In 2015, MyPurchasingCenter talked to William Moore, Senior Vice President, Sales and Channel Development at SKF USA. Moore sees value in frank discussions between procurement and suppliers, especially of the practices procurement has in place to implement and measure results of new ideas submitted by suppliers.
Editor's note: This content is from the MyPurchasingCenter content archive. It was originally published in 2015 and appears here with technical edits and minor revisions to reflect the passage of time.
As Moore explains, in organizations there is competition, or internal friction, that works to help the organization improve. That friction usually shows up as challenges different parts of the organization present to one another; these challenges create a drive for the organization to do different things to arrive at better results. The thinking is that you don’t know something is better unless you frequently make changes.
For instance, procurement’s challenge may be to find new suppliers. If operations like the current suppliers, they will push back on procurement suggestions to switch. The friction, Moore tells MyPurchasingCenter, is built into the process. It goes both ways; finance may suggest to procurement that the organization needs to extend payment terms. Procurement’s reaction is that the suppliers may cut deliveries to the organization.
“Friction has a very good and positive place in business,” Moore says. “But when it stifles communications or the input of good ideas, I call that corporate dysfunction.” Examples include a plant that won’t share ideas because results of executing gives it advantage over another plant in the organization.
This isn’t a positive experience for anyone, Moore says. “Internally, people may feel diminished because their ideas are not accepted throughout the organization, and suppliers feel constrained if they can’t share their ideas elsewhere.”
Another area where Moore witnesses such dysfunction is when customers are reluctant to implement an idea that reduces cost, but not unit price. They may like a supplier’s idea but won’t sign off on it perhaps because the controller will take the savings out of their budget and they feel they need a cushion for unexpected expenditures.
The supplier then is reluctant to work with a customer and that stops the flow of ideas, he says.
Procurement as Facilitator
“As a supplier, I see that it’s our responsibility to let procurement know how we engage with the organization,” Moore says.
Procurement’s role is not as gate keeper, but gate, or relationship, facilitator. “We have experience with customers that do this and are aware enough of organizational issues and structure to help create linkages between all interested parties in their company and the supplier to come up with solutions to delivery, cost or other problems,” he explains.
“Yet there are times when procurement will effectively hinder a seller from approaching because of fear of retribution for stepping out of line. That’s dysfunction. It’s not done on purpose. It’s an unintended consequence of misinterpreting business practices.” How does an organization know if it’s dysfunctional? Procurement can’t ask the supplier, because they won’t receive an honest answer.
“We need to figure out how to get that input into the organization,” Moore says. One way is to do a test that’s going to be somewhat subjective but may have some objective measures: Determine how many new ideas suppliers suggest in one month. Be careful to tease out ideas new for the sake of new from ideas that address a germane issue--production, cost, product application--that resonates.
Another way is to determine the frequency with which the organization hosts problem-solving or opportunity parties. Moore describes these opportunity parties as nuts-and-bolts events where procurement invites a supplier to the plant to discuss any and all ideas. “If the purchasing department hasn’t done this, it may be a signal of some sort of dysfunction,” he says.
In our discussion, MyPurchasingCenter told Moore that many procurement teams don’t have time for such meetings with suppliers. Our sources often tell us they are being asked to do more with less. “I almost say you do not have time not to do this,” Moore responds. “If you don’t do this, then do you have a structured vehicle other than what’s expressed in a contract to invite suppliers to submit new ideas?” Such clauses, he says, can become a club that procurement uses on suppliers and suppliers use on procurement. In Moore’s eyes, this is dysfunction.
“In today’s competitive environment, if you don’t challenge the organization, people get so busy doing the day to day work that they forget to take the time to allow creativity,” he says. “Which is hard to do when you are under a tremendous amount of pressure.”
Moore acknowledges that procurement is not always the catalyst for the dysfunction. “It could come from finance or is just the way the company creates good business friction. That is, having one plant compete with another to get everyone to work harder and smarter. Purchasing can’t help that.”
So, what can procurement do? Moore suggests taking more of a leadership position within the organization and identify dysfunction where it exists.
As for the supplier, he recommends not giving up on working to bring benefits to the customer. “The challenge to the supplier is to understand how to approach the customer in a way that identifies dysfunction without creating internal punishment. From the supplier’s perspective, this is very difficult to do. While we pick up clues, we generally don’t know the organization’s nuances. If we see dysfunction, we need to address it a way that doesn’t create a longer-term negative position.”
The best place to start is with procurement. “Suppliers rely on procurement to know their company intimately and to be able to appropriately help address hurdles,” Moore says. If the supplier has a good relationship with operations that may be help with procurement.
“Keep in mind that sellers have their own dysfunctions,” Moore says. For instance, dysfunction may result from pressure to come up with new ideas for customers. Procurement will see it when they get a laundry list of ideas and few are implemented. “That’s where a forum with strategic suppliers that’s genuinely open is important.”
He suggests these open forums have a structure, with next steps or action items clearly explained. Attending should be a small cross functional team consisting of procurement and individuals from operations and engineering from the customer and supplier who have responsibility for continuous improvement. He adds that procurement may want to invite a few suppliers of related products. “Generally, it will take two or three meetings for everyone to trust one another,” he says. “People have to get to know each other before they open up.”
Finally, Moore says procurement is “the cornerstone to this if they work in a culture and have time to do so.” No time? “There’ll be plenty if the plant shuts down and jobs are outsourced,” he says.