Founded: 1874 Headquarters: San Antonio, Texas Business: Provider of checks and related products, contact center services, e-commerce and direct-response marketing solutions to financial services companies throughout the U.S.

Revenues: $650 million. Recipient, 2001 Malcolm Baldridge National Quality Award in the manufacturing category 2005: Sold by Honeywell to M&F Worldwide for $800 million after Honeywell acquired its former parent company, Novar

Sometimes the only way to ensure victory is to experience defeat.

Such was the mindset at Clarke American, a 133-year old provider of checks to U.S. banks and consumers in San Antonio, Texas. In the mid-1990s, Clarke applied twice for the Malcolm Baldridge National Quality Award. And twice it was told that, despite impressive financial results, the company did not have sustainable quality processes in place to merit the award.

Rather than simply accept defeat, the executive team at Clarke rose to the challenge, by establishing clear quality processes in all of its business areas to move from a functional company to a process-based company. And a well-defined supplier management strategy became a critical component of that effort. In fact, in its winning application for the Baldridge Award in 2001, Clarke emphasized the role its supplier management strategies played in helping the company achieve competitive advantage.

This is how they did it.

In early 1998, in the midst of Clarke's corporate transformation, its head of procurement unexpectedly stepped down. The executives used this as a chance to recruit someone with a background in quality that could align the procurement organization with the rest of the company in its process-based journey.

George Bordon was so eager to start his new job as vice president of procurement and supply management at Clarke later that year that he decided to come in early for his first day—three weeks early. He spent most of December 1998 simply learning about the business Clarke is involved in so that when his actual hire date came around, he could hit the ground running with a set of priorities in transforming the procurement organization.

Bordon's background was at larger manufacturers, including Corning, itself a former Baldridge award winner. ("I wasn't directly involved with that effort at Corning, but I had some familiarity with what went into it," he says.)

The first presentation Bordon made to the executive team at Clarke in January 1999 defined what world-class procurement was and then presented a strategy for building processes that would bring Clarke's procurement organization towards that world-class model. He also showed the team whatever spend data he could uncover and prioritized the spend categories based on their criticality to the business—including their impact on customer satisfaction.

Not surprisingly, pulp and paper was perhaps the biggest spend priority for Clarke, since it was sending out millions of checks a year packaged in cardboard boxes. Bordon got approval to hire three category managers to focus on three key areas: pulp and paper, printing and product delivery.

Another priority early in the transformation was creating alliances with the finance organization. "When we began producing results, we needed finance to bless the numbers and recognize the results were credible and real," he says.

Clarke's procurement team now consists of 14 people. Bordon's direct reports include an executive director of supply focusing on direct materials; a director of indirect procurement focusing on all non-IT indirect materials; a director of IT procurement; and most recently a director-level hire focused on fulfillment and managing the relationship with the U.S. Postal Service and parcel carriers.

Each of his direct reports has other titles reporting to them focusing on various spend areas within the business (Clarke has a separate business unit, Checks in the Mail, which handles direct-to-consumer business, but for the past three years its procurement staffers have reported up to Bordon in the new structure).

Bordon says in selecting the members of the organization, he wanted to combine people with a deep knowledge of Clarke's business with people from outside the business who had strong procurement skills. While it required some change management work, the end result is that the two "halves" can lean on each other to create a stronger whole.

For example, the person assigned to focus on delivery came from outside Clarke with a very strong background in delivery and carrier management, but not a lot of knowledge about Clarke's specific business and priorities. On the flip side, the executive director of supply in charge of raw materials previously ran one of the plants at Clarke and understands its business and processes from the ground level.

"Having someone like that in our organization builds connections and credibility with the operating units, and helps us avoid some major landmines in what's a pretty complex business," Bordon points out.

In building a new procurement organization, George Bordon (center) recruited a combination of internal and external people.

Courting suppliers

One of the biggest challenges Bordon faced in transforming the procurement organization at a midmarket company was the limited influence it had with suppliers compared to previous companies he'd been at. But recognizing this fact, Clarke's procurement team focuses much more on relationship building than on price-based negotiations.

"We can't use the 'brute force' techniques that a larger company can, so we have to get more creative and make our business more attractive to suppliers," he says. "We don't have many suppliers that we can put into an exploitable or leverageable category, but there are plenty of suppliers that could put us in that category. So we need to be aware of that."

Clarke has emphasized supplier involvement in its processes to create stronger relationships. It holds supplier symposiums where top suppliers are given access to key business leaders at Clarke and kept abreast of business plans that may impact the supply base. Clarke also runs value management projects with some of its top suppliers to share some of the quality expertise it has with its supply base in the hopes that overall cost structures will be held down.

"Value management [with suppliers] is really an extension of our quality practices into our supplier base to improve total value delivered across the supply chain," Bordon says. "For example, in one case we realized one of our biggest suppliers was simply not making money on our business."

Rather than pursue the two most common options—the supplier does not renew the contract or Clarke increases what it pays the supplier—Clarke's procurement team ran a value-management project and reduced the supplier's costs and improved its profit margins on the contract.

"Obviously, if the efforts fail, or the supplier is unwilling to work with us, or simply cannot improve, we would then look to replace the supplier," says Bordon. "It's also important to note that this approach really applies to our few key strategic and/or critical suppliers. We can only devote that level of time and effort to a limited number of suppliers. For less complex purchases and lower total spends, we would likely replace them rather than spend that much time and resources to drive improvements."

Like most companies, Clarke keeps scorecards on its internal performance and on its most critical suppliers tracking performance and holding regular meetings with suppliers. "Formal scorecarding makes our analysis more objective than subjective," Bordon says.

“Formal scorecarding makes our analysis more objective than subjective.” George Bordon, vice president of procurement and supply management, Clarke American

"In our company, we have measurement and continuous improvement culture, so it seemed natural that if we could get the supplier to provide us feedback on how we were doing relative to those activities that helped or hurt their efficiency and cost, we would manage and improve," Bordon says. "This would reduce the supplier's overall cost and provide the opportunity to reduce our price while improving the suppliers' profit."

Bordon says the most difficult part of the two-way scorecarding process is getting suppliers to participate. Some suppliers were reluctant to give their customer, Clarke, any negative feedback.

"Yes, it was strange for some of our customers because they didn't want to tell us when we were not performing well, but I told them we need to know—if we want deliveries on time from them, we need to know how they view our forecasting," Bordon says.

Today, the two-way approach looks at the requirements/goals Clarke sets for and agrees on with the supplier, and tries to determine if there is an appropriate metric for performance that can affect the supplier's performance to the goals. For example, if Clarke sets a supplier metric or goal for on-time delivery performance, it may also set a corresponding metric and goal for Clarke's forecast accuracy, because that clearly impacts the supplier's ability to deliver on-time. Clarke may also set up a metric to track the timeliness of its payments to the supplier, or any other relevant measure.

Of course, no transformation can go very far without internal support. While there are challenges in the midmarket environment, one of the primary benefits is the access to the senior leadership team.

Bordon points out that, "In getting started, the biggest challenge I found was in taking the message of the value of strategic procurement out to the company. Yes, we had great support from the senior executive management leadership team, but when we went deeper into the organization, we often found some resistance to change."

Ironically, that resistance came, in part, because the company was already doing well: "We were trying to introduce significant change in a company that was over 120 years old and performing very well."

As previously noted, Bordon's first step was to get the finance organization's backing on procurement's metrics and savings by building relationships with finance from the first meeting and finding out what numbers and metrics they wanted to see most.

When moving into meetings with other business functions, the procurement team had to spend some time dispelling the notion that its strategy was purely focused on low cost materials, which many business functions would not have appreciated. "We had to educate our constituents on our view of buying to the best or optimal total value, of which price is only one component," Bordon says.

Clarke also began holding quarterly Supply Chain Alignment meetings, where procurement staffers meet with the various process champions like the manufacturing and IT vice presidents. Category managers talk with these leaders about where they can provide value and help solve problems. The meetings are also a good forum to share the organization's successful strategies across business units.

"We also budget the procurement savings each year, which helps gain support from constituents who are ultimately responsible for the budgets we impact," says Bordon.

Another challenge of being at a procurement organization at a midmarket company is finding resources to be allocated for software and systems. Clarke migrated to an SAP ERP system just prior to the procurement organization's overhaul, so the system is not set up to reflect the current procurement processes. However, during a scheduled upgrade, Bordon says migrating to the mySAP platform may provide more flexibility.

"Our company's IT priorities are primarily on the customer-facing side and rightfully so," Bordon says. "Ideally, we'd like to implement contract management and e-procurement systems."

Also on Bordon's "wish list" for IT would be a supply chain visibility system to support his organization's work in global sourcing. Buying materials from Asia and Europe is simply not the same as buying domestically and requires better visibility, he says.

Clarke's efforts paid off when it was awarded the Baldridge award, thanks in part to its supplier management processes (see sidebar). And while it was certainly a rewarding experience to receive the coveted award, Bordon says the processes put in place continue to bring Clarke its rewards on a daily basis.