Business down? Reinvent purchasing

The father of the modern supply chain says Detroit is slipping back into its old ways.

By -- Purchasing, 3/8/2001

One of the founders of modern procurement is Thomas Stallkamp, who rose from a beginning buyer in Ford in 1972 to the top procurement job at Chrysler, where he tapped the power of suppliers, made them partners, and for a brief time helped make Chrysler the most profitable automobile producer in the world.

He was named president of Chrysler in 1998, just before its acquisition by DaimlerBenz. Stallkamp's style clashed with the control style of the new German owners and he left in 1999.

Along the way, Stallkamp reinvented purchasing. "We redefined purchasing from buyers of parts to professionals that managed material flow from extraction of the raw materials to the scheduling of final assembly," he said in a recent interview with PURCHASING Magazine.

Stallkamp is now CEO of MSX International, a technology-driven business services firm based in Auburn Hills, Mich. The firm handles major engineering projects on a contract basis and provides engineers for specific jobs. Among other services, it also provides information technology resources Not surprisingly, MSXI is now considering a role as a provider of strategic procurement services.

Stallkamp, who remains a member of Purchasing's Editorial Advisory Board, recently shared his views on purchasing with Editor Doug Smock. Highlights of the discussion follow.

Purchasing: How do you read the procurement environment in Detroit today?

Stallkamp: Everybody is saying now let's beat up the supply base. What they should be doing-and what some are doing-is getting closer to them. And do it more strategically. If you don't believe in strategic buying, then do it the old way and whip everybody down. You're really hurting your suppliers when you take away their margins. When we were running Chrysler, I think we had the best supplier relations in the industry. But as a result of their financial problems, now they have become the hard guy in town. The guy who used to be the hardest guy in town, General Motors, is now talking much more collaboratively. In two years the company that was the most friendly has become the most aggressive and the company that used to the most aggressive has become the friendliest.

Purchasing: If your volumes are dropping 30% and you're losing a billion dollars a quarter, how do you continue a partnership where you can share savings with suppliers?

Stallkamp: I believe the current economic environment provides a great opportunity to restructure. Supply chain management was founded at Chrysler, and it really came into its forte in the bad days. The reason Chrysler survived was our approach to suppliers. Suppliers saved the company in the 1980s. But it's a real opportunity for bringing n some new thoughts and elevating things. Elevate your buyers, make them more a part of the company. Manage the process and stop pushing paper.

Purchasing: What other mistakes are the automotive OEMs making?

Stallkamp: In automobiles, supply chain management is becoming the catchall for production control, releasing and forecasting areas. Administratively it's separate from purchasing. You've got to have the guy doing the buying doing both. At Chrysler we went as far as having the forklift guys in the plants-the guys who delivered the parts to the lines-work for me when I was executive vice president of procurement. It isn't manufacturing's job to move the parts. It's manufacturing's job to put the product together. Supply's job is to get the stuff to manufacturing. And that's something only Chrysler has done. GM has moved closer to it.

Purchasing: What role should Covisint have in the new automotive buy?

Stallkamp: The problem with the Internet companies in general is that they also seem to separate procurement from supply chain management. They talk about supply chain management just as production control, issuing releases and conducting communications with suppliers. They keep the leverage of procurement separate. You can't really do effective supply chain management without the power of procurement behind it. Another issue with the dot.coms, and it applies to Covisint, is that procurement departments still have overhead unless the dot.com takes over 100% of the buying of a subset such as MRO. You have to give up whole chunks in order to get people out of the company and save any money. So far, I haven't seen anyone willing to put everything on the line.

Purchasing: Do you see value in the reverse-auction process?

Stallkamp: The auction process is hard to control and the reverse-auction process is even harder to control. And I'm not positive that the savings are permanent. In my definition of strategic buying you wouldn't want to use that process for constant procurement. If you do, you're always at the whim of the marketplace. Strategic procurement gets you through the hard times. Auctions could conceivably have some role for MRO and commodity products, but certainly not for proprietary items, engineered items, or items in tight supply. Another problem is that you might see a reluctance of quality suppliers to participate in reverse auctions. They might get burned because they can't see whom they're bidding against. You don't know if those competing bidders are fully qualified. You're trusting the outfit running the auction to do a good job of pre-qualification.

Purchasing: If a supplier qualifies to bid, then by definition the buyer should be willing to buy from that company.

Stallkamp: Yes, but most of the ones I've seen don't have that aspect to it. One of the services we're considering at MSX is performing that process for procurement departments. It might not be best to have the exchange do that.

Purchasing: Where do you see procurement/supply chain management five to 10 years from now?

Stallkamp: I hope that we truly have more integration of the supply chain; sharing of ideas, of cost-savings, of communications; and that we have a more transparent supply chain where people are truly working together for the good of the customer, rather than for individual companies. And that's what we're stuck on right now. The system we have is built on hundreds of years of tradition of I do something, I sell it to you, you take it and sell it to someone else. And everyone is protecting their corporate turf. Through the power of the Web, people have to see that better communication can benefit everyone in the chain. But some people have to give up control. I see development on the Internet for production control, scheduling and releasing, which allows for much better demand forecasting. And that will in turn lead to a lot of productivity savings. Better scheduling. Better forecasts. And I think then procurement becomes very strategic. At Chrysler we decided that out of all the tire companies in the world we only wanted two suppliers: Michelin and Goodyear. And once you decide that, you can stop focusing on getting a better price for a given batch of tires. If you're managing that process so that one isn't taking advantage of the other, then you've freed up tremendous power-and the guy who is the expert at making tires knows more about the business than the OEM does.

Purchasing: How do you have confidence you also have the most competitive costs in a system like that?

Stallkamp: You continually market test. You continually challenge suppliers to bring you savings. You set measurable metrics on your suppliers which are ideas you submit and you measure them and you reward them as they perform to the metrics. Right now I would be swinging more business to those guys that have previously given the costs savings to me instead of going out and auctioning and jeopardizing all those relationships that I've built. That's what's missing at some companies now-they don't see the value of the relationship. That also requires the senior management to become involved with the suppliers. Some of the people in town are shying away from that and you can't do that. The whole company has to get involved. That requires you to show to senior management the value of intelligent strategic purchasing.

Purchasing: What do you do if you're a buyer in an old-fashioned procurement department and you want to become strategic?

Stallkam: Even if your management may not be enlightened, you can work with your own suppliers and come up with cost-saving ideas that help to change the company. The fun of being a buyer is you're in between the outside and the inside. The outside world is much broader than your company. But you're the interface for the company, you can gather the ideas and if you're persuasive in your discussion and presentation skills you can take these outside ideas and you can become a hero. And it's really a personally rewarding thing. I tell people it's the most exciting job there is, but many people mistakenly take it for a clerical job.

Purchasing: Is that how you approached things when you were starting out?

Stallkamp: That's how I got to where I did. I bought the electronics for Ford in 1974-it was one part, the high-energy ignition module from Motorola. I had one of the largest buys and I had one part number. I dealt with the scientists inside Ford and I brought in ideas from semiconductor producers and other electronics firms. All the battles-inside and outside-were fought on that one part.

Purchasing: How should people prepare to become procurement pros?

Stallkamp: Start with an economics degree so that you see the broad picture. And understand how things relate. You need a strong analytical background. So financial analysis helps. You need a technical bent, but you don't necessarily need to be an engineer. A real buyer should also have a lot of skills that are not found in engineering schools, such as communication skills. And out-of-the box thinking. That's what a buyer should be. Too often companies-and Ford did this when I joined the supply training program in 1972-have a specific skill set they are looking for-for example, you have to have an MBA. One of our best buyers at Chrysler was a music major. He was a very analytical thinker. And you need a variety people not all looking alike and not all thinking alike.