Why Common Sense Purchasing Hard Knock Lessons Are Still Relevant Today
by Dr. Tom DePaoli
It has been over ten years since my publication of Common Sense Purchasing. The book has been hailed as one of the best purchasing books ever published. This article will review some of its key points and add an update or two to its validity. I use a ghosted updates and excerpts of my interview with Kelly Barner, Buyers Meeting Point (BMP) with some new comments by me.
Common Sense Purchasing is sort of structured like the book Don’t Sweat the Small Stuff with approximately 100 lessons. It is a very informal book with comments, advice, grammar mistakes and sarcasm. It was very easy for me to write because I lived all the purchasing lessons, many of them very painful. The secondary title, Hard Knock Lessons Learned From a Purchasing Pro is really what the book is all about. Let us begin.
BMP: In the introduction of the book you say that you have made “just about every darn mistake one can make in purchasing”. We are glad that we are not alone in that. Which mistake was your ‘favorite; which taught you the most important lesson?
Dr. Tom: One of my favorite mistakes is when we went through a disciplined and arduous supplier selection process. The selection process was done by a cross functional team. All the numbers were favorable and the supplier had good references and was eager to get started. The total cost of ownership savings came in well over $1,000,000. We did all our homework and were very confident of our decision. The new supplier promised to provide a supplier representative on site for 20-30 hours per week. We even had a celebration. The supplier representative started and I thought that things were going well. Unfortunately, our maintenance personnel just could not get along with the representative and conflicts arose. It was more a personality issue rather than competence. Luckily the supplier had another representative available who replaced the initial representative and was well liked by our internal customers. The lesson learned was that once again, relationships are not only critical, but “king” in supply management. We added to our supplier selection process an interview (performance based) of any on-site representatives by our internal customers, like maintenance, and a reference check and discussion with other customers about the on-site representative. Also, don’t celebrate prematurely.
Dr. Tom Update: Today some people think that sourcing is dead and that computer algorithms and shop bots will accomplish this better. They are missing the point, suppliers are primarily about how deep a relationship (see below) you can you build with them? Often collaboration with suppliers results in competitive leapfrog breakthroughs not just efficiency! Supply chains are improved primarily by people not just technology. Great leaders admit their mistakes and move on.
Lesson #1: It’s about relationships first and foremost.
BMP: How does the rising role of social media/networking relate to the need to emphasize the value of relationships?
Dr. Tom: Social media/networking improves or enhances the value of relationships. They are an excellent tool(s) not only for developing deeper relationships but getting to know people in the supply chain on a personal basis. This is an asset and people appreciate attempts to build better personal relationships. It is the Internet version of playing a round golf with someone. You get to know a lot about an individual when you play eighteen holes of golf with them. Obviously social media is not that intense but it does help build relationships. Bottom line it helps build trust, especially internally which is a key for managing change. Some argue that we should not build these types of personal relationships with a supplier or internal customers but I disagree. More often than not, this type of relationship will help, especially in a crisis. Besides what is the alternative? Being constantly adversarial adds no value. The watch out is that you cannot let personal relationships sway your judgment when major decisions have to be made. Being honest with a supplier, when they are deselected or disqualified, is always the best option. Most experienced purchasing professionals can remain objective and not let personal relationships derail their judgment. They can usually avoid what I call Supplier Stockholm Syndrome.
Dr. Tom Update: Today social media can explode and seriously damage a relationship. This is even more a reason to get to know your critical suppliers in person and understand them deeply and on a personal level.
Lesson #6: Ruthlessly rationalize suppliers first and then don’t back off.
BMP: As the need to manage risk increases in organizations, many companies are moving away from supplier rationalization – or rather away from single sourcing. Does your recognition of risk as one of the “bottleneck materials strategies” fully address that or do you think supplier rationalization as a strategy should be reconsidered altogether?
Dr. Tom: There is no standard answer for this. You need to have a different supplier strategy based on the particular service or material that you need and the risk of supply interruption. The more critical or strategic the material, the more that you have to make a sourcing decision based on risk. This may include multiple suppliers, alternate materials, or backup suppliers. Sole sourcing decisions can have significant dollar savings but an interruption of the supply chain can carry great risk and cost. The purchasing professional must have multiple sourcing strategies to deal with risk. This is especially relevant today where many companies have international suppliers who can deliver at much lower costs. However, many of these countries are at risk not only from a political or stability aspect, but natural disasters.
Dr. Tom Update: Again, you must adjust your supplier strategy to how critical the supply or part is to your organization. Why not ask your suppliers their advice for possible interruptions to their supply chain to you?
Lesson #12: Do your homework with suppliers and industries.
BMP: I love the fact that you advocate not being intimidated by bullying stakeholders/internal customers, “Purchasing is not an unctuous service organization at the beck and whim of internal customers” What advice would you give for managing or minimizing the inevitable fall out?
Dr. Tom: My advice here is to always lead with the facts and stay professional. Make sure you have a good supplier evaluation process in place with great metrics. Bullying stakeholders often focus on one incident and over dramatize the single event and impact. Maintenance people often focus on one incident of late delivery of a part. This is a standard bullying exaggeration procedure. When shown that the supplier evaluation data reveals a 99% plus on time delivery of thousands of parts, the drama is often defused. My other advice here is to publish supplier performance metrics (visibility) so that everyone can see how they are doing.
Dr. Tom Update: One of the principles of Lean is highly visible metrics in an understandable and actionable manner. People want to know what is happening and how great or not so great they are doing.
BMP: You use terms such as procurement, purchasing, buying, sourcing, etc. in your book. Do each of the terms used have specific meaning to you or do you use them interchangeably? I ask because of the growing association between purchasing and tactical buying v. procurement and more strategic activity (for instance).
Dr. Tom: I use them interchangeably in the book. I categorize these terms as skill sets that all purchasing professionals must have. Purchasing professionals need to switch gears in their approach based on the customer needs. They may have to quickly be tactical, strategic or bureaucratic based on what the customer wants. What every purchasing professional should ask themselves at the end of their day is “What did I do today to help move the business ahead?”
Dr. Tom Update: Flexibility from purchasing and supply chain professionals is even more important. People value “hands on” participation in problem solving and a dedication being the best.
BMP: Nearly (over) 10 years after your book was originally published, if you were to write lesson #101, what would it be?
Dr. Tom: Do not give up on relationship building. It does take time, effort and stamina. But the rewards are huge. The first test of a relationship is very important, so make sure you do your very best to maintain and improve the trust.
Dr. Tom Update: Relationships still require constant work and understanding. Do not underestimate how much they can be improved outside of a work environment. Take advantage of these nonwork situations.
BMP: In the interview posted on your site, you mentioned plans for another book on the role of managing relationships. Is that still in your future?
Dr. Tom Update: Well I now have nine books available on amazon. https://www.amazon.com/author/tomdepaoli
BMP: Several times in your book you mention Dr. Deming (W. Edwards Deming, I presume). How did his work come to play a role in your purchasing philosophy? Is there a book by (or about) him that you would recommend?
Dr. Tom: Dr. Deming was actually more of a people person not a statistics or quality person. He trusted people. He often noted that over 90% of defects were not caused by people or the workers, but by defective materials purchased for the process or the poor design of the process. People cannot make a bad process design much better, and over 90% of quality is imbedded in the initial process design. Purchasing can play a tremendous role in assuring that the incoming materials are of high quality (world class suppliers) and that the process is designed correctly (cross-functional teams with engineering). The role of purchasing on quality is critical. I will not recommend a single book Dr. Deming but here is a good website to review many books and articles on him.
Dr. Tom Update: My advice to a supply chain professional is to make sure you lead with your people skills first. Most people can understand and master technology with varying degrees of help and diligence to learn.
Finally, I am glad that so many people have read my book and get many of the lessons that I wanted to share.
I have more books and blog posts available on my website. https://drtombooks.com/
I wish you well on the supply chain journey.
Dr. Tom