Author’s Interview With Dr.
Tom DePaoli of Common Sense Supply Management
Why did you write the book Common
Sense Supply Management?
You used a different approach why?
In this book, I decided to share my supply management knowledge with readers. I believe people learn more from stories and real life events than from a textbook. The stories were meant to get the reader to think about improving their supply management strategy. Some of the stories are good management lessons. In some of these tales, I was very fortuitous (lucky); others were the result of having talented people work for me and teamwork, and still others were the result of just hard work and massive amounts of homework. I wanted to enliven the discussion about the supply chain.
What is
your opinion or definition of the supply management?
Supply management covers more breadth and depth than any
other discipline in an organization. It’s the art of building multiple
relationships. Although it covers negotiations, transactions, industry
knowledge, market knowledge, and technology, it’s primarily about building
strong relationships and gaining the trust of suppliers, customers, and
colleagues. I
said it in my first book and I’ll say it again: relationship building must be
the foundation of any supply management strategy. Many cultures in the world
spend what seems to us Americans as an inordinate amount of time building
relationships before they get to problem solving or execution. Americans are
often impatient with this approach, but it’s necessary, especially when dealing
with other cultures, it is a lesson we must learn when using supply management
techniques.
What do you think a supply
management professional must master?
A supply management professional must be able to build
relationships. Supply management departments often spend excessive amounts of
money on technical training. This is fruitless unless a strong foundation of
relationships is well underway. Relationships can’t be faked, legislated, or
forced. Supply management professionals must live relationships and commit to
them. Integrity in relationships will always carry the day, impress suppliers,
scare the competition, and let the supply management professional sleep well at
night. Educational credentials certainly look good,
and certifications are
impressive, but nothing makes a purchasing professional more effective than
developing strong relationships and being true to his word. Spending more time
on relationships pays off for all participants. Once a trust is broken, it’s
nearly impossible to repair it, so don’t neglect your relationships or
underestimate how critical they are. You won’t be able to climb out of the deep
pits that you dishonestly dug. Schmoozing with a supplier is easier than
digging. On the other hand, honest dealings, over time, build the solid
foundation of respect and admiration upon which a supply manager’s success
depends.
What do you think is most important for a supply management
professional?
The
very best way to build relationships is to always do what you say you’re going
to do, and to always hold yourself accountable for your actions.
Is there an ideal way to organize around supply
management?
Nothing
provokes as much discussion and disagreement as what is the so-called “best”
supply management organization. Relax. There
is no single optimal organization.
What is essential is that the head of supply management must be at the vice
president level. At minimum, purchasing and logistics must be within the
confines of the organization chart. The skill sets for folks within the
organization include: great people skills, an inclination for strategic
thinking, process-improvement skills, and relationship-building skills. Individuals
who lack this skill set should not be given high positions in the organization.
What do you think is
most critical for supply management?
You
must have a disciplined collaborative approach to sourcing. Cross functional
teams are paramount to get wide buy in to supplier selection. Business units
are internal customers and should participate in the selection; however, never
lose sight of the needs of what I call the final or paying customer for your
end product. Many of the aspects that internal customers feel are
Once you select a
supplier then what?
Always go with fewer meaningful supplier alliances.
Trying to manage many so-called alliance relationships is nearly impossible.
Pick your alliances carefully. One criterion that I used to select alliance was
if the supplier could give us a competitive edge. Another criterion could be a
material or service that was a major cost factor for us. It does not make
sense of waste time with an alliance with suppliers that provide readily
available consumables or other nonessential items. The hard part about
alliances is the demand for constant communication and relationship building.
Relationships take time and energy. Make sure you agreed to metrics and define
clearly your success factors. Always try to select a supplier who has
experience with alliances.
Anything else critical?
Prior
to attempting a transformation you need to know where you are spending your
money. If you don’t, the process is doomed to failure. Here are some questions (checklist)
to ask. They work for almost any size company.
Establishing
a strong communication plan for your supply management initiatives is critical
for its success. Seeking help from trained marketing professionals and
communication experts is essential. A continuous communication plan using
various media will help overcome the resistance to change. You need to spend at least 30–40 percent of your time getting the
word out to folks, by many communication channels, on your strategy, messages,
and plans. You cannot over communicate, especially about something as radical
as transforming the supply chain.
What about continuous improvement?
No
other department in an organization has more dynamic issues to deal with than
supply management does. Supply management is continuously challenged by
changing global events and demands from both internal and external customers.
My advice to supply management professionals is to lead the change and not be a
victim of change. They need to lead not follow these efforts!
Lean,
Six Sigma, and Lean Six Sigma are just disciplined approaches to problem
solving. They are a combination of solution tools used in a systematic manner.
Decisions are supposed to be data based. Lean Six Sigma is very disciplined and
plodding. All these approaches can be highly successful, but patience and
discipline is required. A kaizen is a more structured approach, but flexible
and quick enough to produce quick results. Kaizen
is a term meaning “continuous improvement.” In Lean Six Sigma terms, it refers
to a project performed at the work-group level that will remove waste from a
process. These types of projects can be performed quickly (usually in less than
two months). I prefer to perform them in two weeks or even less.
What is your philosophy
on negotiations?
Information-based negotiations are an approach to negotiations that
emphasizes deep knowledge of the supplier and its industry. It varies greatly
from some traditional approaches to negotiations. It’s not the adversarial Win-Lose
negotiation style with the emphasis on game playing, exposing untruths, and
taking full advantage of the supplier’s weaknesses. This old approach is a
competitive winner-takes-all system that rarely builds longstanding, deep
relationships with suppliers. Information-based negotiations are not based
upon the Win-Win model, either. Information or knowledge is definitely power,
but in information-based negotiations, the supply chain professional gains a
deep knowledge of the supplier’s industry, their margins, and their culture. In
essence, this is a deep immersion or empathy with the supplier and their
competitive landscape.
What about your
thoughts on planning and metrics?
The Institute for Supply Management notes that 95
percent of supply chain departments do not have a procurement strategy or
long-term supply management plan. Of the 5 percent that do in fact have a
strategy, only half have successfully aligned the strategy with overall
business strategy. Don’t be afraid to put non-traditional metrics in your plan.
Remember, people behave according to the way that they are rewarded. After you
have a strategy, you must educate other employees on its tenets and the reason
behind it.
Any more thoughts on
supplier management?
Radically reducing the number of suppliers is one of the first efforts
that must be tackled. You can’t have “relationships” with thousands of
suppliers. It’s difficult enough to have strong relationships with just a few
key suppliers. Ruthlessness is necessary. This is not the time for compassion
or backing off your supplier-reduction goals. Set the new supplier standards
high. You will be surprised. Many will not want to participate under your new,
higher expectations. Does the supplier add value, or is the supplier a product
of misplaced loyalty? We once cut a base of five thousand suppliers to 252 in
three months. It can be done, but ruthlessness was required. Any supplier can lowball on
the price of any item. I have seen it done hundreds of times. Retail stores are
great at having a lead-in low-price item in one aisle with the marked up high
margin items very near. Always benchmark your prices whenever possible with
other companies. Keep a handle on the price pulse. When a supplier offers a
lowball price on a particular part or service, see if they can extend the
percent price decrease to all the other items you buy from them. Usually, dead
silence results, or the quick backpedaling begins. Calling their bluff almost
always works. Call it.
The best companies have the best suppliers!
Any more supplier lessons
learned?
Never incorporate a new supplier without a test run of
buying an item from them, period. No exceptions. Have a purchasing
professional pretend that he is an end-user. Have him play dumb and actually
order an item from the new supplier. Review the entire transaction process to
include acknowledgement and invoice payment. Carefully process-map it out, and
use Lean and Six Sigma principles. Check on status often. This one road test
tip will save you mountains of headaches and resistance to change. Folks do not
really want new suppliers. Bad new suppliers infuriate internal customers.
Remember most folks do not like change. They will latch on to any minor or
frivolous mistake to justify their resistance and to castigate the new
supplier.
Progressive supply management is highly
team-oriented—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. When senior
management not only supports but also understands the process, purchasing
becomes a true business partner and leader.
Show folks how
you are doing versus your metrics. Use pictures and graphics. People can relate
to them much better. Spreadsheets are not very publicity friendly. Don’t be shy
with graphs, and always display them professionally. Keep the radar gun on the
process and suppliers. Let other folks see the results, good and bad.
One of the
fundamental tenets of Lean is visibility. Use it in supply management.
Purchasing,
supply management, and transaction discipline are critical. Most folks do not
like it, but most of the routine purchases and process must be disciplined.
Discipline—especially around using preferred suppliers—must be strictly
enforced. Make folks e-savvy and adept at using catalogues. Teach them how to
search catalogues, or they will soon quit searching.
Any concerns about
global sourcing?
If
you decide to deal directly with the source or supplier in another country, you
need to realize that reaching a strong cultural understanding will make or
break the process. The task of understanding the culture of the sourcing
country is the most difficult of the entire process. Culture includes social
organization, political beliefs, the legal system, religious beliefs, language,
and the educational system, to name just a few. Any one of these areas requires
extensive study and understanding in order to be successful. It is no small
task.
Finally, any advice to
someone new in supply management?
Yes
get out from your desk! Check the supply chain links, visit suppliers, learn
about industries and do not be afraid to get hands on experience.
