MEASURES QUESTION! PRACTICES

PROCUREMENTPITFALLS

Is your supply chain running on all

eight cylinders? If the answer is no,

maybe the problem lies in your

procurement practices. There are

ten common supply management

mistakes companies make that

hinder growth and diminish

profitability. Here's some good

advice on how avoid them.

By Dave Nelson, Patricia E. Moody, and Jonathan R. Stegner

There are ten clear pitfalls tbat limit asupply chain's contribution to profits andgrowth. These problem areas also markthe difference hetween mature organiza-tions tbat are working on all the rightissues and bringing along the bestresources and tbose operations that arestuck in a tactical day-to-day grind.

Before jumping into fixing each of these ten problem areas,however, we recommend that managers perform a quick sur\eyof their operation's capabilities and become familiar with keywork areas: understand where procurement people are reallyspending their time and vvbere tbere ma\ be gaps. GeneRichter, the former chief procurement officer of IBM, used a13-question checklist (see sidebar on page 42^ to evaluate pur-chasing performance and to understand wbat areas are impor-tant to the group. This checklist helps to highlight questionable

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and problem areas and serves as a great starting point for fur-ther gap analysis and spend foeus. The checklist raises morequestions when suppfy management is reviewed, and itshould highlight strengths as well as obvious weaknesses. Useit as a starting point to examine exactly what your companydoes In tbe supply chain: where the emphasis is and wheretbe big dollars are. If your primary area ol responsibility isengineering or manufacturing, this checklist will he a perfectjumping-off place for reviewing supply chain operations.These questions are also useful for customer/supplier or engi-neering/procurement teams to use if they want to streamlinetheir processes and if they want to identify and focus on afew important tasks.

Building on Your StrengthsNo purchasing group covers all areas equally well. Harley-Davidson. for instance, works very hard on strategic planningand supplier relationships. .Although Honda's ptirchasing wasnot strong on computer systems integration, purchasing peo-ple worked well with manual data that was accurate andavailable. We are sure tbat ever\ group that perlorms a goodmanagement review will find one or two ol the most commonmistakes made in every supply chain organization. There isnot one company that can demonstrate excellent perfor-mance in all areas, and very few companies rank above aver-age all around. However, if your group has a fewstrengths...that are important in your industry, we urge youto build on tbese strengths and see what happens. Tbe tencommon mistakes (discussed below) are problem areas thatwe sec hlocking the progress of far too many good organiza-tions. We think tbat some, if not all ten, of tbem can beaddressed immediately in ways tbat will actually change cur-rent performance. Before the cure, however, comes diagnosisand treatment.

1. Low ExpectationsCoauthor Nelson calls this mistake "operating at kindergartenlevel in a grad school environment," hut the practice of allow-ing purchasing to be an undcrachiever is an expensiveapproach to global supply management because it underpow-ers a vital contributor to corporate profits and growtb.Unf^jrtunately, examples of lov\' expectations (and low results)in procurement are common. When board of director's repre-sentation, for instance, does not include supply chain man-agement at high levels, performance suffers. Decisions tent!to overlook procurement's contributions to profit, and bud-gets for staffing and resources in supply management are lim-ited. Or when procurement planners' and managers' compen-sation is lower than that of managers in other areas, themessage is clear: Procurement is an administrative processthat makes the wheels turn and keeps the paperwork flowing,but it somehow isnt as professional or important as financeor marketing.

Low expectations make the challenge even more difficultbecause no matter how good an organization is. no matterbow eager its employees are to do their best and to make

solid contributions, if the expectations for purchasings role inthe business are low. chances are the results will be thesame. High expectations produce high results in sports aswell as husiness: the best athletes in sports sucb as tennisand golf live with their own internal high expectations as wellas tbe daily responsibility to stay tops in the rankings, andthey know the effect a bad crowd has on the game. WhenJimmy Connors and John McEnroe played home matches attbe U.S. Open in New York, for example, tbey both raisedtbeir level of game to unexpected heights because the homecrowd expected tbem to play hetter than ever—and no onewas disappointed- But when the U.S. Davis Cup team playedhometown favorites like Coran Ivanesevic in Zagreb, Croatia,they suffered painful losses as the crowd cheered tbeirmissed hits and booed winners. It made the hill that mticbsteeper and higher to climb. In tennis and goU. mental atti-tude counts for more than 90 percent of tbe game; and innew and innovative areas like suppiv management, attitudeand respect count just as much.

Low expectations can be especially damaging out in tbesupjily base. Many suppliers work hard to deliver pertectquality and on-time performance, hut because of their size orclout, they often do not get the respect and appreciation theydeserve. It is ironic tbat as outsottrcing places higher andhigher proportions of product value in the hands of small-and medium-size suppliers, many first-tier operations stillundervalue second- and third-tier contribtitions.

Second-tier suppliers are often the source of innovationand growth. For first-tier producers in the United States, 80percent of the anntial new products are developed and pro-duced by second-tier companies. Although these suppliersmay not represent the largest portion of a corporate spend.their unique conlribtitions make the supply cbain more glob-ally competitive, and tbat value is beyond measure.

Internally, procurement groups can also suffer from low-

Dave Nelson is vice presidcnl of global supply chuin managementat Delphi Corp. Palricia E. Moody is cm author and lonsiilltinl.

Jonalliun /{.

Innovative SourcingSolutions That DeliverExtfaofdinary ResultsHE

NCREDIBLEAYBACK

DAVE NELSONPATRICIA E. MOODYJONATHAN R.STEGNER

r i.s gen-eral director of global supplytinindm'mcnt ti( Delphi. Thisarticle is excerpted iromiheir book Tlte IttcrettihlePayback: Soiutiotts llnilDvliver ILxiraorilhuiryHfsutts. Cop\'righ( 2005.Published by .\M\C()MIktoks, a dhision o/Amertt'an Alanagemenf.•Vssotiatidfi. ,\euVr>rli, iN'.Y.L'sed with pemiissiim. .Ailrights reserved. For morein/omiation visit www.atna-combooks.org.

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Pitfalls.

ered expectations or unclear objectives. We will talk laterabout what metrics work best to measure sup|)lv chain per-Inrniatice, f here is great power in numbers; and continuedhigh-level purchasing performance and good press through-out the suiipiy base are the fuel for raising low expectations.

2. Decentralized PurchasingDecontrali/ed procurement organizational structures wereoriginallv designed to guarantee eontinuotis delivery of plant-speciHc pr{)ducts directly into iactories in order to kvv\i thelines running at all costs, I lowcver, they are now our biggestbarrier to imfiroved spend management, wbich is a tremen-tlous problem in stipply management today. A decentralizedpurchasing structure is one in which [nirchasing offices anddecision making are not coordinated, su|)plier strategies arenot linked, volume is not leveraged, relationships exist at loworganizational levels, and there are local incentive schemes.Althiuigh purchasing oiTices arc maintained at the piants orat divisions, there may be a central procurement iunction as

High expectations produce high results.IF the expectations for purchasing's role in the husinessare low, chances are the results will he the same.

wcil that pcriorms a few limited procurement functions.Commodity and cost analysis, quality and material specifica-tions, negotiations, buying, strategic planning, and expeditingmay be conducted at any and all levels and at manv differentlocations in a decentralized organization—and that is theproblem, Tbis approach to managing material ilows is a lega-cy oi the vertical integration model. Although some elementsoi that model have shifted as outsourcing and other supplychain flows have moved out, the basic decentralized founda-tion imjirint remains in place in so many corporations that weknov\ it still needs to be addressed at verv' high levels.Decentralized operations have a tendency also to put oneplant in competition with another for the same supplierswork. J-^

Maverick BuyingWhat happens to the spend, for instance, in a billion-dollarcorporation, wben everv' plant maintains its own team of buy-ers tbat orders maintenance and repair operations (MHO)materials independently? Because MRO parts and suppliesare ungiamorous. they are usually overlooked when compa-nies Iirst attempt cost reductions. However. MRO is one ofthe easiest opportunity areas starting out. As John Deere dis-covered when a planner studied the company's MRO spend,the result was $1.4 million for 424 difi'crent varieties ofgloves, all intended t{) be used on the production floor iorbasically the same purpose, before being Jiscardcd, Whenthe glove supplier mentioned to one Deere analyst that i^eerewas paying $7,50 lor a single-use pair of gloves while the

competition paid $1.50 and then cleaned and reused thegloves, the iacts hit home—decentralized spend decisions notonly encouraged maverick buying but also increased the cost!By switching to a more-sensible buying strategy that includeda single supplier, iewcr varieties of gloves, and better prices,planners realized immediate savings of 35 percent, or$490,000. almost hall a million dollars in gloves alone! EvenDeere suppliers knew that lack of control hred inefficiencies!ii that type of variance existed for one simple productionitem, how mtich craziness would Deere find with biggeritems like tires and engine components?

The isstie ol cost effectiveness is key in anv decentralizedoperation, but tbere are other problems as well. For supplierstbat may be shipping materials to customers at more thanone plant, at dilferent prices or specifications, the custoTiieris not showing what Honda calls "same face," which is a tini-form approach to buying and communicating that minimizesconlusion and saves time. Quality specifications may difierfrom one ]>lant to another, even from one engineer to anoth-

er. And when the purchasing systemallows product or design prolifera-tion, or when there is not an integrat-ed central database to tell the storv\no one is the wiser. In a growth com-pany launching many new productseach year, this is a problem; but in a

mature industi") that earns predictable revenues on a knownset of products, it is inexcusably expensive.

Curious Incentives to Stay Decentralizedihe centralization/decentralization decision, however, ismore than a simple choice based on good analysis of thespend, cost benciits, and production demands. There isstrong emotion surrounding the question of whether todecentralize^—and how much or how fast—and where thereis emotion, there is usually power or money. These two issuesmust be addressed when companies consider hov\' to beststructure tbe supply management area: cost allocation for acentral procurement department and the division or plantmanager's incentive to retain purchasing power.

First, it costs money to maintain a central purchasingoperation, especially when it is staffed b>- planners who arepaid more at central planning than if they were working atthe plant level. Central procurement operations require gooddata frorn an integrated purchasing system, and this systemwill probably cost more than smaller plant-level operations,Tbe funding to operate a central system comes from alloca-tions [jlaced on the plants or the division, in essence, theplants pay ior planning, negotiating, and buying by a centralgroup that leverages tbe combined size of all the smallerplants and divisions, while making buys that ideally shouldwork to the advantage of al! parties involved. Therefore, theremay be a trade-off between the central group's ability toleverage the buy and tbe plant's contribution to the cost ofthe central group,.,.

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"But We're Special, We're Different"A second issue tbat is raised as a quiet objection is oftenveiled in the "but we're different" argument. When plants arestaffed to expedite or pull in materials and to coordinate ship-ping scbedules with suppliers—not to negotiate spend agree-ments and buy—tbe plant manager or division bead will havefewer higb-paid professionals reporting to bim or ber. Wouldyou ratber be in cbarge of production supported by a fewplanners for $80,000 a year or an entire operation staffed attbe plant level with buyers, planners, negotiators, expeditors.and purchasing engineers at SI50,000 a year plus manage-ment perks? It's easy to see wby plant and division managerswill fight a central procurement approach if it means tbeirjobs are narrowed to simply produetion and expediting!

Tbe trade-offs between a central and a decentralizedstructure become clear, bowever, when companies look attbe incredible payback opportunities tbat appear wben pur-cbasing is centralized or centrally managed and controlled. Itis interesting to note tbat Honda is centralized in NortbAmerica but decentralized globally. It's reasonable to leaveexpediting and daily material flov̂ ' in the hands of the plantsand tbe divisions who are responsible for just-in-time perlor-manee. But like al! other key functions of thebusiness—finance, marketing, and buman resources—pro-curement needs to be centralized to le\erage tbe buy. Wbenjust-in-time and excellent supplier quality and delivery per-formance guarantee predictable material flows, it makes evenmore sense to move procurement planning, negotiating, andbuying operations out of the processing plants....

3. Production Reporting intoOperations or Marketingwben significant percentages of corporate spend are out-sourced—in the automotive industry the outsourced percent-age can easily reacb 85 percent of tbe total, in the computerindustr)' it is even bigber—it makes good financial sense forall material production and flow functions (in-bouse and out-sourced) to report into one responsibility center managed byprocurement. Tbat is where costs and supplier performancecan be compared and consolidated, .

For most companies, tbe idea of manufacturing reportingto supply management is a radical concept, the very oppositeof traditional practice. In tbe old prodtiction model, purchas-ing reports to eitber operations or product marketing: pro-curement under this model has limited reacb and limitedresponsibility as a cost center tbat serves production or prod-uct divisions. This traditional operating structure automati-cally creates waste in several ways.

First, wben procurement reports into marketing and servesproduct-marketing divisions, there is a tendency to grow tbeparts lists and create overlap and redundancy—a problemtbat builds complexity. Wben introduction and managementof a product portfolio takes precedence over carelu! revievv' ofthe parts lists, it's easy to accumulate obsolete componentsthat were speeified for one product but left out of tbe bill of

material for tbe next one. If purchasing bas the ability to cnn-solidate and review bill of material tlata. including supplierpreferenees, specifications, and pricing, tbey will of coiuseinevitably catcb redundant parts. Tbey also ma\ see partstbat bave been "over-spec-ed" (especially if procurementengineers get involved), components tbat may be requestedat bigber or tigbter tecbnical specifications iban trulyrequired for acceptance price and feature perlornuince.

The second organization fallout problem comes when pur-chasing reports to production or operations. Companies tbatstill live with tbis model neglect spend management andstrategle procurement planning in favor of expedites andother tactical short-term activities, A test of tbat trend is toreview premium freight charges; if tbey are frequent andbigb, production is using purchasing as a big expedilor rathertban as a partner in profit creation,

Wben nonpurcbasing professionals make purcbasing deci-sions—for example, wbetbcr to outsource a criticalpart—supply cbain spend or tecbnologv objcclives arc oftenoverlooked, Tbe grovvtb of the outsourced electronics indus-try illustrates this point. Initially, companies like IBM soughtto outsource difficult or expensive \v'ork to board shops thatbad gatbered tbe rigbt equipment and expertise to make pro-duction managers' lives n little easier. Outsourcing madesense because it simplified the lives of manufacturing execu-tives. The decision to outsource was usually made bv' manu-faeturing managers wbo worried less about tbe cost of materi-als and more about tbe availability of supply. Tbe make/buydecision was simple because electronics suppliers alwayspriced their products lower tban wbat original ccjuipmentmanufacturers (OEMs) could do tbcmscKcs, and they guar-anteed delivery\ But gradually, tbe financiais started to ttirnthe otber way as contract suppliers learned more about com-ponent prices than tbeir customers. C'ustomcrs lost visibilityto parts prices. As contract manufacturers took more controlof component specifications or deliveries, many of themfound ways to make more money on component prices tbanprocessing, and tbeir OEM customers lost the ability to man-age component suppliers well or profitably. A simple decisionto outsource production bcadacbcs grew into a blind spot, acasb drain that procurement managers find difficult to

reverse.

4. Lack of Good Analytical ToolsEven when traditional enterprise resource planning (ERP)and other procurement software solutions do not oiler thekind of simple analytics required to identify and realize bighpayback solutions, it is essential for spend management tofind otber solutions tbat allow good analysis. There arc manycreative solutions, clever ways to get around the lack ol gooddata: some solutions are sbort-tenrt, one-time data-gatheringand analv'sis projects, while otbers can be tacked on to tbelarger procurement or aecounting software. Wbat is essentialfor profitable spend management is the ability to gather, con-solidate, manipulate, and analyze procurement information

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Purchasing Performance Checklist1 . How is procurement organized currently?

A. Logistics?

B. Production planning and control?

C. Incoming material and component quality?

D. Inventory management?

2. What performance metrics are available currently? Are they useddirectly in performance reviews?

3. Who really selects the sources?

A. Procurement? (Central? Regional? Plant?)

B. Engineering?

C. Top management?

D. It depends on the commodity (cite some examples)?

4. Who negotiates the price and other contract terms?

5. How are make/huy decisions made for:

A. Components?

B. Finished products?

6. What are the major outside sourced part categories, hased on dollarsspent?

7. What part categories are most critical from a quality, technology,and/or delivery standpoint?

8. Who are the ten most important suppliers? For each, identify:

A. The primary country oi manufacturing origin.

B. The country of headquarters.

C. How often they are visited by procurement people.

9. Can your MRP system requirements be:

A. Cross-communicated within the company?

B. Consolidated into one demand on the supplier?

C. Consolidated nationally? Globally?

10. What are company policies regarding:

A. Ethics?

B. Buyer behavior?

C. Supplier behavior?

11. Are there regular, formal processes for communicating with suppliersand getting their input?

A. Periodic surveys?

B. Advisory councils?

C. Ombudsman?

12. What are the averages for the procurement people for:

A. Years of education?

B. Predominate discipline?

C. Years with the company?

D. Years in procurement?

13. What delegation of financial authority do the various levels ofprocurement have? Does any other function have procurementdelegation authority?

Source: R. Gene Richter, former chief procurement officer, IBM Corp., copyright 2001. tJsed by permission.

from many sources. The frequency of analysis atinininuini should bt' once per quarter.

Many large organizations with multiple data-buses find it difficult to consolidate key bill ofmaterial data. Deere's 'one intern and n spread-sheet" story offers one solution to the prohlem ofmissing analytics: Deere wanted to understandbow much steel, vvbat types, and Jt what pricesthe eompany was buying all over the world.Management sensed that tbere were opportuni-ties to leverage the buy and achieve multimilliondollar savings in steel, as well as in other com-modities. Hov\ever. it was impossihic to gatheraccurate information from all of Deere's steelplants around the world. Different Deere huyersoperated under different decentralized policies,so it was hard to obtain the correct informationfrom each one. The solution was to hire a centralpurchasing intern who, over a period of two tothree months, was able to retrieve accountspayable data that filled in the gaps. The bestsource for actual payment history was, of course,accounts payable for tracking purcbase ordersback to negotiated contract prices, wbicb isanother checkpoint v\here potential savings usu-ally lie hidden. Purchasers can review individualcontracts or release paperwork, or, as a lastresort, they may ask the supplier! For a singlehigh-value commodity like steel, data digging tofind cost variance or errors is a worthwhile exer-cise; trying to capture savings on all commodi-ties, all the time, however, requires consistentand fully, centrally integrated data.

5. Supplier ProliferationLet s think ahout the image of a lean supplybase. In [he old manufacturing days, a factory of5,000 to 10,000 workers was a good thing—big-ger was better. Today, optimum factory size is afew hundred personnel. And its the same withsuppliers. In the past, more was better, whiletoday, lean—in the factory and in the supplychain—is better.

Customers cannot effectively manage morethan itOO to 400 key suppliers. Supplier prolifera-tion dilutes an organization s focus and elimi-nates tbe type of in-depth technology and com-modity intelligence development that is requiredto meet bigh levels of quality and price perfor-mance. A surplus of suppliers also limits thenumber of high-level partnerships that good rela-tionship btiilders can develop, and it makes sup-plier development too expensive to undertake ona large scale. However, we are not recommend-ing single soureing all commodities—an

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continue to obscure bigher level objectives. In a tactical oper-ation, it is difficult to achieve payback without beating upsuppliers, which is an aj^proach that cannot be successlullysustained. Suppliers will run lor the nearest exit plan! A tacti-cal focus tends to eat up resources at the plant level, and itsometimes has an impact on central procurement as well, Areasonable approach to the strategic vs, tactical locus is toescalate emergency or chronic plant procttrementissues—such as bad quality or poor deliveries—to central

approach that carries great risk, particularly for NorthAmerican operations with global networks. But we do find, infact, tbat purcbasing groups that have deliberately reviewedand narrowed down their supply base to a manageable num-ber will be able to gather and apply best practices and spendmanagement initiatives much more successfully because tbeyare starting from a good position.

Decentralized procurement unfortunately builds supplierproliferation, and when organizations want to bring all buyingand negotiation activities into one cen-tral point, tbey will need a method toreview and reduce, or rationalize, thesupply base at tbe same time.Sometimes, the supplier historical datavvill show slightly better performancefor one supplier whose price is higher get the respect and appreciation they deserve.than the others. The value of good per-formance data is that perlormance/cost trade-of(s will be clear-er and easier to see. In terms of payback, focusing develop-ment resources on a fevi- selected and clearly high-potentialsuppliers makes more financial sense than scattering attentionover several hundred suppliers of unknown potential.

Many suppliers work hard to deliverperfect quality and on-time performance,hut hecause of their size or clout, thev often do not

6. Short-Term, Low-Level Tactical FocusIf supply management visibility is high oniy when a hot orderappears, production is in jeopardy, or the floor screams forpremium expedites, then the department's tactical focus will

purchasing where a supplier's overall performance can hereviewed at the contract level. However, when an organiza-tion is mired in daily problems and planning horizons thatbarely stretch through ieadtime, it is nearly impossible toimpose strategic work on top of the daily grind.

We think far too many companies still expend dedicatedresources on short-term fire fighting, and that imbalance signalseither bad supplier selection, poor communications, or veryunpredictable plant production schedules. All these issues aresolvable, but they must be addressed at the proper level.

OVERSTOCKED?OR UNDER-MANAGED?

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Pitfalls

7. Bad PressWe need to learn a lesson from marketing and then use iteveryday. Strategic sourcing needs to speak the language ofmanagement—financiais such as profit and loss (P&L),expenses, and contributions are ihe buz/words that top man-agement wants to hear about, the ones tbat purchasing profes-sionals need to emphasize in all their communications. Whenprocurement executives do nol make (he clear and direct con-ruction betv\t'en their contribution to profitability and re\-enue growth, they relegate themselves to cost areas thatalways cr\ for cuts. It's a tough, reactive position to be in.

lo re\erse this bad reputation, procurement professionalsmust turn their image around to reflect a positive one of profitand value creation. Reliance on savings and cost cutting to theexclusion of growth and Improvement, as botb CiM andChrysler learned in the 1990s, creates bad press and loses goodsuppliers, which is a difficult trcntl to reverse. Remember tbatyour work is known to both inside press (your peers, top man-agement, and your people) as well as to outside press{Purchasing magazine. Supply Mnuigemeiit. Fortune magazine.and Vie New Ynrk Times). Remember that bad press is difficultto re\erse. bul no press is a great opportunity to mine. TheT\lenol jn)isoning case in which President James Burke com-municated a strong message that told the vvorld that McNeil (aJohnson & Johnson company) itself had also been hurt and thatthe company planned to refill tbe jiipeline with tamper-proofproducts sa\ed tbe companj' and established a benchmark Forbow to deliver had news well. Burkes good press position putJobnson & Johnson in a better recovery position as well,

8. Product Variety and ComplexityChr\sler discovered in tbe 1980s tbat a Focus on productvariety carried down to the level of piece parts, nuts andbolts, and screws could bankrupt the company.Unfortunately, many procurement groups inherit a long lineoF unnecessar\' parts selected generations earlier by indi\ idualbuyers and engineers. Although these buyers had little idea ofthe exact financial impact of their selections, today mostplanners are aware that eomplexity costs.

John Deere's glove story illustrates the pitfalls of unlimitedparts proliferation, Theresa Metty. chief procurement officerat Motorola, believes tbat parts proliferation and cotTiple.xity isone of sourcings biggest challenges. She has launched a "Waron Complexity" tbat emphasizes elimination oF excess parts totbe tune of several million dollars. Simplifying, or rationaliz-ing, the parts list is a long-term solution that has immediatepayback. If producers want to find immediate cost relief andchange the Wiiy buyers and engineers work together, reductionoi variety and eomplexity is a great place to start.

9. Purehasing Separate FromNew-Product DevelopmentWhen Gent- Ricbter headed up Hewlett-Packard's purcbas-ing group, bis dream was to ba\e "a buyer at ever\' engineer'selbow," and his bope was tbat an integrated management

information system (MIS) would provide the design and priceinformation tbat both departments needed. Nearly 20 yearslater, bis dream remains unrealized, and one solution hasbeen to physically co-locate supply management with new-product engineers.

Botb Honda and Delphi have found tbat establisbingstronger links between purcbasing and engineering or R&Dearlier in the cycle are critical to optimizing this upfront areaof the supply chain.

Another key systems issue that helps to achieve functionalintegration is having a bill-of-materials database accessible toboth areas offering the kind of information tbat engineers aswell as planners and buyers require. Previously, engineeringdid Tiot sec contract information, such as pricing, that pur-chasing worked with. In a robust system environment, how-ever, all design and pricing information, as well as supplierperformance history, is readily available to all authorizedusers. Although new-product development engineers may bebased in Detroit, Tokyo. Berlin, or where\er, planners andbuyers can be located in Hungary or Indonesia. China, or

Mexico—and tbe information still bangs together well,I

10. No Supplier DevelopmentPerfect perlormancc—zero rejects and perfect on-time deliv-ery for every part—is achievable at all levels of the supplycbain. but it is unusual. Each spring. Honda of America fetesits excellent suppliers witb recognition awards tbat proveerror-free performance is possible. Hut, for everyNippondenso, a multiple award winner, and JobnsonControls with its excellent track record, there are dozens ofsuppliers who need teehnolog\ and management assistanceto reach higher levels. Usually supplier-development engi-neers are a resource that customers can more easily providethan small- and medium-size suppliers, at least to gel started.I be range of assists needed by suppliers to aebieve bigb lev-els ot quality and performance is long, from quality circlesand supplier seminars, where new ideas are explored, toSWAT-team rapid-response assistance in emergencies.Supply cbain organizations tbat do not include people whocan work with suppliers at tbe plant le\el are missing big sav-ings and performance opportunities, Tbe proven payback forsupplier-development personnel is tbree to four times theireost, and this investment is one that is quickly paid back butmost frequently overlooked.

The Fear FactorAH of these ten items require significant change: new poli-cies, new measurements, and new strategies for ever\' com-modity. It seems that even tackling one or two obstacleshrings up new problems to solve. Tbere are many reasonswby companies naturally encounter resistance to change,such as fear of job loss, fear of having to learn new proeesses,or Fear of having to move to another area. Fear is a powerfulinhibitor tbat can sometimes serve a useful purpose, butwhen good companies are attempting to make reasonable

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changes using proven methods, fear just gets in the way.Amazingly, when we describe the "before" and "after"

views of improved supply management operations, espe-cially in spend management dollars, everyone is energized.When we relate case examples of real companies, likeHonda, Delphi, and their suppliers, which bave instilled aculture of continuous improvement and cbange, peoplebeeome believers.

Yet, despite the promise of better work and bigger oppor-tunities to come, fear remains. Some statistics from a book byDavid Ropeik, director of risk communication at the HarvardCenter for Risk Analysis, highlight the apparent craziness ofacting in fear of change. The list of things we fear is long andgrowing—-spiders, snakes, smallpox, anthrax, airplane crash-es, terrorism, credit card debt. However, tbe odds of dyingbefore the average age of 80 from unnatural causes are not ashigh as we fear. The risk of dying in a plane crash is one in 9million: being killed by lightning is one in 3 million; dying ina flood, one in almost 7 million. Our fear of events overwhich we have no control, such as airplane crashes, isstronger tban our fear of problems we ean prevent. One ofthe most common and preventable killers, heart disease, hasearned a probability of one in three hundred, yet Americansare notorious for bad diet and sedentarv lifestvles that

inevitably cause health problems.'Fear is a strange motivator. The immediate threat can be

more important thtm tbe imagined and less probable ones.The lesson for companies and teams contemplating change isto understand and expect that fear will accompany change.The best approach is to recognize and acknowledge the resis-tance and move quickly into realistic and profitable chal-lenges at hand. Once the first prohlem has been resolved,team members can move more quiekly to the next one.

Sense of Adventure jpIf you want to pick up big savings fast and more later on. if youare not satisfied with traditional procurement s predlctahleyearly price increases of 3 to 7 percent and you are willing totake on tbe work of major organizational change, then you areready to begin The Incredible Payback. If your heroes are pur-chasing giants like Honda. Delphi, and Toyota—market mak-ers that return profits through procurement—then you areready to begin. You know the old ways won't get you lhere, soare you ready to make some money? CJGO

Footnotes^ David Ropeik, Risk: A Practical Guide for Deciding What's Really

Safe and What's Really Dangerous in the World Around You(Boston: Houghton Miffiin, 2002).

wwu.scmr.com

Target DistributionLeadership Opportunities• Operations • Human Resources• Transportation • Facility OperationsSee yourself here. See yourself in red. See where risk-taking is

applauded. See your next ground-t)reaking idea be rewarded.See community giving being celebrated. See the liip new thing.See the new style. See your future. See you soon.

Our executive level positions allow you to hire, train, developand lead your own team in ensuring our distribution centers aresecond-to-none. We know you'll succeed because that's yourstyle. A four-year degree or equivalent management experienceis required. We offer an attractive compensation package, apositive, professional culture and excellent opportunity forcareer growth.

To apply, visit target.com/careers

include reference code SCMRl in the body of your resume

©2005 Target Stores, Ttie BuHseye Design js a registered trademark of Target

Brands, Inc. All rigdts reserved. Target is an equal opportunity employer and is

committed to a smoke-free/drug-free workplace.

© TARGET target.com/careers

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