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.