Reengineering or Transforming Purchasing into Supply Management
By Dr. Tom DePaoli
The details of an actual case of a reengineering or transformation of a purchasing organization into supply management can be found in my two books available on Amazon. Common Sense Purchasing and Common Sense Supply Management
Anyone who thinks that reengineering or transforming purchasing is not the most radical and corporate changing process that a company can undertake is greatly mistaken. Reengineering can not be done in a piecemeal half-hearted manner. It requires the total changing of all aspects of purchasing. It is important to change everything about the former traditional purchasing department. Michael Hammer was right when he indicated that your first step is to “blow-up” the old purchasing system. Dr. Hammer states, “Reengineering means starting over. It doesn’t mean tinkering with what already exists and leaving the basic structures intact. It isn’t about making patchwork fixes—or jury-rigging existing systems so that they work better. It is about making BIG changes fast.” This is a complete remake. What people do, nomenclature, the work atmosphere and primarily the relationships with suppliers can not be just tweaked. This is radical surgery and a transformation not just another management program that people hope will go away or that loses momentum over time. Above all the process requires an intense fervor and commitment that defies explanation unless an individual has actually lived or survived the perilous journey.
Reengineering of purchasing is a major rethinking and total redesign of company wide buying practices. The objective is to obtain a tremendous leap in the supply chain elements such as quality, cost, technology, cycle time, inventory levels, lead-time, transactions and total cost of ownership. The barriers to achieving this major improvement are numerous and intense. There is limited or no top management perception of the role of purchasing and often insufficient license to operate. Out of date attitudes towards purchasing among other departments often thwart the process. Management often permits other departments to define what they want purchasing to do which typically is a blind subservient service department that meets their non-value adding perceived needs. Purchasing departments are typically bureaucracies’ rift with disabling policies, procedures, and redundant controls. Purchasing reports to different functions in different companies. This just adds to the confusion about their role. Often antiquated information systems with little or no value for purchasing are mired in place. Many corporate hierarchies and organizational structures militate against letting purchasing “play in their sandbox.” A very high percentage (over fifty percent) of purchasing departments remains solidly traditional. This inability to change or even progress remains a mystery for the many purchasing professionals. According to Jack Welch CEO of General Electric, “The only two departments in a company that generate revenue are sales and purchasing. Everyone else is overhead.” He is dead right. The problem is that the overhead departments rule most organizations and protect their turf with a vengeance.
By far the biggest barrier to reengineering purchasing is the enormous and overwhelming fear of change. Dr. Deming was right when he cited the need to drive out fear. A severe job security issue among purchasing professionals often helps create an atmosphere of fear that is nearly impossible to overcome. Before the undertaking of the journey of reengineering of purchasing an assessment of where purchasing professionals are on their career path-cycle and in their approach is essential. The four milestones along the path are beginners or start-up, adapters or maintenance, risk takers or innovators and visionary or leading edge. Purchasing professionals can be classified as reactive, mechanical, proactive and American Keirestsu. The reactive state is the typical fire fighting jumping to operating crisis mode of many departments. The mechanical mode is the super-bureaucrat that has mastered the inefficient system. The proactive state shows spurts of planning and some significant progress. Often it is haphazard. The American Keirestu is the end state of supply management prowess. The key here is to re-skill people and provide the training to lead the reengineering process.
Traditional purchasing rewards the exact wrong skills and behaviors. It rewards pencil pushers. Requirements are basically dictated to purchasing who often select a supplier by a rigid bid process. Unfortunately, most non-purchasing employees think the bid process protects a company. Purchasing professionals soon realize the exact opposite is true. It is a process beret with danger and dishonesty. Price is often king. Cheap is regarded as better. The buying department is heavily transaction focused with multiple and complicated steps just to purchase an item no matter how small or cheap. Requisitions drive the workload and the rules inhibit any real relationships with suppliers. Customer needs go out the window and procedures rule.
Progressive purchasing is highly team orientated especially cross-functional teams. The examination of the supply chain and total cost of ownership drives the decision-making process. There is a systematic process for supplier selection. Relationship building and management is the key skill for the purchasing professional. Senior management not only supports but also understands the process. Purchasing becomes a true business partner and leader.
The supplier relationship is where the traditional and the progressive purchasing differ the most. The traditional is short term, adversary based and mostly commercial. Serious cost cutting is rare. Communication is usually at arms length. Shopping is continuous and purchasing is perpetually hunting for a “deal”. The world is one big strip mall of suppliers. The low bidder often wins the bid. The norm is three quotes and the required blizzard of paperwork for a supplier. The atmosphere is one of low trust, weak commitment and performance is often not monitored well. Expediting of parts is continuous.
Modern supplier relationships are geared towards the long term at least three to five years. Close collaboration is open with mutual sharing of plans, design, goals and rewards. The lowest total cost of ownership is valued and value-adding services are the norm. Suppliers are empowered to just get it done. The so-called iceberg of supplier opportunity clearly explains that only five to ten percent of efficiency is gained via price and it is the area of least resistance and work. The ninety to ninety-five percent of the so-called new frontier of supplier exploration is actual bottom line total cost of ownership savings of utilizing a preferred supplier. This is the area of the greatest resistance and opportunity. This is the realm of relationship building that requires increasing communication and the building of trust.
This new frontier with suppliers has some particular characteristics. These characteristics include most favored customer contracts, elimination of incoming inspection, reduction of supplier base, early supplier involvement in design, value engineering, mutual cost reductions, targeting of non-production company costs, the complete integration of key suppliers into the business, and extensive use of cross-functional teams. This quantum leap philosophy with suppliers requires the education of purchasing personnel, rapid access to information and supplier empowerment. Cross-functional business teams and a constant dedication to improve and to reduce time to market are key elements.
An initial reengineering checklist must include a focus on business practices and the dumping of buzzwords. It is necessary to aim high and not to settle for marginal results. Anticipation of strong resistance and strategies in advance are necessary to respond to the resistance. Constant follow-up on tasks, dedicated resources and hours to retraining certain workers, revised job descriptions, changing the cultural norm, changing the nomenclature, changing the work area and the work routine and the use of new technology when appropriate are noteworthy endeavors to consider.
The stages of reengineering are as follows: preparation, identification, vision, solution, transformation, follow-up and leapfrogging. The preparation phase is the most critical. One can not over prepare for the reengineering of purchasing. Homework isn’t fun but it is essential. Senior management must not only be educated but a senior vice-president should be designated as a leader or champion of the process. Put in place methods to update senior management on progress and issues. Define the obstacles and potential issues in advance along with setting goals and priorities. Organize a reengineering team and include departments impacted by the change on the team. Of utmost importance develop a marketing plan for reengineering. You can not over-communicate this process. Change creates an atmosphere of inordinate fear. Use of every communication device possible to help alleviate these fears is required. Often purchasing people after years of being boring bureaucrats can not market the process.
Top management needs to understand one important precept. Suppliers can make or break any business or business plan. According to Dr. Deeming defective materials or equipment not human error or the process causes over 80% of quality variances. Suppliers obviously play the key role in achieving high quality. Suppliers need to be treated as stakeholders not adversaries. World-class suppliers can become a company’s best competitive weapons. They play the quintessence role in reducing time to market.
The major challenges of the next century include maximizing supplier contributions by focusing on supplier partners and on continuous improvement. The focus must be on quality, flexibility and reducing time to market. Ultimately company performance is judged by the paying customers or what I call the final end-user customer. Typically purchasing gets totally sidetracked and thinks that internal company customers are their real customers. Nothing could be further from the truth. These internal customers often whipsaw purchasing into doing stupid human tricks. Purchasing is not an unctuous service organization at the beck and whim of internal customers. It is primarily the chief revenue center for the corporation. It should in conjunction with sales find out exactly what the paying customers want not boisterous internal customers. Internal customers often just confuse the issue. Purchasing in the reengineering process needs to focus on what specification the ultimate paying customer wants not the false specifications of engineering, manufacturing, shipping accounting, etc. This is a heck of a lot easier said than done. This is one reason why companies spend millions on customer research and focus groups.
An initial assessment checklist should include things like what are people’s expectations from purchasing. Don’t expect any major insights here. Often their expectations are mired in traditional thinking and self-serving requirements. Purchasing needs to understand what they are evaluated on and how the score is kept. Price reductions are often only five to ten percent of the savings potential for a company. New reporting relationships must be discussed. A new organization must be proposed and agreed upon in advance. Purchasing needs to get more involved in the design phase of products and more importantly with sales and get to know the paying customer up front and personal. A resource assessment is required. This is not a process that can be done part time. Unless people and the team are completely dedicated to the process it will fail. Resistance to change will be fierce and harsh. One way to overcome the resistance is to ensure that communications of changes are outstanding. It is important to wisely choose a very first project or reengineering task. Initial success in this project is critical for future success. Often it is wise to pick the process that is the most rift with redundancy and a clear victory when streamlining is possible. The reengineering team must be trained in the process and a facilitator is highly recommended. The team needs to prepared to be under siege and be aware of the rule of change. In order to effect a change in most organizations you must adhere to the seven times rule. A change must be presented and driven for at least seven times and explained seven different ways in order for it to start to take hold in an organization.
Flexibility in supplier relationship building is a must. Use the 80-20 rule. Concentrate on building relationships with suppliers that you spend the most dollars on. Develop strategic relationships with suppliers only who will give you a distinct competitive advantage to your paying or end-user customers. Most corporations can only manage a few of these critical relationships. They must be at the highest level with executive and other personnel exchanges. The other low value or miscellaneous materials don’t really need strong relationship efforts. These relationships can remain strictly commercial. There is no need to waste precious resources on developing relationships with these suppliers. Steer clear of the emotional materials at first. Many people in companies develop personal relationships with suppliers. People love trinkets, dinners, golf, and attention etc. from suppliers. Unfortunately, this doesn’t drive money to the company’s bottom line. Don’t underestimate this personal factor. Identify your key suppliers early. If anyone in your organization has had prior reengineering experience use him or her as much as possible. Reengineering is often an endurance contest where the last man or woman left standing wins. The problem is many individuals dig in and hope to wear the reengineering team out. Reengineering is a marathon not a sprint. Don’t be afraid to lose some minor battles initially in order to win the war.
Understanding paying customer needs drives the process. Note internal customer needs only. Concentrate on what counts to the ultimate paying customers. How do we find this out? Ask them! Supplier receptiveness to the relationships changing needs to be carefully felt out. Top management needs to understand that resistance will be fierce and some individuals will not change and must be dealt with appropriately. Accounting needs to re-think the way it keeps score. Standard cost-based systems are too antiquated to adequately report on progress for this process. Activity based accounting is much more suited to the reengineering process and correct assessment of progress. Always strive for the highest performance with clear vision and clear objectives. Internal customers or end-users that previously were not permitted to perform transactions or even dialogue with suppliers now must be seamlessly connected. Purchasing must get out of the worthless middle-person syndrome. Purchasing needs to forgo its role as rule throwing obstructionist. The organization must constantly be flexible and look forward to upgrades.
Phase one of the action plan is to raise personal knowledge about current purchasing practices and measurements. It is important to spend the time trying to change the mindset of oneself and the purchasing department. Quite frankly many traditional purchasing professionals don’t make the change or the stretch run. Job security is the biggest barrier. At the same time top management must agree and buy into the reengineering of purchasing. Something this radical needs their undivided support and patience. Start the organization buy-in at the same time. A cross-function steering team needs to be formed in phase one
Phase two should work on gaining consensus of objectives and the finalization of an overall plan. Top management needs to be informed of progress and different progress indices developed for the now reengineered purchasing department. Approval of progress to date must be sought and full-scale re-skilling of purchasing members must be well underway.
Phase three is the implementation of the actual plan. Select your key supplier partners carefully. Nothing beats supplier prior experience with the reengineering process. Determine your specific materials strategies and assign projects and transformation efforts at this time. Start to hold supplier summits and re-educate purchasing personnel on their new roles.
The three R’s of purchasing renewal include the following:
- Reengineering from a function to a process with the maximization of supplier contributions.
- Retooling of information systems to rapid response systems so suppliers have direct access to necessary information
- Realignment of roles to cross-functional teams.
Purchasing is faced with achieving three key areas to overhaul. Drastically reduce or consolidate the number of suppliers, radically reduce the number of non-value adding transactions and re-skill or re-educate purchasing personnel. These are definitely a challenge for all three must be done simultaneously and at breakneck speed in order to achieve success.
The first “R” of renewal requires a scientific or process approach to supplier selection. This must be done systematically with known criteria expostulated in advance. At first supplier reduction may be just a number elimination game. Later the selecting of the strategic suppliers must be a careful process with cross-functional teams.
The second “R” retooling of information is mainly a result of this decade. It is not just plunking a personal computer on every desktop but making available rapid instantaneous information available to everyone in the organization in real time and without any censorship. The without any censorship is a hard pill to swallow for many traditional corporations where information is viewed as a weapon to keep employees in line or cow tied to structures. Nothing drives out fear better that open and free communication. Many companies now realize that it is better and quicker to buy the best software and not to develop it internally. Internal organizational barriers often preclude homegrown software from being efficient or state of the art.
The third “R” is the realignment of roles. Cross-function teams need to be the norm. Purchasing personnel will spend more and more time outside of their department or area which is precisely where they belong. Unless the purchasing leader is comfortable with this new arrangement the new way of doing business with be severely hampered. Intensive coaching of many running teams and tracking their progress will be necessary. Suppliers can now also assume some of the role of R&D and not think in a vacuum when proposing improvement to materials, parts or services.
An Example Case History of Reengineering of Purchasing into Supply Management
This case company had lost over $400,000,000 and was ready and willing to try anything radical to fix its financial health. There were over 40,000 suppliers and purchasing was grossly decentralized or “Balkanized”. Pricing was totally out of whack and varied from plant to plant. The company was saddled with a very traditional purchasing organization. Communication between site purchasing was non-existent. Equipment and capital purchasing was not standardized. Before the process began benchmarking was conducted. Benchmarking is a continual systematic process for evaluating products, services and work processes of organizations that are recognized as representing best practices for the purpose of organizational improvement. The pricing was discovered to be off from ten to thirty percent and the pricing was different for the very same items at different plants. The benchmark process involved products, services, procedures and materials. There was a search for best practices and the initial focus was on customers, capability building for purchasing and market research for suppliers. Empowerment skills were developed for internal end-users of materials so they could purchase materials direct. Purchasing would select the supplier and the transaction process and the end-users would follow the course. A huge purchasing computer system had been in the works for ten years at a sunk cost of over $20,000,000. It was ceremoniously scrapped. The performance dial was reset for suppliers and meetings were held with existing suppliers asking for lower prices, improved terms reduced inventory and cost information. Many sites had over five thousand suppliers and had to reduce the number quickly. Initially it was just an attrition exercise. Slowly sites started to build relationships with some key suppliers. Some suppliers decided to step up as preferred suppliers and had previous experience with supply management. This previous experience was found to be invaluable in establishing the relationship. Many of these preferred suppliers could offer a wide menu of services. The problem was that many of the sites could not decide what they really wanted or valued. Again the nebulous arena of paying customer wants was explored.
One of the initial key concepts for purchasing was to maximize leverage nationally and internationally if possible with certain key suppliers. Suppliers costs had to be understood not just their bids. A clear systematic supplier selection process was established. Standard contracts and agreements were put in place and commercial terms such as payment terms were standardized. Throughout the process periodic bench-marking versus competitors was conducted.
Some key discoveries of the process confirmed that pricing was way off base. The bureaucratic cost of maintaining 40,000 suppliers was huge. Purchasing had a transaction audit mentality. Purchasing was clearly transactional not strategic or a business partner with any other department. Purchasing was not trusted by current suppliers or by internal customers. There was a belief that “money was always left on the table.” Procurement systems were convoluted and archaic. Meaningful buying data did not exist. Purchasing needed to upgrade manuals and boilerplate contracts.
A procurement or supplier selection process was put in place. There were six stages or steps that were involved. The first was defining the customer needs both the internal and final paying customer. This required examination of what was really needed and a specifications review if necessary. The next step was the gathering of market, supplier and other intelligence information. Often this is the most neglected area in traditional supplier selection. All potential suppliers were then evaluated on a cost and value analysis according to predetermined criteria. Once the supplier list was narrowed down the negotiations and conditions are put into place. Implementation and metrics are the final step to be put into place. One of the major goals of this process is to stop the perpetual shopping mentality of most traditional purchasing departments and the constant flurry of bidding activity. The goal is to shop once and be done. The real work is to work constantly on improving the relationship. Shopping constantly for the best deal is a never-ending quixotic task. Relationship building with suppliers is the core of supply management.
The Porter model was a powerful tool that was used in the supplier selection process. It is a systematic approach to market analysis often-used by marketing. The goals here is industry analysis and to enable purchasing to know as much or more about an industry that a supplier is participating in than the supplier themselves. This tool reinforced the maxim that he or she who has the most information in negotiations has the advantage.
The initial results in this case study were dramatic. Savings of over $50,000,000 were achieved and verified. The viability of reengineering purchasing and supply management were clearly demonstrated to top management. There was a major shift in people capability, which was the direct result of over two hundred hours of procurement capability training. Significant beachheads in transaction reduction were obtained especially in the small dollar purchase of fewer than two hundred dollars, which was the vast majority of purchase orders.
Supplier consolidation or reduction results were even more impressive. A typical site for instance reduced suppliers from over five thousand to two hundred. Some key worldwide materials suppliers dropped from twenty-eight to four. This had an enormous streamlining impact on the workload of plants. A natural benefit of this was better supplier performance tracking and increased competition among suppliers especially the few three or four that were competing for a material. The first stage of consolidation was as follows: initial consolidation was a significant reduction in the number of suppliers by category. This was not at first a partnership but simply a numbers reduction. For most industries this is achievable since there are only three or four top-notch suppliers or players in the industry. This effort dethroned the traditional psyche that “price was king” and finally permitted purchasing professionals to go for the very best suppliers.
Outcomes of the consolidation efforts included significant volume discounts due to improved leverage and a solid emphasis on total costs and lower transactions costs (fewer suppliers). Set-up costs and operational gains were made due to less complexity and the reduction in material variances. The approach improved confidentiality and focused purchasing efforts on getting the best-in-class suppliers. Quality gains were impressive because often the best materials form the best suppliers were used in product production. Working capital and cycle time also improved since as the relationship with a few strategic suppliers grew they could better anticipate wants and needs. Suppliers’ roles changed dramatically form back slapping salesmen to resources and problem solvers. Value-adding work began and the traditional adversary posturing days were dead. Suppliers started to discuss and share R&D results. Morale and motivation among purchasing professionals rose appreciably. Expertise was shared across plants and transaction reduction efforts flourished. Procurement professionals were becoming valued business partners with other departments. Those professionals who didn’t grow were transferred or given other options.
An after-action report indicated that the following keys to success and some lessons learned for reengineering was essential. Good market and industry intelligence is critical. Picking the right racehorse or supplier is a must for the building of trust in the process. It is better to take a long and exhausting time to pick the right racehorse rather that pick the wrong one. Shooting a racehorse or the deselecting of a chosen supplier is expensive and greatly undermines the process. The suppliers picked must be world class. Consolidation or reduction of suppliers must be done as rapidly as possible. The more this process is drawn out the more local plants and people resist. It is important to get them out of their comfort zone and start to build the new relationship with the new selected suppliers. Leadership support at the top must be informed and supportive. A favorable competitive external environment is helpful but not essential. In industries or markets where there was more demand than supply or other extenuating circumstances it was nearly impossible to negotiate strong agreements. Capability improvement for purchasing professionals was an important aspect of the journey. Transaction reduction was a key component that gave purchasing personnel more space or free time to work on broader and more value adding issues.
The reengineering of purchasing leads inexorably into supply management. Supply management is a strategic process that works with the supply community to best select and manage those suppliers that best handle your company’s and your customer’s needs. As reengineering takes place and consolidation of suppliers becomes a reality and the search for best practices gets into high gear. A best practice is a professionally acknowledged best way or procedure to accomplish a certain task or project. Reengineering leads to some organizational best practices. Purchasing must become a strategic group that drives company strategy. Purchasing strategies need to start to become global in scope. Purchasing strategy and suppliers need to become linked to business strategy. Suppliers need to get to a high level in the corporation and coordinate activities with executives. Purchasing needs to think of itself as a critical service or staffing value-adding organization that “sells’ its value-added services internally. Cross-functional teams become the norm and many value-adding transactions occur with members of the corporation and suppliers.
Reengineering completely changes the supplier relationship to a much higher and strategic level. The supplier selection process is highly disciplined. There are a low number of suppliers and supplier certification is demanded and valued. Aggressive joint total costs of ownership reduction plans are explored. There evolves key communications and information sharing with sophisticated electronic connections put into place. Suppliers are measured on a few key measures and total cost improvement measures. Superior supplier performance is recognized and formal systems are put into place to measure internal customer satisfaction. Compensation is linked to supplier performance and customer satisfaction. Suppliers are placed under long term contracts especially alliances. Some single sourced materials or services are established and periodic design reviews are held with strategic suppliers. End-users are encouraged to purchase directly from approved suppliers. Direct informational links with suppliers become the norm.
Reengineering requires radically different performance measures. Here are some of the new performance measures to be considered. System type purchasing programs that mirror continuous replenishment must be put in place. Purchasing needs to create a five-year strategic plan. End-user driven transactions like purchase cards needs to become the norm. The number of professional training hours for purchasing professionals becomes an important measure.
High goal targets need to be set such as a fifty percent reduction in lead-time, a fifty percent reduction in rejects, a ten to twenty percent reduction in “all-in costs”, a seventy to eighty percent reduction in suppliers and establishing direct end-user friendly electronic transactions.
During the first stage of reengineering some initial goals are to standardize prices and to get lower prices via leveraging. The first focus should be on no inflation clauses, the best standard commercial terms, reduction in inventory, and resetting the dial of commercial agreements. Stage two results need to focus on less suppliers, manage relationships with suppliers, look at supply chain dynamics, achieve some better quality, improvement in transactions, improve customer service and greatly reduce non-value adding steps in transactions. Stage three brings planned material substitutions, design changes and optimal specifications, standardized equipment and processes, improved product life cycle, focus on continuous improvement, and accelerated information sharing.
Some major supply side advantages are: reduced total cost of ownership, improved process consistency, improved supply cycle time, access to more technology and supplier’s R&D, reduced risk of supply, improved competitive advantages through strategic alliances and purchasing rightful place as a true business team partner.
The pace of the change gets to be at a world class almost frenetic pace. Purchasing then concentrates on value adding work only. Often other departments and people literally need to be dragged to best practices. Purchasing must summarily reject all requests for non-value adding work. Goal setting must be very high but achievable. For the next century the information age requires speed and accuracy. Information must be flawless an open to all in the corporation.
Key to enabling purchasing to operate at this hype-pace is elimination purchase orders. Here are some good descriptions of the traditional purchasing world realm of purchase orders. Often purchase orders are very laden with steps and totally inefficient. Yet in the traditional bureaucratic purchasing world purchase orders take up over eighty percent of a purchasing professional’s time. Often a large percentage of the transactions make up only ten- percent of the dollars spent. These purchase orders hover around less than two hundred dollars and rarely more than one thousand dollars. Benchmarks of purchase order costs can reach one hundred and fifty dollars per purchase order. Often payment discounts are missed to suppliers due to the sheer volume of transactions and invoices. Purchase order procedures vary from many companies and there is no rhyme or reason for the rules. Buyers spend over eighty percent of their time being bureaucrats. There is a norm of perpetual crisis and conflict in the wild paper chase. Good buyers are often viewed as “super-clerks” who constantly expedite or rush orders. Purchasing is mired in the transaction bayou and basically treading water with alligators perpetually.
Reengineering purchasing requires a take no prisoners psyche. Traditional titles must be smashed and all efforts focused on the supply chain. Vendors are no longer “peddlers” but valued partner suppliers. All traditional nomenclature about traditional purchasing must be destroyed. It only perpetuates traditional behavior and sends the exact wrong messages to everyone. The focus must be on relationships not transactions. Relationships need to drive supply management not transactions. Best practices like purchase cards can significantly reduce transaction work and provide superior reporting capability. The use of purchase cards requires trust of end-users and some prudence. The rewards of this best practice in time for a purchasing department are significant.
Often the simple things help the reengineering process. A clear end-users “how to” manual that walks them through simple direct purchases will greatly aid the reengineering process. This “nuts and bolts” type manual needs to contain preferred supplier lists, contacts for orders, how to advice and illustrations on how to purchase various materials, details on purchase cards, clear examples and checklist. Also key is a re-skilling purchasing professional. Their new roles require new skills especially in coaching, team leading, facilitating, process mapping, supply chain analysis, relationship building, and information processing and electronic measures. A key trait for the supply management explorer is the ability to be open to new learning experiences.
Identification of barriers and anticipation of opposition points is also critical for a successful reengineering process. The auditing mentality feeds upon itself. Designing processes for exceptions generates more audits and usually more paperwork. Many traditionalists can’t get off the price merry-go- round. To them price is still king. If this were factual every American would be driving a Yugo. Every end user likes to shop and if they get a better price they automatically condemn the process. In purchasing itself resistance is often incredibly fierce. There is a real job security issue and some foot dragging sabotage can be expected. The built-in adversary mis-trust of suppliers is hard to break. Old relationships even with inept supplier are difficult to break. Often de-selected suppliers plant sour grapes and bad mouth new suppliers adding doubt to the process. Manufacturing and operations often misunderstand the aims of supply management and just want the delivery of the materials on time.
Here are some pitfalls to consider before they derail the process. A shoddy unsystematic supplier selection process will kill reengineering of purchasing instantly. Ethics conflicts can’t be tolerated. Make the supplier choices based on merits not trinkets. End-users may rebel at being empowered and doing more of so called purchasing work. Communications of changes must be thorough and planned to include as many people along the supply chain as possible. Middle management often resists the fiercest because of the job loss fear. If process maps are not used to analyze a supply chain major mistakes can be made. It is often better to let the hard stuff be last and go for some quick supply chain victories first.
Neglecting skills re-training for purchasing will kill the process. An intense skills upgrade is mandatory and needs to become ongoing. Use teams to select suppliers not hearsay. At time upper management receives valued perks from suppliers and may be very reluctant to change suppliers. Supplier selection requires a lot of unglamorous homework. If this homework isn’t done the selection process is bogus. Upper management may only be “soft” committed to the process. They must literally drive this process throughout the company often over screaming bodies. There can be no compromise on this issue. Dispelling fear from the process is essential or people will go underground and resist. A supplier inexperienced in supply management can wreck the change process. Go with experience in supplier selection when ever possible. A weak or incompetent local supplier representative can destroy the relationship building. Insist on the right to accept and approve the supplier representative. Both the information department and accounting fear a loss of control in this process. Involve them in supply change decisions and on selection teams. Make clear the supplier performance metrics from the start. Mistakes will occur. Acknowledge them and share the learning with naysayers.
Reengineering purchasing is basically a three-step approach. First consolidate suppliers for without this step reengineering is impossible. You can’t have thousands of relationships. Transactions must be eliminated and streamlined or purchasing will not have time to improve. Transactions are the enemy and no quarter must be given to them. Dump them. It gives purchasing people space to work at value adding projects. Don’t underestimate that new skill sets must be taught and get professional help if necessary.
Purchasing professionals need to evolve to become agents of change. They must concentrate on relationships and broad-based communication. They must become marketers especially of the process and the results. Working with suppliers to mutually solve supply change issues is essential. Non-value adding work must be eschewed. Allies are also essential for the success of this process. Those who don’t want to change or won’t change must be readily identified and reassigned or transferred.
Agents of change or explorers manifest certain behaviors. They are never satisfied with current accomplishments. They possess an insatiable desire for a better way. They seek ongoing experiments or best practices beachheads. Their standards of excellences are high and they constantly work to improve relationships. They concentrate on continuous learning and improvement.
When involved in the process they seek out and exchange information with other purchasing organizations that are also reengineering. This is a ‘learn as you go process” fraught with some failures that must be treated as lessons learned not deal killers. On a personal front, new skills require pushing people out of their comfort zones. Expertise will grow and change. Focus constantly on best practices.
Reengineering purchasing is not a sprint but more like a harsh ultra-marathon. Losing one’s cool or patience only sets the process back. Agents of change will lose some battles but the war can be won. The purchasing team must get in sync and function as one. Explorers need indomitable spirit to make the reengineering of purchasing successful. Waiting for reengineering to just happen will be a forever wait.
Explorers don’t wait for approval. They strike out on the journey. The joy is in the journey.
Reengineer purchasing now!
Dr. Tom DePaoli is the Principal (CEO) of Apollo Solutions (www.apollosolutions.us) which does general business consulting in the supply chain, Lean Six Sigma and human resources areas. Recently he retired from the Navy Reserve after over 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 nine books available on Amazon. His Amazon author’s page is https://www.amazon.com/author/tomdepaoli