World-class performance starts with basic training
"Systems will drastically change the way we do things today, and there will be far less people in tactical purchasing." --Dave Nelson, VP of worldwide supply management, Deere & Co., and NAPM president
By Kathryn Belyea -- Purchasing, 12/16/1999 2:00:00 AM
Few industrial companies operate at world-class performance levels in purchasing. And, perhaps even fewer purchasing managers. But that should be the goal of both, says Dave Nelson, and he should know. Nelson's purchasing pedigree includes his current position as VP of worldwide supply management at Deere & Co., membership on Purchasing Magazine's Editorial Advisory Board, and current president of the National Association of Purchasing Management (NAPM). In order to reach this level of performance, Nelson adds in a recent interview, the purchasing professional needs to develop in three key areas: cost management, supplier development, and systems.
World-class performance is no mystery to Nelson. His groundbreaking achievements in supplier development at Honda won him Purchasing Magazine's 1995 Medal of Professional Excellence for outstanding practices in purchasing and supply chain management. Deere & Company provides no less than 70 courses to help in-house purchasing professionals--as well as suppliers--upgrade their supply management skills and expertise. At NAPM, nearly all organizational resources are devoted to education and training.
Defining world-class capabilities for purchasing professionals is the goal of Project 10X, a CAPS (Center for Advanced Purchasing Studies) research project directed by Dr. Robert M. Monczka and slated for a January 1 start. CAPS is sponsored by NAPM.
In addition to identifying what world-class is, Nelson explains, Project 10X will create a method that purchasing managers can use to measure where they are in comparison. Furthermore, he adds, project results will help you to know what skill sets and resources are required to move from where you are to world-class, plus what investment is required to get there. "It's the most profound research ever done in purchasing and supply management, " Nelson believes.
You first have to define the goal, he explains. High-level purchasing capabilities have a positive impact on the bottom line. "It's extreme," he insists. "You can measure it in dollars, quality levels, and incoming delivery levels--all the different metrics you use to measure supply management."
For example, cost management, Nelson maintains, is used by very few companies, yet those who use cost management techniques will be more successful than those who don't. The idea is to understand every element of cost. So if, for example, you are buying a casting or a forging machine, you know how much the casting cost is and the machining cost. You know every element of the machine, the set-up time it takes, all the factors that make up the cost.
The most common approach, he continues, is to send out prints and specs and ask for quotes. Then you compare the prices of the few suppliers who are capable of making the part you need.
In cost management, you fill out a three-page document listing all elements of the cost. Then you can look at the quotation and see opportunities to work with the supplier toward improving specific cost elements. This is a major difference in the basic approach to buying.
"Furthermore," Nelson adds, "inside the company you also look at the cost of a particular piece of equipment in relation to what's going on with it." By understanding every element of the cost inside and out, you can better manage the total cost of the product you are making.
Nelson also considers getting up to speed on systems and the communication tools between companies a basic responsibility for purchasing. The purchasing professional has to do this, he says. "Systems will drastically change the way we do things today," Nelson explains, "and there will be far less people in tactical purchasing." Direct communication through the Web will provide electronic and constant access to what needs are, so scheduling will be required less and less. PMs need a greater understanding of the total supply chain, he adds, "not just one link back."
Supplier development is an area in full swing at Deere & Co. If you help your suppliers develop greater capabilities than the next, says Nelson, then your supply base will be better than someone else's. No other company is doing this, he adds, but the fact is if you offer the opportunity to develop skills at a reasonable cost to your suppliers, you will develop stronger relationships with them.
Lean manufacturing, for example, he says, is different from traditional manufacturing. Companies that use lean manufacturing wisely have an edge over companies that don't. "When you help transform a supplier to a lean organization, that supplier becomes attached to you and develops trust in you, more so than with other companies. So, when you need them in relation to cost, quality, or delivery issues or the development of new products, they'll be there for you."
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