ISM 2009: Best Practices abound
ISM conference presenters emphasize best practices
By Purchasing Staff -- Purchasing, 6/18/2009 2:00:00 AM
The 94th International Supply Management Conference held last month in Charlotte, N.C. had a clear emphasis on best practices and practical advice for buyers dealing with the current economy. And that theme was kicked off with the opening keynote, which featured a panel of CPOs providing useful advice on procurement's leadership role and fielding best practice questions from the audience.
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"Leadership is realizing that the world is different and that you have to help your suppliers understand the need to change the way we work," said Christine De Luca, CPO, refining and marketing, at BP, at that CPO panel discussion. Added Shelley Stewart, senior vice president for operational excellence and CPO of Tyco International and ISM chairman: "Without leadership and without support of the top people in the company, you can't do much."
Lisa Martin, senior vice president for worldwide procurement at pharmaceutical giant Pfizer, said one of the keys to great leadership is communication. "You have to connect the business mission to what people do every day," she said. At Pfizer, she said, the company does quarterly town-hall-style meetings to keep everyone informed and aligned with the corporate mission.
The leadership best practices theme was continued in a workshop hosted by Ernest Gabbard, director of corporate strategic sourcing at Allegheny Technologies. Gabbard told ISM attendees that true leadership doesn't require authority over anyone. It's just the ability to influence other people. "We need formal and informal leaders," he said.
Gabbard said the most critical capability for individual leaders is their ability to collaborate. Referring to the results of a study by the Center for Strategic Leadership, Gabbard said leaders have to collaborate to obtain cooperation, and open communication is one of the best ways to do that.
The purest best practice examples, however, came in the unveiling of the annual ISM R. Gene Richter Awards, recognizing three companies for leadership and innovation in supply management. Alltel took the award for organizational structure for its supply chain transformation, which paved the way for profit-margin improvement, lower risk and innovation, the awards committee said. The transformation included purchasing taking control of all pieces of handset and accessory flow, including reverse flow where customers return handsets to retail outlets for remanufacture or repair. Among the results of the transformation: a 54% reduction in accessory costs and a 15% increase in profit margins.
The Richter Foundation also honored Royal KPN Telecom with its process award. The Royal KPN team obtained a 90% reduction in taxes, developed a new forecasting process and implemented a series of energy efficiencies for the company, which provides telephone, Internet and television services through a fixed network in The Netherlands.
The U.S. Postal Service won in the technology category for expanding its use of its optimization tool into new spend categories. The move gave suppliers greater flexibility in submitting bids and enhanced supplier collaboration. Among results: savings of over $57 million in three years.
"Worldsourcing" was presented as a best practice at ISM 2009 by John Zapko, executive director of global strategic procurement at Lenovo. According to Zapko, it means that there is talent and opportunities everywhere around the world. "Figure out what you as a company do well and go develop it," he said. While there are four pillars to worldsourcing—talent, strategy, key performance indicators (KPI) and business management systems—Zapko said the talent it recruited and developed to manage that supply chain is key to the company's supply chain success. That entails getting the best people and enabling them to do what they do best, he said, adding that the company began with a core of IBM and Lenovo supply management professionals and recruited others from competitors, suppliers and other companies worldwide.
Another new best practice outlined by Grace Puma, CPO of United Airlines, was the concept of "wave teams" or cross-functional groups to make informed sourcing decisions. Puma says the key to effective teams is making sure to clarify decision rights, or the roles and responsibilities of each member of the team.
John Tuttle, director of processes and capabilities at Bristol-Myers Squibb, packed in attendees for his session on using procurement technology and tools, and delivered a string of best practices developed to ensure success.
First off, Tuttle suggested purchasing professionals align their goals and objectives with those of their colleagues in information technology (IT), finance and legal before meeting with the CPO. "It will build more confidence in the CPO than if you approach him or her alone," he said. Among the procurement technology best practices Tuttle presented:
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Gather business partner objectives.
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Align with IT, finance, legal and audit.
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Ensure goals of technology tools match procurement's short-term (12 months out) goals and fit in with long-term goals or roadmap.
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Master key processes (before deploying new technology tools). Leverage consultants and other sources to do this.
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Partner with IT to develop a plan: Create an inventory of applications and prioritize projects.
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Develop a business case.
If it's best practices for sourcing in China you're after (and who isn't?), then Greg Toporcer, president of Discover Global is the man with the plan. In an educational session, Toporcer said buyers in China have to be mindful of the importance to their Chinese counterparts of saving face, first and foremost. The concern is so great for Chinese companies it can result in suppliers saying they understand a buyer's requirements when they really don't. The Chinese suppliers then proceed to try to figure out the requirements on their own, sometimes to disastrous results.
"There can be difficulties in translating specs," he says. "Additionally, Chinese standards may differ from American standards for the same material." A case in point, he says, could be stainless steel. The nickel content in Type 201 stainless in the U.S. could be different than the nickel content in Type 201 Chinese stainless steel. The best way to solve communications and standards problems is to have feet on the ground constantly monitoring suppliers, he says.
Chris Sower, director of strategic procurement at Charming Shoppes, told attendees at ISM 2009 that he used total cost modeling to negotiate savings of $1 million for corrugated paper. The key, he said, was getting reliable industry cost data before going into negotiations with the supplier. The data allowed him to compare costs in fact-based negotiations where the supplier was forced to defend his initial price, then admit that he could bring costs down.
Sower used Economic Census Data as well as other government data, including the producer price index, the consumer price index, labor rates and output data. He also used financial information from a variety of other sources, including trade associations and analyst reports.
Among the things he learned from performing such a detailed cost analysis was that labor costs were down 16%. The supplier had said that labor costs had gone up. Sower said his fact-based negotiation approach forced the supplier to lower costs.
Among the lessons he pointed to:
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Get cost information at the point of bid.
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Use industry cost models.
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Compare costs across all bidders.
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Make contract fluctuations. based on mutual agreement of cost fluctuation
"Cost modeling is a good tool for negotiations, auctions and supplier audits," he said.
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