How to Transform an Organization into a Supply Chain Centric Model. It Starts and Ends with People. Why not use Pay-For-Skill?

          Most supply chain professionals are familiar with the best practices of a supply chain organization and how to transform purchasing into a lead strategic partner in a company. These usually include a thorough spend analysis to focus on the major areas of materials and services.  Another aspect includes the rationalization of suppliers and the formation of a few key partnerships with important suppliers. The institutionalization of a comprehensive sourcing methodology is also crucial. The area that is often overlooked or neglected is the investment in people!

          Many purchasing professionals have been rewarded for bureaucratic and tactical behaviors for many years. The culture of risk aversion is prevalent and roles are particularly well-defined and limited. They focus on a particular material or service and become “experts” on these items. Often they work in silos and have no real connection with operations. It is usually not their choice but the expectations of the culture or of their organization.

          The retraining of supply chain professionals begins with developing the capability to lead cross-functional teams not only in sourcing, but in process improvement activities such as Lean and Lean Six Sigma. Most need to reach the level of at least a green belt in a process improvement approach, and to reinvent themselves to be total product experts not just a particular material expert.  You have to be a product expert to understand the Voice of the Customer (VOC) or what is really important to them. This requires striving to become an expert in an entire industry not just a narrow material. It also requires a dedication to understanding and working with operations. Performance reviews need to be tied into how well they do in predicting the market trends of their particular industry and meeting or exceeding the VOC.

          All too often this training is piecemeal, unorganized and uncoordinated. Fortunately there is a comprehensive approach that has been around for forty years that works in many industries particularly ones where employee knowledge is highly valued like the chemical, oil and process industries. The approach has been called pay-for-skill or pay-for-knowledge. Employees are paid more for each skill or knowledge area that they develop, and demonstrate their proficiency in by job performance.  It does require a significant monetary investment by the organization in training employees and the organization evolves to a continuous learning campus.  The word campus is critical because many organizations partner with local technical schools or universities to jointly provide the comprehensive training and courses.

Unfortunately many organizations have disinvested in training employees and would rather outsource for many skills or functions. This is deadly to the supply chain concept and process improvement, which must strive to constantly improve the entire supply chain from start to finish without breaks which may or may not be performed better by an outsourced entity.

          The major objection to the pay-for-skill approach is the cost and the length of time for payback from the employees improved knowledge. Once in place, however; the power of this employee intellectual capital, and the momentum of continuous improvement, establishes a supply chain centric organization that is nearly impossible to beat competitively.

http://drtombooks.com/pay-skill-compensation-works/

People transform supply chains and organizations not technology or best practices.

Tom DePaoli

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. 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 currently consulting on leadership by storytelling. He is the author of 11 books on Amazon. drtombooks.com

On Many Things Do Not Ask Permission Ask For Forgiveness Always Try to Make Things Better Show Initiative

I and a colleague were software installers on a major e-commerce software system that was to be installed at a large multinational company. The software was somewhat specific to each plant or service department but over 80% was the same. Teams of consultants would visit each plant and try to gather the necessary data that the software installers needed to install the software.  That data was then given to the software installer to use to install the e-commerce software. The error rate for the new plant systems was atrocious and the punch lists (errors) were huge. The client was growing increasingly skeptical about the software and was threatening to cancel the contract.

The installation data was provided on spreadsheets, handwritten papers, MS Word documents, etc. There was no order or structure to how the data was collected. When the software installers received the data it was almost impossible to be accurate with the data. Much time was wasted calling the consultants trying to verify the data. The software installers took a bold step without corporate buy-in. The installers noted that there were 420 different screens that data had to be entered on when the software was installed. They brainstormed what to do and came up with a plan to design an Excel spreadsheet with 420 corresponding sheets, or one for each screen. Essentially, each spreadsheet closely mimicked the entry screen with instructions about the data.  Similar data was linked to certain spreadsheets to avoid duplicate and redundant data entry. The spreadsheet soon became more and more sophisticated and made the data collector’s job much easier by eliminating duplicate entries and using creative macros.

The data entry error rate dropped from over 50 percent to less than 1 percent. The client’s confidence in the new e-commerce system rose and they ordered more multiple new installations. On many things do not ask permission ask for forgiveness. Always try to make things better and show initiative.

Mega Change: or, Getting Everyone Out of the
Comfort Zone (Including Me)

One particularly difficult transformation process was my third—which meant that I should have learned many lessons already! Nonetheless, only two people in a department of twenty showed any enthusiasm for supply management trans­formation. Most of the personnel had long-established rela­tionships with suppliers, and the department was divided into subgroups identified by the materials or services that they pur­chased. Thus, people were so-called “experts” in their particu­lar material or service. Unfortunately, many pursued their own materials and services without regard to the impact on the total product or machine.

I first moved the entire department to a new area in the com­pany. I changed everyone’s title. I developed a glossary of sup­ply chain management terminology that they were to use in all their correspondence. I challenged them to prove to me that they were not only getting the best price for their particular materials, but also the best total cost of ownership. I also made them cre­ate or refine metrics to measure their suppliers’ performances. I expected strong data to prove it. I insisted on monthly written reports from everyone. I gave them a template for the report, and they had to adhere to it. I insisted that they evaluated their savings in terms of the market for their materials. Thus they had to learn the market well for their particular materials. If the market price had gone down by 5 percent for the year, and they only saved 2 percent that was not good performance. For the first month, just about everyone was in an uproar just trying to cope with all the changes. This was beneficial; they had less time to resist the changes.

Finally I started to broaden their knowledge of our final product. The engineering department and I conducted train­ing classes on the packaging machine that we sold. The engi­neers educated us on the particular sections of the equipment and their functions. Although they were experts in a particular material, I reminded them, our paying customers wanted to dialogue with us about the machine they had purchased, not just a particular material. We all had to become better at understanding total-machine functions and technology. The purpose was to make them realize the possible impact of some of their material change decisions on the function of the machine. I wanted to transform them into machine-function experts—not just partic­ular-material experts.

This tactic paid off. Our salesmen and engineers became more comfortable with my department members and invited them into meetings with our paying customers. They directly interacted with the customers and could understand their needs and concerns. When serious issues developed, we brought in our preferred suppliers to help in the problem-solving sessions. I also insisted that our people accompany our field reps peri­odically on service calls to get a better feel for what they had to go through with a customer while servicing the machine. Their feet-on-the-floor time in a third-world country, working side-by-side with a service rep, gave them an enlightened perspective of the challenges we faced with our worldwide customers.

Amazingly we all survived this massive change, and we gained enormous respect with our colleagues in the company. Custom­ers would call customer service and then ask to talk to some of my supply management people about issues.