeks I discovered that the process was not going well. Maintenance personnel were complaining about the new supplier so I decided to investigate. I walked around the plant and talked to maintenance personnel and their department heads. I soon discovered that the issue was not the quality of the pumps. The issue was the representative that the supplier had assigned to our account. The rep just could not adjust to our people or culture. The personality was not a fit.
Results: I approached the supplier and requested that a new representative be assigned to our plant. The new representative got along well with everyone and we made great progress in savings and innovation. The lesson that I learned is that the selection team should interview the potential supplier’s representative during the selection process and ensure that they are a fit. We thus added “chemistry” to our selection process.
We used this same storytelling method after every sourcing event and continued to discover issues that we had missed. We then added them to our overall sourcing methodology or checklist. Storytelling is a powerful collaborative learning tool. I recommend taking full advantage of it.
How Can We Get Young People Interested in Supply Chain Professions?
By Tom DePaoli
Many high school and college students are unaware of all the opportunities in the supply chain. Their concept of it tends to be warped by media stereotypes and the lack of career counselors who really understand the depth and breadth of all the possibilities and positions in the supply chain. Many students have not even considered the option of starting a career in this growing and dynamic arena.
Some recent surveys of high school seniors show a general lack of understanding of the possibilities of logistics careers. Supply chain jobs are rarely mentioned by high school counselors or even at many college level job fairs. The only active promoter of supply chain careers that I could verify was ISM or the Institute of Supply Management. So what can supply chain professionals do to encourage careers in the supply chain?
We should use similar tactics that universities and colleges now use to recruit students. This recruitment does concentrate on the Internet. Just about every potential future supply chain student has a Facebook, LinkedIn, Instagram or other internet sites. First, we should consider creating an employment brand to attract students to supply chain careers. We should use social networks to connect better with students and generate interest.
Local ISM affiliates should have parts of their websites geared to attracting students to supply chain professions. The ISM affiliates should try to build a virtual relationship with interested students. The breadth and depth of possible supply chain professions does create a challenge, but this variety should attract even more students. Of course virtual job fairs are becoming more common; so cooperation and participation from supply chain employers should be encouraged.
We cannot just stop at the Internet. Traditional tactics like tours of supply chain employers, internships, scholarships and educational seminars should also be employed. It is obvious that we have many tactics that could influence students to consider a supply chain career. The challenge will be to measure the effectiveness of these tactics. When researching this blog post, I was astounded by the lack of effort and coordination in encouraging supply chain careers. There is literally nowhere to go but up.
Finally every supply chain employee should act as an ambassador for a supply chain career and encourage young people to consider the possibility of an exciting an varied career in the supply chain. People are the most important aspect of supply chain optimization.
How Can a Purchasing Professional Get “Street Cred” in Their Company?
By Tom DePaoli
Most purchasing professionals have skills in purchasing, negotiations, and the materials or services that they buy. Many have certifications. They have dutifully enhanced their skills in all these areas and pursue continuing education. Unfortunately what many organizations value are operations skills, or what they know about the core business and the customers.
Some purchasing professionals have come up from the ranks or gained operational experience in other internal jobs in the company and they are fine, but most often this is not the case. The challenge for the purchasing professional is how to gain this respected credibility when they are often swamped with other priorities and crises.
One of the best sources may be a supplier or distributer who is willing to take the time and discuss your competition. You will be surprised about how much knowledge they have. They are especially valuable discussing the Voice of the Customer (VOC) and your customers’ concerns. Often they supply your customers.
Since many purchasing professionals have a material or service specialty, my advice is to get out on the shop floor or area where your folks actually use the material that you source. For example, when I was in charge of purchasing wires for a papermaking machine, I went out to the paper machines and actually observed the crew tear off a new wire and put on the new one. Yes, it was wet and hot but I soon got a sound understanding of their issues and concerns. Another way is to actually go on service calls with your service technicians and observe and listen. This is usually unfiltered and sometimes you receive unflattering feedback from the customer.
One of the best ways is to conduct internal training with the purchasing department. Have engineering or customer service give you training on your products and how they work. Have them gear the training to the purchasing department. When I was in purchasing, we asked them to design a training manual targeted to us and they gladly did this by just modifying the existing one. The best instructors know how to make the complicated simple and present the customers’ point of view. One of the best courses I attended was Papermaking for the Non-papermaker which avoided all the confusing technical argot. Another way is to have department meetings where fellow purchasing professionals share what new knowledge they have gained about your products and services. This is an especially good approach because it is relatively non-threatening.
Nothing flatters operational or shop floor personnel more than going right where they work, and asking them to train you about their job and duties. Showing a genuine interest goes a long way in establishing your credibility and getting their cooperation in the future on purchasing projects such as sourcing.
Finally getting “street cred” is not an instantaneous process. Respect does not occur overnight. You will have to take the time and effort to build up your reputation as a purchasing professional who can be trusted more, because they truly understand the core business.
Sourcing with Cross-Functional Teams Challenges Leadership Skills
By Tom DePaoli
Cross-functional teams work well for the sourcing of indirect goods and services, but they require good discipline and creativity on the part of the purchasing leader of the team.
Often, the purchasing team leader must spend more time on team building and training than the actual sourcing process! This poses challenges for the purchasing team leader, but it must be done to ensure success.
Who is selected to be on the team is critical, and team members should be stakeholders with a strong degree of commitment to the outcome. The purchasing leader needs to take the time to educate and train the team on the sourcing process and internal purchasing procedures. Sometimes team members have axes to grind or prior war stories about suppliers. Their supplier biases must be dealt with before the process starts.
Start with training the team on internal value stream analysis of the indirect goods or services, basic industry information, preliminary total cost of ownership (TCO), supplier metrics and scorecard, and the disciplined steps in the sourcing process.
Get everyone involved in some task, research or small project, and have them present it to the team. Then achieve strong buy-in on the proposed sourcing criteria metrics from the entire team. In the indirect goods and services area, on time delivery, is often the most important criteria.
Frequently teams want to rush into the sourcing process without adequate background training. Pressure builds to skip so-called unnecessary steps in the sourcing process and get it over with. “We know that already” usually means “We think we know it, but don’t want to do the hard homework on it!” Based on my years of experience in sourcing, skipping a step is a recipe for disaster and almost always picks the exact wrong supplier!
The purchasing leader should get the team’s creative juices going. Make sure the team completely understands how the goods or services are used and actually “walk the process” of the internal supply chain and the administrative burden. In other words, track exactly what happens in every step of the internal supply chain and use any data that you have to reinforce the team’s understanding. Get the benchmarking information that you can. Face the fact that for many indirect goods or services, your paying customers have no interest in how you source them, or care about them, because this is just not critical to them. However, we know that “indirects” can have a strong negative administrative burden impact on you!
Another creative approach is to test the potential new supplier’s relationship and soft skills. Invite them in for interviews and insist that your potential new supplier’s representative come in and discuss their goals, experiences and past successes. A behavior-based interview is a good approach that I have used. Call up fellow purchasing managers (non-competitors recommended) who have them for a supplier, and ask about their performance and response time in a crisis. Ask point blank if the supplier has done any improvements or cost saving projects.
Finally make sure you visit the finalist supplier’s sites and have them explain their own internal supply chain for the indirect goods. When the supplier is selected do not neglect to have a kickoff. Following these guidelines will help you select the best of the best suppliers for indirect goods and services.
Office Supplies Best Practices and Dense-Pack Sourcing
By Tom DePaoli
Best practices for Office Supplies are many and varied. They greatly depend on what the customer wants or the Voice of the Customer (VOC). Once I was tasked with completing an office-supplies sourcing search for a client in a major western state city at their headquarters, which housed approximately 5,000 employees downtown. I had much previous experience completing four strategic sources of office supplies, so I had a fairly good idea of the competency of the suppliers and their pricing structures. I knew which additional total-cost-of-ownership practices to ask for, such as desktop delivery, consolidated billing, and electronic catalogues. It was an exceptional situation for a supplier, because it was one delivery spot for major sales volume. Composing the request for a quote was straightforward, and I used many of the requirements that I had previously used in sourcing requests. My client was eager to get the sourcing process underway and completed quickly.
However, I soon discovered that there were three other large companies in the same city block housing an additional 15, 000 employees (20,000 total). I saw an opportunity to pool our volumes and presented a proposal to my client. I had shared our expected price reduction and other savings with them prior to the engagement. Now I proposed to the client to construct a request for quote for all of us for office supplies, thus providing even more leverage. I named it the “dense-pack” approach because, once again, the winning supplier would have concentrated deliveries in a close area, which would significantly reduce the winning supplier’s transportation costs. The purchasing managers were skeptical at first, but luckily none of the other companies were direct competitors.
The hardest part of this approach was next: convincing the other three companies of the merits of this approach. I recommended that they each set up steering committees to choose what services they desired. We sort of used a cafeteria approach where each company selected the service they desired. Fortunately, all of them were familiar with supply management and strategic sourcing. I had to show the expected savings and get them to agree to at least some common total-cost-of-ownership reduction items. Gathering the usage data was another challenge, but we believed that we had fairly accurate volume data when we went out with the request for a quote. Getting agreement to go with the winning quote was not as difficult as I had anticipated, and all four companies had two representatives on the sourcing team. Each company agreed to select their specific supplier services that they valued and asked the suppliers to demonstrate their capability and client references.
The results were fairly astounding, and we doubled the expected price savings. The winning supplier then offered a cafeteria menu of total-cost-of-ownership savings and enhancements that each customer could select. In addition most of the companies “piggybacked” with the office supplies supplier on other services like document management (copiers), personal computer supplies etc. It also led to standardization of the office supplies used which further reduced prices.
In summary, we clearly understood the market, the pricing structure and the services offered. The biggest challenge, as usual, was getting customer buy-in and consensus.
Build Relationships with Suppliers For Dramatic Results
By Tom DePaoli
Most purchasing professionals are familiar with the usual quantifiable supplier metrics and measures. Sophisticated computerized tracking programs exist to measure these traditional performance factors. There are nontraditional supplier metrics/activities that can help not only to rate a supplier, but also to build much stronger supplier relationships.
First, you can learn a lot about a supplier by visiting its sites and just observing the cleanliness of the plant, morale of the employees and overall sense of urgency of the operation. For most purchasing professionals the challenge is finding the time to conduct these visits and conducting them skillfully. A planned and disciplined site visit schedule can help overcome this obstacle. Every site visit should be documented and have a report filed for future comparison. It should always include the subjective impressions of the visiting purchasing professional.
How a supplier performs in disaster recovery (yours) provides an invaluable lesson of their commitment to you. We once had an electrical supplier lead the effort to restore power to one of our chemical plants after a devastating hurricane. The employees at the plant still marvel about how well they performed. These out-of-the-ordinary efforts should result in strong recognition to the supplier and possible increased sourcing from them. It can lead to another strong relationship-building activity of pre-planning for possible disaster-recovery with not one but multiple suppliers before they happen. Often vulnerabilities can be anticipated and dealt with appropriately.
Participation in process improvement efforts, such as Lean Six Sigma, is another strong builder of supplier commitment. Supplier input and suggestions to specifications changes for a part or service are invaluable. Many suppliers are eager to provide suggestions to help improve your process. Turnabout is fair play and you should participate in their process improvement and process-mapping efforts with their products, especially those that you purchase.
We once had a supplier increase the life of a critical part that cost us $35,000, from 30 days to 250 days. It did take two years of painstaking work and experimentation. Eventually, because we dramatically reduced the dollar value of our purchases (with the supplier’s help), we hired the supplier as an ongoing technical service consultant. They had learned so much about our production process and now had the capability of providing invaluable insights.
Sharing of R&D efforts and data systems is another high level of cooperation that can lead to mutual benefits. Obviously this requires an extremely high level of trust and collaboration. It quickly reveals the IT capabilities of the supplier and its ability to respond to your needs. Many suppliers are often willing to share industry and market research with customers along with forecasting techniques. Take advantage of their expertise in these areas.
These types of relationship building metrics/activities can lead to dramatic gains for both the supplier and the purchasing professional. A purchasing professional needs to realize that most are not quick fixes but require a concerted and tough long term effort. The payback can be dramatic.
Should Purchasing Use 360 Degree Performance Feedback?
By Tom DePaoli
As we know, 360-degree performance feedback is an evaluation method that incorporates feedback from a large cross section of workers including peers, subordinates, customers and supervisors. This technique would seem perfect for purchasing in this era of cross functional teams and multidimensional relationships in the supply chain.
Not so fast. This method should not be used or tied to pay or merit pay especially for purchasing. It is fine for giving feedback to an individual on the impressions that they convey to people, but all too often it has become a popularity contest. Any purchasing professional who is worth their salt, knows that purchasing is not a place where one becomes very well-liked. Difficult and controversial decisions are the norm not the exception.
Purchasing is also an area where the pace is frenetic; fire-fighting is all too often prevalent and quick decisions are needed to prevent major shutdowns. Fast direct decisions are the norm rather than slow diplomatic ones. Often purchasing professionals are forced to be executers or quick problem solvers. They have little time for being corporate relators or engaging in “water cooler” social exercises. The emphasis is on solving the latest crises, not social networking. Although generation M is enamored with relationships via social networking, purchasing is often driven by multiple crises and has little time for such digital schmoozing. Their focus on solving the crisis is often misinterpreted by peers as being cold, harried, non-relating and impersonal. Thus feedback from a 360-degree evaluation must be tempered by this purchasing reality.
In summary, a 360-degree evaluation for a purchasing professional has some use in providing relevant feedback on how the purchasing professional is viewed by peers and does give some first impression detail. This feedback must be tempered however by the crisis reality of the purchasing department. It should never be used for performance or merit pay. In addition, realize that there is no empirical evidence that the 360-degree approach is superior or more effective than other approaches.
Procurement Needs to Lead Process Improvement Transformation
By Tom DePaoli
Often companies make the grievous mistake of not letting procurement select or source the consultant or consulting group to lead process improvement. Lean Six Sigma and Lean are too important to leave in the hands of other departments not familiar with the comprehensive evaluation of a bid or a proposal. In fact, procurement or supply management not only should lead the selection, but lead the entire process improvement transformation. Nothing can have more financial gain for a company than improvements in the supply chain! Here are some hard learned selection lessons.
Experience trumps everything in selecting a Lean Six Sigma or Lean consultant. It’s critical that the consultant you hire has multiple experiences with multiple projects. Verification by checking with former clients is essential. Beware of consultants who want to charge exorbitant fees for all the process improvement training belt classes. You can quickly master this training internally for employees to become at least an entry level Green Belt by using the train-the-trainer concept. Belt certifications differ from company to company. Insist on training effectiveness data from the consultant and examples of successful projects and tools used in their methodology. There are hundreds of improvement tools that could possibly be used in the process improvement. There are however only about 30-40 that are used most frequently and are the most effective.
Strongly consider a fixed hourly rate especially for training, but remember that you get what you pay for. Make sure you can retain all the training materials developed during the process. Many of the available training materials are generic, and you will want to retain any customized ones for your company. Make sure the consultant understands that you will demand process improvement self-sufficiency in two years or sooner.
The consultant’s people skills must be superb. Initially many members of a process improvement team are hostile to the process and transformation until they understand it. Strive to make the contract performance-based on the savings of the projects rather than amount of training delivered or other parameters that they suggest. Consider jointly developing online training courses that can be used with much greater flexibility. Process improvement meeting organization and facilitation skills are indispensable. Insist on sitting in on a live meeting that the consultant conducts like a kaizen. Observing a consultant in action is one of the best ways to judge their skills. Make sure the consultant can fit into your organization’s culture and adapt to your organization’s standards and norms. Nothing destroys process improvement initiatives faster than cultural mismatches.
Finally prepare your organization for the process improvement transformation. The most successful proven way to make process improvement initiatives work is to make employees accountable for it. In other words tie their cooperation, progress and training in process improvement directly to their pay or raises. You must financially incentivize it for them. Other so-called persuasive or cooperative approaches have a much higher failure rate.
Information-Based Negotiations: A Different Approach
By Tom DePaoli
An information-based negotiation is a radically different approach to negotiations. It emphasizes deep knowledge of the supplier and its industry. It transgresses from some traditional approaches to negotiations. It is not the adversarial win-lose negotiation style with the emphasis on game playing, theatrics and taking full advantage of a supplier’s weaknesses.
An information-based negotiation is not the win-win model either. Information or knowledge is power, but in information-based negotiations the purchasing professional gains a deep understanding of the supplier’s industry, its margins and its culture. In essence, this is an immersion or empathy with the supplier and its competitive landscape. The best way to describe it is that the purchasing professional knows as much or more about the supplier and their industry as it does!
In my recent book Common Sense Supply Management I state, “The very best piece of negotiations advice I ever received was to know the capabilities of your supplier, their industry, their competitors, their cost drivers, their margins and their capabilities better than they do. It requires a lot of homework, digging and flat out work. You obviously cannot do this with every supplier, only the most important and most strategic ones.
“It is a powerful negotiation tactic based on knowledge, not histrionics. There is no glamour in the information-based approach. It requires immense research about the industry, the supplier’s financial condition and competitive forces. Understanding their culture and their organization is critical. You are in essence trying your best to put yourself in their shoes, and mimic as best as possible their anxieties and fears about the whole process.
“The information-based approach is not for the faint hearted or those who do not want to persevere. It should only be exercised for critical materials or services. It requires ongoing market research and it will work better when executives are actually exchanged with the supplier on their site. The resources and commitment to pull off such an information based approach are significant.”
With the Internet, the gathering of information for the information-based negotiations approach has been greatly facilitated. There are numerous industry reports, websites and search engines that can help the purchasing professional. Nothing beats personal face-to-face contact and dialogue with numerous suppliers in a particular industry. They all have a fairly keen knowledge of their competitors which can rapidly improve your overall knowledge. Since many industries are oligarchic in nature, once you understand the top three or four players in the industry you have a real good foundation from which to start partnerships with your chosen supplier.
I suggest the purchasing professional consider using the Porter Five Forces analysis. Although this is used extensively in marketing and marketing analysis, it can be invaluable to the purchasing professional. This will provide a good start for industry understanding. Another good source for information about suppliers and particular industries are distributors. Often they are glad to provide information about suppliers and especially their customer service. Here is a general diagram of the approach to information based negotiations that I have used:
One additional tactic I have successfully used during the initial trust-building phase is to mutually do supply chain process mapping of internal processes but with a twist. The supplier comes to your site and maps your processes, then presents it to your cross functional team to check their understanding. Then the purchasing professional ventures to the supplier’s site and performs a similar mapping. Often this sparks a new creative exchange of ideas.
The information-based approach has tremendous flexibility to cope with market and industry changes. Information drives decisions not emotions or one-upmanship. It requires the purchasing professional to become the resident expert on a market and an industry. It yields much more significant long-term gains than traditional or even win-win approaches. Using this approach is one of the best methodologies for transforming your supply chain and developing true breakthroughs with your supplier.
A New Way to Look at Paying Procurement
By Tom DePaoli
Most supply chain professionals are familiar with the best practices of a supply chain organization and how to transform purchasing into a lead strategic partner in a company. These usually include a thorough spend analysis to focus on the major areas of materials and services. Another aspect includes the rationalization of suppliers and the formation of a few key partnerships with important suppliers. The institutionalization of a comprehensive sourcing methodology is also crucial. The area that is often overlooked or neglected is the investment in people!
Many purchasing professionals have been rewarded for bureaucratic and tactical behaviors for many years. The culture of risk aversion is prevalent and roles are particularly well-defined and limited. They focus on a particular material or service and become “experts” on these items. Often they work in silos and have no real connection with operations. It is usually not their choice but the expectations of the culture or of their organization.
The retraining of supply chain professionals begins with developing the capability to lead cross-functional teams not only in sourcing, but in process improvement activities such as Lean and Lean Six Sigma. Most need to reach the level of at least a green belt in a process improvement approach, and to reinvent themselves to be total product experts not just a particular material expert. You have to be a product expert to understand the Voice of the Customer (VOC) or what is really important to them. This requires striving to become an expert in an entire industry not just a narrow material. It also requires a dedication to understanding and working with operations. Performance reviews need to be tied into how well they do in predicting the market trends of their particular industry and meeting or exceeding the VOC.
All too often this training is piecemeal, unorganized and uncoordinated. Fortunately there is a comprehensive approach that has been around for 40 years that works in many industries particularly ones where employee knowledge is highly valued like the chemical, oil and process industries. The approach has been called pay-for-skill or pay-for-knowledge. Employees are paid more for each skill or knowledge area that they develop, and demonstrate their proficiency in by job performance. It does require a significant monetary investment by the organization in training employees and the organization evolves to a continuous learning campus. The word campus is critical because many organizations partner with local technical schools or universities to jointly provide the comprehensive training and courses.
Unfortunately many organizations have disinvested in training employees and would rather outsource for many skills or functions. This is deadly to the supply chain concept and process improvement, which must strive to constantly improve the entire supply chain from start to finish without breaks which may or may not be performed better by an outsourced entity.
The major objection to the pay-for-skill approach is the cost and the length of time for payback from the employees’ improved knowledge. Once in place, however; the power of this employee intellectual capital, and the momentum of continuous improvement, establishes a supply chain centric organization that is nearly impossible to beat competitively.
People transform supply chains and organizations not technology or best practices.
De-Mystifying Lean Six Sigma for Purchasing Professionals
By Tom DePaoli
Many supply chain and purchasing professionals are intimidated by Lean Six Sigma (LSS) and its proponents. Relax. It is just a disciplined approach to problem solving. LSS uses many tools that have been around for years; in many cases the tools have just been cleverly repackaged by consultants.
Decisions are data-based, disciplined and plodding. Without top-down commitment, LSS is doomed to fail. Make sure you secure this executive commitment, and better yet make participation a strong criterion for individual performance reviews (raises). Projects should be selected by ROI (Return on Investment) and since much time and teams are required for a project, they must return or save at least $300,000 to qualify as a full blown LSS project.
Supply chain and purchasing professionals must be involved in sourcing the LSS consultant. Experience is critical and a proven track record of project success essential. Get references and insist on examples of work. Use a fixed hourly rate and make sure all developed training and projects remain your property. You can try to make the contract performance-based but many LSS firms will not agree to this. Make the goal to be self-sufficient internally within two years with all LSS training and projects.
Some LSS projects that have been done in purchasing and the supply chain are: Inventory cost, part obsolescence prevention, lead-time reduction, backlogs, unexpected orders, customer service internal and external, cost of schedule changes, transaction flows, cost of return product, and supply chain optimization. Many of these involve process mapping which is a type of flow chart that illustrates how things are done and identifies areas of strength or weakness.
LSS is not the only tool that can be used by supply management professionals for improvement. In my experience LSS should be used when the potential savings is great and you have some good data to analyze. If you do not have good data the LSS project will take even longer. If data is sparse, the Lean approach is much preferred which is highly visual, intuitive and does not require as much data.
Always Lean a process before you use LSS. By this I mean eliminate any redundant steps in the process that can be easily eliminated first. Reduce the number of variables in the process. Try to understand the voice of the customer (VOC) clearly before your start process improvement. Remember if the customer does not really care or value a process step; ask yourself, “Why are we doing it?”
Finally use kaizens for straightforward less complicated projects. The kaizen approach is usually done by the work team using the process and strives to eliminate waste in the process. The new kaizen improved process should then be quickly implemented. Supply chain and purchasing professionals must take the leadership role in LSS, Lean and kaizens. In my professional experience, the rewards of these approaches can be astounding. They do however require a measured and disciplined approach, and a commitment to not giving up!