The Billion-Dollar Boys and Mega-Negotiations Story

By Dr. Tom DePaoli

          I and a supply management colleague had been working diligently for a year to try and standardize MRO (Maintenance Repair and Operating) parts to include pumps, pipes and valves, electrical and operating supplies. We divided the storeroom parts into these four bucket areas. These were storeroom related parts for a major process chemical company. We used a market basket sourcing approach. We had conducted numerous strategic sourcing cross-functional teams and had worked hard to get our engineers to select standardized parts for our plants. These sessions were long and arduous.  We had reduced the number of suppliers or OEMs (Original Equipment Manufacturers) in many categories to one or two. Our goal was to gradually replace the existing parts as they wore out with the new OEMs and strive for standardization in the MRO arena. We had a systematic well thought out plan for doing this and had negotiated contracts with the OEMs and distributers. We were approximately 80% complete which was quite an accomplishment for the fifty North American plants.

          Then the company suddenly announced that they were in the initial stages of planning a five-billion-dollar expansion in the United States. The winning five plants had already been selected. Some of the expansion was to be entirely new plants and the others were major rebuilds. The capital expansion was to start in six months. We were faced with managing a major capital expansion and a significant spend in the MRO area. We met with the Vice-President of engineering and decided to have a strategy session with him and the five selected plant engineers. We decided to have a one-shot bidding meeting with our preferred suppliers in Louisiana. We had a very good idea about the dollar amount of spend in the various buckets for the expansion. The capital job estimates had already been done and approved. We had four bucket areas in MRO: mechanical, electrical, piping and valves and operating supplies. We already had cost plus pricing contracts for 80% of our MRO. We did however still have at least two preferred suppliers in almost every major component MRO area like pumps.

 I suggested that we leverage the hard work that we had already accomplished. We would announce the capital expansion at a preferred supplier meeting and give an approximate future dollar spend in each of the four buckets (areas). We obviously had a lot of leverage and many of the bucket dollar numbers were huge. We had fairly accurate data from recent expansions and the capital job estimates. We then established these ground rules for the bidding process:

1.     There would be only one round of bids. We urged the suppliers to give the bid their best shot. There would be no second bid rounds. We did not have the time to manage multiple bids.

2.     We announced that we would in many cases narrow down the areas where we had two preferred suppliers to one, unless we had a good business reason for keeping two.

3.     Although we had negotiated some significant total cost of ownership savings in the current contracts, we were open to enhancements from the suppliers and distributers.

4.     We told the suppliers that we would not accept their standard spare parts packages like we had in the past. We would challenge their typical spares packages but would be especially open to creative ways of them controlling and managing the spares at minimal or no cost to us.

5.     OEMs could work with distributers to propose any additional creative services to provide us.

Quite frankly we had no idea how this mega-negotiation process would work. Fortunately, we had done a lot of supplier consolidation before this process. We had not had the time to even predict cost savings or eventual outcomes. We just did it. As the bids rolled back in, it was obvious that our suppliers had done their homework.  All told the cost and other savings amounted to 20% of the 5 billion dollars or 1 billion dollars! We were stunned. For the next year, I and my supply management colleague, had to endure the “handle” or nickname of “the billion-dollar boys”, whenever we entered a meeting.

Yes, we were good and worked hard, but we were also very lucky. The fact that the company was spending that much capital at one time when we were transforming to supply management really helped our leverage and savings potential.

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Author’s Biography

Dr. Tom DePaoli, (Dr. Tom) is currently the CEO of Apollo Solutions (http://www.apollosolutions.us), which does general business consulting. He has had successful careers in corporations, non-profits, the military and academia.  He has authored 11 books all available on Amazon. https://www.amazon.com/author/tomdepaoli

Bedtime Reading from Dr. Tom!

https://www.amazon.com/author/tomdepaoli

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Dr. Tom has written a classic Common Sense Purchasing for anyone who wants to establish relationships along the entire supply chain. His straight-forward manner and stories are outstanding! I particularly enjoyed all the parts about building supplier relationships and tales of purchasing department bureaucratic culture. An excellent reference book for all levels of professionals. If I could give it six stars, I would!
    I highly recommend the very accessible and hands on book Common Sense Supply Management: Tales From The Supply Chain Trenches by Dr. Tom DePaoli, to any business leaders, entrepreneurs, and negotiators seeking a practical and no nonsense guide to improving any supply management process. This book will transform your supply management system from the ordinary to the outstanding, while boosting your overall bottom line.

Sometimes it is good to stop, reflect on the past, and remember where you came from and perhaps change around just where you are going. This book will serve several things. You will enjoy sharing Mr. DePaoli’s memories in Growing Up Italian in the 50’s, but you will also stir up the precious memories of your own. You will think, perhaps laugh, perhaps cry, but your heart will be awakened, if just for a moment, and perhaps you can recapture a memory that will change your tomorrow. Very heart felt and well done.

In his new fun and creative book Kaizen Kreativity (Oops) or Don’t Be Afraid of Looking Stupid. I’m an Expert at It! author Dr. Tom DePaoli offers an entertaining and creative approach to improving work design and work processes. Dr. DePaoli uses a variety of techniques including story-telling, imaginative training exercises and ready to go outlines of PowerPoints on Kaizens.  Dr. DePaoli uses self-deprecating humor to recall the many times when he stumbled, when trying to implement Kaizen events. The reader can gain much from these lessons.  The book also serves as a good desktop guide to Kaizens with a wealth of information on how to organize for Kaizen events. This is not a dogmatic book that insists on a rigid methodology for Kaizens. Dr. DePaoli often shows that just using a few Kaizen tools can often result in significant gains. The book will help both the novice and the experienced Kaizen leader.

     In his guide to organizational transformation, author Tom DePaoli simplifies the strategies learned from his diverse career in many organizations. The book does an analogy of the Greek tale of Jason and the Argonauts Quest for the Golden Fleece.  In this new tale, Jayson and the Corporate Argonauts - the Quest for the Golden Fleece of Transformation DePaoli suggests strategies for transforming an organization.  The book follows the adventures of the Greek hero Jason and his Argonauts and draws on the lessons learned from the crew and the perils that they overcome. These adventures are used to recommend strategies for modern Corporate Argonauts trying to transform their organization. The quest for organizational transformation is a more perilous journey than the Greek quest for the Golden Fleece.  The book remains true to the myth of Jason’s journey and the need for organizations to constantly transform.  DePaoli provides practical lessons learned from his real-life cases of transformation and tested in harsh competitive reality.

Interview with Dr. Tom DePaoli Author of Two New Leadership Books

Dr. Tom the titles of your new leadership books intrigue me, how did you pick them?

I wanted two leadership books. One would explore the dark side of leadership and the other the authentic or good side. Unfortunately, I had more stories about the dark side and many were just awful. The authentic side stories are not as numerous. The stories are all authentic for both books. I myself or my colleagues actually experienced them. They are only slightly changed to protect the identity of some of the leaders. The dark side was maybe a little too dramatic. It does have some redundant and repetitious stories. This is not my fault or an editing fault. Dark leaders are not very creative. Many use the same tired and sorry tactics. However, the situations were even more dramatic and uncomfortable for the followers. Boogeyman Leadership: How to Turn Your Employees into Listless Zombies describes all too common leadership tactics that numb employees into becoming animated drones.  The other book Leadership by Storytelling: The Best Way to Learn Good Leadership Principles is peppered with uplifting and inspirational leadership action. Good leaders who care will learn much from the stories.

Why did you author the two books at once?

I have been on the receiving end of much poor leadership in my careers. I worked in organizations in business, non-profit, the military and academia. Unfortunately, I experienced many more poor leaders than good. Much of the leadership training I experienced was ineffective. I learned by doing and observing good leaders. There was no shortage of leadership stories that I experienced. I decided on the storytelling method to give the reader true examples of leadership tactics. Knowing a leadership theory and executing it are two entirely different missions.

Why the storytelling approach?

It is the best way of learning and has many good attributes. Readers can relate to stories much better than prose on leadership theories. From my perspective, stories are also easier for me to write about because I lived them.

Talk to me about Bogeyman Leadership: How to Turn Your Employees into Listless Zombies.

The book showcases poor leaders and their tactics that inevitably failed. I strongly believe you should know what does not work first, so that an aspiring good leader does not waste time on such approaches. I really do not pretend to offer any silver bullet solutions to these poor policies. I define boogeyman leadership as the use of poor and intimidating leadership tactics whose purpose is to terrify employees and instill distrust, apathy and fear. The result is a zombie-like listless state.  The book recounts many bad leadership ideas and illustrative stories to make sure the reader crosses these schemes off their leadership list. It is not a solemn academic book or a guide to great leadership success. Its purpose is to give examples of terrible leadership and management tactics that I and others have experienced in their careers.  I suggest the reader re-visualize their own personal leaders, that they have had, who have used the very same or similar defective devices. Unfortunately, these failed leadership ploys are becoming even more common, destructive and hurtful. He urges the reader to avoid these methods at all costs.

Talk to me about Leadership by Storytelling: The Best Way to Learn Good Leadership Principles.

The book provides some excellent principles of good leadership. The principles are illustrated with compelling leadership stories that reinforce the principles.  I provide twenty-six principles of good leadership. It should be noted that one of the oldest methods of passing down knowledge is oral storytelling. Usually an ancient sage would be the keeper of the stories and passed them down to other tribe members. I highly recommend the storytelling method for leaders. The stories in the book are actually authentic. Each principle has a story to clarify the principle. The book has cogent illustrations for the stories. I urge the reader to gather leadership stories to share with fellow leaders and followers. I believe the growth in leadership abilities will be much stronger via the use of leadership storytelling.

Why are there more poor or dark leaders?

Much of leadership training is poorly organized and not very practical. Knowing all the theories of leadership is commendable but not useful in real life. Leadership training must be real life based, use role playing and scenarios to prepare a leader for leadership decisions. One of the biggest areas overlooked is integrity and honesty. Many would be leaders ignore it or downplay it. People will not respect or follow a leader with no integrity. Most dark leaders rationalize their dishonest behavior. Trust me, their followers will always remember even the slightest dishonest action.

It is hard to teach an authentic caring for your followers. Many bad leaders put themselves on a pedestal and do not even make an effort to really know and respect their followers. My experiences in the military in leadership roles taught me to always take care of your followers first and never lie to them. Followers can quickly tell if you are a phony.

What distinguishes good or authentic leaders

They get followers to trust them and keep building that trust.  There is no one methodology to get a follower to trust you. Each person has a different lock to get them to trust you, and you have to find the right key. Honesty and integrity help the most. Selflessness cements their trust. Many followers can forgive a leader who is not totally competent, but they rarely forgive a lack of integrity. I wrote another book Broken Windows Management (available on Amazon). The whole one message or premise of the book was this: Prevention of disorder and actually fixing things that employees say are wrong; goes a very long way in establishing trust and credibility with management (also leader). Management (leaders) must be vigilant and constantly try to control disorder and fix the things and issues that employees’ value.  These actions reduce employee fear of management and actually help gain trust. Trust is enhanced by quickly fixing things that employees want fixed. Unfortunately, many organizations have not figured out this simple axiom yet. Many companies, because their employees do not trust them, will never get enough credibility to execute broken windows management actions.

What is Your Favorite Boogeyman Leadership Story?

Remember the book is organized in a manner that gives you a Boogeyman Leadership tactic or tip first that should be avoided if you want to be a good leader. Then the story shows the futility of the tactic.

Make Sure You Destroy Trust

Do not keep your word. When you break your word make the lamest excuse you can think of and insist that you were misunderstood. Berate employees who do not keep their word and tell them it is not acceptable. Constantly praise your honesty and integrity as beyond reproach even though it is the exact opposite. Openly lie to your superiors whenever you can and blame your employees for any shortfalls or the missing of goals. Take credit for all of your employee’s good ideas and claim them as the result of your own brilliancy. Brag about how good you are with employees and customers to everyone and never be completely honest ever, in fact be evasive. Lie and exaggerate often.

Story

The department that I worked in did not receive a raise for three years. In the beginning of the fourth year, our leader promised that management has informed him that the average raise for this year would be five percent. The caveat was that instead of working ten Saturdays we would have to work twenty. Near the end of the year he announced at a meeting that “management” had decided that once again there would not be any raises this year after we worked the twenty Saturdays. I and most of the other people in the company left within the next six months. I then discovered from an upper level manager, who had also left the company, that management decided to use dishonesty, the five percent raise ploy, to help lower turnover and all the department managers knew about this ploy in the beginning of the year.

What is Your Favorite Leadership by Storytelling Story?

The book is organized to first state the good leadership principle. Then the story shows the result of using the good principle.

Listen to Your Followers’ Problems and Help Them.

I once had an employee who was initially very upset that I took over as leader of the department. She thought that she deserved to be promoted and become the leader. She had more experience than me. She was very cold to me and resisted any initiatives that I proposed. Shortly thereafter, her mother became very sick and it got to the point that she needed caregivers. I gave her as much time of as I could and was very flexible with her work duties and responsibilities. She finally requested family leave for eight weeks and it was granted. While she was gone, I attempted to do as much of her work as possible and got a very good understanding of her duties, systems and techniques. I stayed late many nights and weekends working at both my job and hers. When she came back from family leave, she expected piles of work awaiting her and very hectic weeks. She was surprised that I had kept up and completed almost all of the work. She came into my office and started to cry and I thought that something had happened to her mother. Instead she was grateful for what I had done and thanked me, informing me that no boss had ever done anything so kind. I then suggested that we make a request to our information technology department to upgrade some for the systems that she used, and I was now familiar with by doing her job. We jointly filled out the request that day and it was installed in three weeks.

Her attitude towards me completely turned around. Whenever there was a tough project, she volunteered for it. She became the most loyal employee to me in the department and a friend. As a leader, if someone has a problem and needs help, especially when it is personal or family related, go out of your way to help them. Listen to your followers’ problems and help them.