Attaining a World Class Supply Management Organization through Strategic Initiatives Dr. Peter E. O Reilly, C.P.M. Associate Vice-President and Chief Purchasing Officer AMERIGROUP 757-321-3501; drpor@aol.com 89 th Annual International Supply Management Conference, April 2004 Abstract. The presentation will focus on identifying and discussing strategic initiatives that will improve the effectiveness of a supply management organization. Strategic methodologies that will be covered include specific successfully proven tools and concepts involving enhancing the roles played by customers, suppliers, staffing and senior management, as well as blending in the appropriate technologies. In the beginning. There is not one factor that if achieved will result in a world class supply management organization. Rather it is the involvement of several elements that should be moving in the right direction for your objective to be achieved. The presentation will concentrate on five strategic initiatives that all need attention for your supply management organization to achieve world class status. These initiatives include: expanding the role of your customers in your planning; increasing the interactiveness of your key suppliers in your operations; giving your senior management a role in setting your priorities and results; establishing a professional staff that believes in their organization s future and their own; and selecting and integrating the correct technologies for your operations. Putting a strategic plan together to accomplish your goal of a world class organization requires both a vision and a commitment on the part of the chief procurement officer. Expanding the role of your customers in your planning. Sometimes it seems like our internal customers are oblivious to the presence of the supply management organization, particularly when it comes to their planning processes. We all have experienced a customer contacting us with an impossible rush requirement on a large order. In all too many such cases, it can be easily surmised that the only reason these orders were rushes, was a lack of communications between the customer and the purchasing unit. Will these occurrences ever go away completely? I doubt it. The best course of action for supply management organizations to take to counter these happenings is to pursue a proactive stance in engaging their customers. Going on the offensive with your customers can be done through a variety of interactions. Perhaps the most direct approach is to include your customers in your planning process. This goal can be accomplished in a number of ways, such as through off-site planning meetings, focus teams, monthly meetings, sessions with support units, and inclusion on RFP teams. Focus groups, that address the possible introduction into the company of new products, services and technologies, give customers the feeling that you are soliciting their input on critical decisions. These decisions will eventually involve how the customers money will be spent in the future, as well as cost saving opportunities.
Periodic (monthly or quarterly are suggested) meetings with customers, especially those in decentralized locations, also go a long way in increasing the participation of customers in the planning process employed by purchasing organizations. They also allow for two way dialogues on a wide array of procurement-related issues. Many times purchasing organizations overlook the importance of involving their customers working in support units like technology, legal, human resources, finance and facilities. These units are often strategic partners in the procurement function. They can be helpful in winning over joint customers and providing critical feedback, such as the pending acquisition of a new company or the movement to a new company-wide operating system. It was not so long ago that in services industries the RFP team consisted mainly of personnel in the supply management unit. Decisions were being made with a minimum amount of impact from the folks who were going to use the goods or services, and whose money was going to be spent to fund the purchases. Today there is a greater degree of inclusiveness. The RFP teams are comprised of representatives from the user department, purchasing, and a number of other stakeholders, such as technology and legal. All of the above actions are meant to show customers that supply management organizations want to work with them. Creating a cooperative atmosphere can (and should) result in these very same customers reciprocating and allowing the purchasing department to join in their planning processes. Increasing the interactiveness of your key suppliers in your operations. There is no greater lost opportunity to improving the effectiveness of supply management organizations than in ignoring the potential benefits derived from expanding the role your strategic suppliers can play. While we increasing rely on the use of outsourcing firms and consulting services to provide knowledge and activities we feel are lacking from our internal staff, overlooked is the expertise of our key suppliers. Not only is a vast amount of technical and supportive assistance available from these suppliers, but at a fraction of the cost, if secured through purchased services means. Many supply management units have longed had advisory and order processing support provided by strategic suppliers through on-site staffing involving such areas as technology, telecomm, and printing. A more focused approach is being applies by suppliers for such commodities as furniture, carpeting, office equipment, supplies, benefits and software through lunch and learn sessions for not only procurement personnel, but our customers as well. Perhaps the most noticeable interaction a supply management organization has with its vendors is by way of supplier councils. Long an effective device used in the manufacturing and government sectors as a way of recognizing suppliers, this approach is slowly moving into the services sector. Supplier councils allow purchasing organizations to gather vital information on such topics as process improvements and cost reduction opportunities. Suppliers have always petitioned purchasing units not to rely solely on price in determining which supplier to employ. The supplier councils offer these very vendors the opportunity to showcase value added situations.
The councils also allow for ideas relative to measuring the performance of suppliers to be discussed at an open forum and for some of these ideas to be implemented. Senior Management and Supply Management. A proactive purchasing organization should look at senior management as a resource, to be used for a variety of purposes. By senior management I mean the Chairperson, CEO, CFO, CIO, the senior officers of your customer base, and your boss. Historically, CPOs in manufacturing firms have had direct and frequent access to the senior management team. This has had to do with the direct spend nature of that sector. In the services industries interaction with senior management personnel have tended to be based on the personal dynamics of the CPO of a company. So just why is it important to expand the involvement of senior management personnel within the operations of supply management? For one thing the potential and actual savings is related to company expenses, so the savings impact our customers budgets, and not that of Purchasing. Cost reduction opportunities can significantly help a firm s EPS, earnings per share, perhaps more than any other department in a company. Involving these very busy people can be challenging, so flexibility is imperative in developing a strategy. For the senior leads of departments, quarterly lunchtime sessions can be effective. Creating an agenda that is interesting is a must. You may only have an hour so use this time wisely. I would suggest focusing on a few initiatives that will have a major impact on their operations, and their collective bottom lines. Relating on how a new technological product (such as a laptop or PDA), that will be introduced, can improve the productivity of field personnel can directly show value added services. Mention some new national contracts that touch their areas, such as consultants or office supplies. Having this meeting over the 11a.m. to 1 p.m. time period is always a good idea, as it combines a message with a free lunch. Make this meeting a dialogue with the attendees and not a Purchasing monologue. The more interaction you have, the more successful every one will evaluate this event. Remember, less (content) is more, and do not fear negative comments. Another way to involve senior management is to ask to be put on the agenda for high-level offsite sessions, such as with the marketing or finance departments. This can give your supply management organization exposure to many key management personnel. Inviting the Chairperson, CEO and or the CFO to Customer or Supplier Councils is yet another way in which strategic executives can hear and see what your organization is doing and the full scope of participation on the part of several stakeholders. Establishing a Professional Staff. There is no greater asset in a supply management function than the personnel in the procurement or sourcing unit. The old adage of doing more with less is true in most purchasing organizations. It is not only that more work is expected, but also different skill sets are needed of today s supply management professionals. Gone for the most part are the days filled with the processing requisitions and purchase orders. What is needed now are skills related to:
Technology Customer service Business management Thinking out of the box Purchasing and sourcing best practices Computer technology touches all of our professional and personal lives. Whether it relates to such operations as orders being received electronically from our customers, or performing reverse auctions, one thing is important, and that is knowledge. The purchasing professional needs to be aware of the many benefits technology can bring to their operation. Internal service providers, like supply management departments, often take their internal customers for granted. They forget what Peter Drucker once said about internal service providers in that they (the providers) need them (customers) and not necessarily vice versa. Purchasing professionals must continually show value added to their customers. This approach should give a supply management organization a competitive edge. So our staffs must be proactive in meeting the various and varying needs of our customers in the forefront of their planning. With the great push for advanced degrees, such as MBAs or law degrees, purchasing organizations should take advantage of this education activity and hire folks with these degrees. An understanding of today s business conditions goes a long way in developing an effective supply management unit. We are in fact part of a bigger picture, the achievement of corporate-wide goals and objectives. Your staff needs to comprehend this mind set. Being flexible and encouraging your staffs to think out of the box are sought after traits of a high quality supply management organization. As the procurement function moves from transactional to strategic there is a greater reliance on sourcing practices. That is the achievement of long term values for your firm in supply management areas, rather than in the short-term efforts. Purchasing staffs today need to know many of the best practices, as well as those that are evolving every year. The Chief Procurement Officer (CPO) of any supply management organization has a constant challenge in retaining, retraining, and recruiting existing and new staff personnel. Today s purchasing professional is not looking for a 30-year career, but rather a position that will entail 3 to 5 year time line. With this in mind, the CPO has to be vigilante in order to keep his/her charges motivated and focused on the objectives of the purchasing unit and the corporation as well. Selecting and integrating the correct technologies. The world of supply management is constantly being bombarded with literally hundreds of firms selling or supporting hardware, software, processes, and systems related to improving the lot of our operations. There is a current popular term of TMI, or too much information, in today s vernacular. This phrase can easily be applied to the technology avalanche facing CPOs. We know that we need technology support but at what level and for what purposes is the issue. There are at least six top-level e-procurement systems that provide order to delivery
processing, as well as another ten mid-level systems. In addition to the e-procurement systems there are support electronic methodologies that provide such assistance as reverse auctions and spend analyses. With all that said, a purchasing organization can achieve the world class status not by buying the biggest system and adding on a few software supporting packages, but by choosing wisely. You must match up what is out there, technology-wise, with your operations and corporate culture. Remember, technology is a tool in making your supply management organization more effective, it is not the end product. Intangibles. While the aforementioned five strategic elements are important to pursue for a successful purchasing operation, there is still one missing vital ingredient, a CPO will a vision and a plan. A leader, who sees the full benefits that a dynamic supply management organization can offer the company and its customers, is essential. The vision must be realistic and achievable. A high level strategic plan will outline the goals of the unit, as well as the route to be taken. The plan must have enough flexibility to allow for detours caused by changing factors, which will be ever present. The CPO must be able to bring it all together, not an easy task, but one that can be rewarding for all participants.