Why Common Sense
Purchasing Hard Knock Lessons Are Still Relevant Today
by Dr. Tom DePaoli
It has been over ten
years since my publication of Common Sense Purchasing. The book has been hailed
as one of the best purchasing books ever published. This article will review
some of its key points and add an update or two to its validity. I use a
ghosted updates and excerpts of my
interview with Kelly Barner, Buyers Meeting Point (BMP) with some new comments
by me.
Common Sense
Purchasing is sort of structured like the book Don’t Sweat the Small Stuff with
approximately 100 lessons. It is a very informal book with comments, advice,
grammar mistakes and sarcasm. It was very easy for me to write because I lived
all the purchasing lessons, many of them very painful. The secondary title, Hard Knock Lessons
Learned From a Purchasing Pro is really what the book is all about. Let us begin.
BMP: In the introduction of the book you say that you have made “just
about every darn mistake one can make in purchasing”. We are glad that we are
not alone in that. Which mistake was your ‘favorite; which taught you the most
important lesson?
Dr. Tom: One of my favorite mistakes is when we went through a
disciplined and arduous supplier selection process. The selection process was done by a cross
functional team. All the numbers were favorable and the supplier had good
references and was eager to get started.
The total cost of ownership savings came in well over $1,000,000. We did all our homework and were very
confident of our decision. The new supplier promised to provide a supplier
representative on site for 20-30 hours per week. We even had a
celebration. The supplier representative
started and I thought that things were going well. Unfortunately, our
maintenance personnel just could not get along with the representative and
conflicts arose. It was more a
personality issue rather than competence. Luckily the supplier had another
representative available who replaced the initial representative and was well
liked by our internal customers. The lesson learned was that once again,
relationships are not only critical, but "king" in supply
management. We added to our supplier
selection process an interview (performance based) of any on-site
representatives by our internal customers, like maintenance, and a reference
check and discussion with other customers about the on-site
representative. Also, don't celebrate
prematurely.
Dr. Tom
Update: Today some people think
that sourcing is dead and that computer algorithms and shop bots will
accomplish this better. They are missing the point, suppliers are primarily
about how deep a relationship (see below) you can you build with them? Often
collaboration with suppliers results in competitive leapfrog breakthroughs not
just efficiency! Supply chains are improved primarily by people not just
technology. Great leaders admit their mistakes and move on.
Lesson #1: It’s about relationships first and
foremost.
BMP: How does the rising
role of social media/networking relate to the need to emphasize the value of
relationships?
Dr. Tom: Social media/networking
improves or enhances the value of relationships. They are an excellent tool(s)
not only for developing deeper relationships but getting to know people in the
supply chain on a personal basis. This is an asset and people appreciate
attempts to build better personal relationships. It is the Internet version of playing a round
golf with someone. You get to know a lot about an individual when you play
eighteen holes of golf with them. Obviously social media is not that intense
but it does help build relationships. Bottom line it helps build trust,
especially internally which is a key for managing change. Some argue that we
should not build these types of personal relationships with a supplier or
internal customers but I disagree. More often than not, this type of
relationship will help, especially in a crisis. Besides what is the
alternative? Being constantly
adversarial adds no value. The watch out is that you cannot let personal
relationships sway your judgment when major decisions have to be made. Being
honest with a supplier, when they are deselected or disqualified, is always the
best option. Most experienced purchasing professionals can remain objective and
not let personal relationships derail their judgment. They can usually avoid
what I call Supplier Stockholm Syndrome.
Dr. Tom Update: Today
social media can explode and seriously damage a relationship. This is even more
a reason to get to know your critical suppliers in person and understand them
deeply and on a personal level.
Lesson #6: Ruthlessly rationalize suppliers
first and then don’t back off.
BMP: As the need to manage
risk increases in organizations, many companies are moving away from supplier
rationalization – or rather away from single sourcing. Does your
recognition of risk as one of the “bottleneck materials strategies” fully
address that or do you think supplier rationalization as a strategy should be
reconsidered altogether?
Dr. Tom: There is no standard
answer for this. You need to have a different supplier strategy based on the
particular service or material that you need and the risk of supply
interruption. The more critical or strategic the material, the more that you
have to make a sourcing decision based on risk. This may include multiple
suppliers, alternate materials, or backup suppliers. Sole sourcing decisions
can have significant dollar savings but an interruption of the supply chain can
carry great risk and cost. The
purchasing professional must have multiple sourcing strategies to deal with
risk. This is especially relevant today
where many companies have international suppliers who can deliver at much lower
costs. However, many of these countries
are at risk not only from a political or stability aspect, but natural
disasters.
Dr. Tom Update: Again, you must adjust
your supplier strategy to how critical the supply or part is to your
organization. Why not ask your suppliers their advice for possible
interruptions to their supply chain to you?
Lesson #12: Do your homework with suppliers and
industries.
BMP: I love the fact that you advocate not being
intimidated by bullying stakeholders/internal customers, “Purchasing is not an
unctuous service organization at the beck and whim of internal customers” What
advice would you give for managing or minimizing the inevitable fall out?
Dr. Tom: My advice here is to always lead with the facts and stay
professional. Make sure you have a good supplier evaluation process in place
with great metrics. Bullying stakeholders often focus on one incident and over
dramatize the single event and impact. Maintenance people often focus on one
incident of late delivery of a part. This is a standard bullying exaggeration
procedure. When shown that the supplier evaluation data reveals a 99% plus on
time delivery of thousands of parts, the drama is often defused. My other
advice here is to publish supplier performance metrics (visibility) so that
everyone can see how they are doing.
Dr. Tom Update: One of
the principles of Lean is highly visible metrics in an understandable and
actionable manner. People want to know what is happening and how great or not
so great they are doing.
BMP: You use terms such as
procurement, purchasing, buying, sourcing, etc. in your book. Do each of the
terms used have specific meaning to you or do you use them interchangeably? I
ask because of the growing association between purchasing and tactical buying
v. procurement and more strategic activity (for instance).
Dr. Tom: I use them interchangeably in the book. I categorize these terms as skill sets that
all purchasing professionals must have. Purchasing professionals need to switch
gears in their approach based on the customer needs. They may have to quickly
be tactical, strategic or bureaucratic based on what the customer wants. What
every purchasing professional should ask themselves at the end of their day is
"What did I do today to help move the business ahead?"
Dr. Tom Update: Flexibility from purchasing and supply chain
professionals is even more important. People value “hands on” participation in
problem solving and a dedication being the best.
BMP: Nearly (over) 10 years
after your book was originally published, if you were to write lesson #101,
what would it be?
Dr. Tom: Do not give up on
relationship building. It does take time, effort and stamina. But the rewards
are huge. The first test of a relationship is very important, so make sure you
do your very best to maintain and improve the trust.
Dr. Tom Update: Relationships
still require constant work and understanding. Do not underestimate how much
they can be improved outside of a work environment. Take advantage of these
nonwork situations.
BMP: In the interview posted
on your site, you mentioned plans for another book on the role of managing
relationships. Is that still in your future?
Dr. Tom Update: Well I now have nine
books available on amazon. https://www.amazon.com/author/tomdepaoli
BMP: Several times in your
book you mention Dr. Deming (W. Edwards Deming, I presume). How did his work
come to play a role in your purchasing philosophy? Is there a book by (or
about) him that you would recommend?
Dr. Tom: Dr. Deming was actually
more of a people person not a statistics or quality person. He trusted people.
He often noted that over 90% of defects were not caused by people or the
workers, but by defective materials purchased for the process or the poor
design of the process. People cannot
make a bad process design much better, and over 90% of quality is imbedded in
the initial process design. Purchasing can play a tremendous role in assuring
that the incoming materials are of high quality (world class suppliers) and
that the process is designed correctly (cross-functional teams with
engineering). The role of purchasing on
quality is critical. I
will not recommend a single book Dr. Deming but here is a good website to
review many books and articles on him.
Dr. Tom Update: My advice to a supply
chain professional is to make sure you lead with your people skills first. Most
people can understand and master technology with varying degrees of help and
diligence to learn.
Finally, I am glad that so many people have read
my book and get many of the lessons that I wanted to share.
I have more books and blog posts available on my
website. http://drtombooks.com/
I wish you well on the supply chain journey.
Dr. Tom
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