Leaders of procurement teams at manufacturing and process companies are decisive. They know what they want in a supplier. They want a supplier with a similar culture and competitive quality, service and delivered cost. They want a supplier to be involved early in the design process and to be forthcoming with new ideas. They want a supplier to collaborate to control costs over the life of a contract.
Author: Susan Avery, Former Editor of MyPurchasingCenter
Editor’s note: This article is part of the MyPurchasingCenter content archive. It was originally published in 2015 and has been revised to reflect updates about the participants.
That [was] the consensus of the Chief Procurement Officers, Procurement Vice Presidents and Senior Directors who participated in a My Purchasing Center Executive Roundtable discussion at ProcureCon for Manufacturing in Milwaukee [in 2015]. The CPOs and others discussed Supplier Relationship Management (SRM).
The Roundtable talked about selecting suppliers, negotiations, early supplier involvement, innovation, cost modeling and measuring supplier performance with scorecards and plant visits. They cited a lack of resources to get everything done especially as they take on additional responsibility for risk, compliance and sustainability. They shared stories on recruiting talented young procurement professionals and the importance of retaining seasoned veterans to train them.
Thirty years ago, a similar group of leaders in procurement gathered to discuss relationships with suppliers would have little on their minds but price. They might boast of success at negotiation and wonder how commodity pricing might be trending. They’d be concerned about delivery lead times and worried about possible shortages of supplies. They may have something to say about quality.
“Today, the relationship cannot be adversarial,” [said] Steve Brownfield, [Retired] Senior Director of Enterprise Procurement at ConAgra Foods, Inc., in Omaha, Nebr. “It has to be: They rely upon us, and we rely upon them.”
Craig Demarest, [Retired] Senior Director, Chief of Procurement at the R.J. Reynolds Tobacco Company in Winston-Salem, N.C., [agreed]. “Procurement and suppliers need one another. Working together drives the business.”
As the Roundtable [saw] it, managing relationships with suppliers is how procurement gets done--controlling costs and continuously improving to bring value to the organization and stay one step ahead of the competition.
That means price, while still an important consideration, plays less of a factor in the supplier selection decision. At ConAgra, for instance, Brownfield [looked] for service, quality and total delivered cost when choosing suppliers.
Perhaps more important to him and the others participating in the My Purchasing Center Roundtable, is the supplier’s culture. The procurement leaders [agreed] that similar operating principles may be one of the first things they look for in a supplier. They say that it’s what paves the way for initiatives that help manage cost and drive innovation. It’s the glue that holds together a relationship over the long term.
Stephan Cloutier, Vice President of Global Procurement at Mercury Marine in Fond du Lac, Wisc., [said], “You need to have suppliers with the same culture, or the relationship falls apart. When the supplier has the similar values, we’re in business.”
The same [held] true for Perry Littlejohn, Director of Strategic Procurement at the HON Company in Muscatine, Iowa. “When we go through our strategic sourcing initiatives, one of the first things we hit upon is culture, how it meshes or how it doesn’t, because of the investment we make in suppliers.”
Littlejohn [explained] that that’s because procurement is involved in product design at the company and his team needs suppliers to work with them on that. He says they look to suppliers for help with understanding how their product interacts with the customer and how the customer uses the product. “Suppliers can help us through the design phase,” Littlejohn [said]. “We are experts at delivering product to our customers, but we are not experts in metal or plastic.”
Having a better understanding of the end customer is why Mercury Marine’s Cloutier takes suppliers unfamiliar with his company’s products for a boat ride. Many suppliers to Mercury Marine also provide components to the automotive industry. Cloutier says his company’s requirements are more stringent that those of the automakers.
“If the supplier is not a boater, they may not understand the aggressiveness of saltwater,” he [said]. “We’re not an auto company. Our customers don’t operate our products on a salty street.”
While industries they represent may be different, the procurement leaders at the Roundtable [were] all involving suppliers early in product design and [encourage] them to approach their teams with new ideas to manage cost and bring value to the organization.
At Kimberly-Clark Corporation in Irving, Texas, Ted Zerafa, [Former] Senior Director of Purchasing-North America, and his team [used] a portal to communicate with the company’s strategic suppliers. Most important to a consumer products company like Kimberly-Clark, Zerafa [said], is dialogue about innovation. “We want to be solving system and component problems with our suppliers.”
Likewise, at Kellogg Company in Battle Creek, Mich., Adam Beuker, Senior Manager, Procurement Continuous Improvement, [said], “We approach suppliers as partners. We want to be open and collaborative.”
Beuker and others at the Roundtable collaborate with suppliers to manage costs.
“There is an RFP process,” Beuker says. “There is a minimum bar suppliers have to cross. They have to offer a good price for what they sell. In that respect, we try to provide feedback to the supplier so they understand why we think the price isn’t where it should be. We do a lot of clean sheeting.”
Clean sheeting, or cost modeling, is equally valuable to the supplier, Beuker [said]. “We can say, ‘Help me understand why you’re high in this area as compared to your peer group.’ They can give us that information and we can get smarter.... It really builds the relationship going forward. You uncover mid- to long-term levers that now you can work on over the contract and realize additional savings.”
The Roundtable admitted that over the years cost modeling has gotten “a bad rap”--if it’s used to take advantage of suppliers. Beuker, for one, pointed to the automotive industry’s treatment of suppliers in the 1990s and the quality of the cars it was producing then, suggesting that procurement has to learn from history.
Brownfield at ConAgra [asked] suppliers to bring representatives from their finance team to meetings with his procurement team to talk about clean sheeting. “I tell suppliers that we don’t want to mess around with their margins. We want to discuss their material and other costs where we can have some positive impact and may in turn increase their margins.”
Agreeing with the thinking of his colleagues at Roundtable, Roland Simon, [Former] Vice President, Global Commodities at Avery Dennison Corp. in Pasadena, Calif., [said] that when it comes to cost, he’s most challenged now by volatility of the raw materials his team purchases, which often is caused by factors in the market unrelated to supply and demand. They are working with suppliers on this. To negotiate more stable pricing, he [said], “You have to talk to suppliers about commitment. If you’re reasonable with what you’re doing and how much you’re committing to, it’s a way to eliminate some volatility.”
To monitor supplier performance, leaders in procurement like to use scorecards and quarterly business reviews. They seem to prefer scorecards that use a numerical scoring system with each number representing a certain level of performance and also providing the buyer or end user with opportunity to add comments that explain why they select a score.
At Kellogg, Beuker [said] the procurement team is having “great success” with such a system. ConAgra’s Brownfield, for his part, [said], “the verbatims, which need to be anonymous, are so important. They add a lot more value than just a number on a scorecard.”
As for the quarterly business reviews, the Roundtable [favored] having the meetings not at corporate headquarters, but at one of the company’s plant locations. “We typically do the reviews at the plant that is the largest customer of the supplier,” [said] Ed Burhop, Director of Strategic Sourcing at Snap-On Tools in Kenosha, Wisc. “It’s amazing the buy-in you get when you do that. It’s more difficult if you have 50 plants, but if you have six or seven, it’s amazing what you can do.”
Procurement teams don’t monitor performance using scorecards or hold meetings with all their suppliers. They segment the supply base. Cloutier at Mercury Marine holds quarterly business reviews with the company’s core suppliers, those that provide it with materials critical to its production. The others concur.
While the Roundtable [considered] managing relationships with suppliers procurement’s role in the organization, the procurement leaders [said] they are also taking on more responsibility for such corporate initiatives as risk mitigation, compliance and sustainability, often with no new resources. As they see it, managing these initiatives, which typically fall to commodity or category managers, can be a challenge.
Assuming these new responsibilities also changes job descriptions and how procurement recruits and retains talented individuals. “It’s a very different skill set,” [said] Zafara at Kimberly-Clark. “The types of people who have historically been in our profession have been great negotiators, can influence and drive change and are good communicators. Can the person now manage and drive innovation? Understand risk management? Do value analysis and value engineering?”
HON’s Littlejohn [added], “The skill set has changed significantly. We’re asking category managers to be financial wizards. They have to understand politics, finance, world economies.”
One solution the Roundtable [offered] up is to recruit procurement professionals with 3-4 years’ of experience and train them to fill these new roles though that sometimes proves a challenge as well. They [added] that organizations need to work to retain procurement pros with more expertise so that they can pass along their institutional knowledge to the new comers. They look to colleges and universities with supply chain programs for their new hires and are strong proponents of intern and co-op programs. They’re also not shy about recruiting from one another.
In the meantime, the Roundtable [looked to] strapped IT resources within their companies for help with improving efficiency of their procurement teams. Still, they [cautioned]: “One of the things procurement has learned the hard way is that we can use IT as a crutch,” [said] Littlejohn. “Data is key and what you can get with data and manipulate with data is absolutely important. We also make it visual.”
Simply putting information up on a wall and letting people add their comments is a different way to look at it, he [said]. “It’s a great way to communicate. It takes a bit of training, but that was one of the things that we do that pushes our organization forward.”