By Susan Avery, Chief Editor, My Purchasing Center

Transcription

1 This white paper looks at CEO directives for procurement and how procurement collaborates internally and with suppliers to contribute to the company s success. By Susan Avery, Chief Editor, My Purchasing Center

2 While procurement and supply chain management executives have worked through many changes over the years, their basic objectives remain the same: Provide the organization with competitive cost, on-time delivery and unfailing quality. No one will argue with that. Procurement today though is about much more than cost, delivery and quality. Procurement now also adds value in other ways by becoming involved early in product design, partnering to develop innovative ideas, and participating in activities that generate revenue. Procurement is strategic. There is no other single function that has such a broad spectrum of impact than supply management, says Robert A. Rudzki, President of Greybeard Advisors, provider of advisory services for procurement transformation, strategic sourcing and supply chain management. Rudzki also is author with Robert J. Trent of the book Next Level Supply Management Excellence. Robert A. Rudkzi, President, Greybeard Advisors Rudzki, a former corporate financial and procurement executive, likes to talk about procurement results in terms of an organization s financial performance. Finance is the language of the CEO, he says. Thinking along those lines, procurement can affect a company s revenues, for example, by becoming involved early in product design. Procurement also can help improve a company s financial performance through initiatives that help to reduce cost. It starts with procurement understanding the financial gain measured by such metrics as cash flow, earnings per share and return on invested capital, Rudkzi says. We in procurement need to set our objectives around the metrics the company is measuring and directly tie our initiatives to them. It doesn t do us any good unless there s a linkage between procurement initiatives and the bottom line of the company. That linkage between procurement and financial performance is evident at companies across industry. At companies that have made the link, the CEO understands procurement and its value and communicates that throughout the organization. Procurement adopts the vision as its own, and uses its influence internally and with suppliers to deliver to the CEO s expectations. Here are some examples of companies where this is happening: Philips Home Health Solutions where procurement and development are leading a Design for X project for the company s current and next generation device platform in its sleep business. Management expects to launch a product faster than in the past, at a lower cost than in the 2

3 past and at a quality level equal to or better than in the past. Cubist Pharmaceuticals where strategic sourcing is involved in an initiative that already is providing a high level of quality to the company s clinical trials. Resulting improvements in efficiency and delivery are helping increase patient recruitment activities. Source: Greybeard Advisors Financial performance affects a lot of things that are ultimately of value to the company. Source: Greybeard Advisors The CEO speaks the language of finance. Taking this perspective, procurement can determine where best to add value. Rowan Companies where supply chain management s Supplier Relationship Management (SRM) initiative has helped make the oil and gas drilling company a customer of choice among critical suppliers, ensuring timely deliveries and a competitive advantage in the booming industry. Starts at Top Procurement success at contributing value begins with its relationship with senior leadership. At Cubist, Mary Kachinsky, Senior Director, Strategic Sourcing, was hired by a CEO with a vision for procurement. His directive for Kachinsky: Build a strategic sourcing organization that is a true strategic partner to the business. Our CEO sees strategic sourcing as essential, bringing us in early enough to be part of the culture so we can integrate effectively and really add value to the organization, Kachinsky says. She has direct access to the CEO and meets formally with him twice a year to discuss the progress of her team. I just reach out and he makes himself available to us. Likewise Rowan Companies hired Brent Shinall, Vice President, Supply Chain Management, to build a strategic team where previously procurement was decentralized and more tactical. Shinall attends Monday morning meetings with the CEO and his executive leadership team (ELT) and reports on the status of supply chain management s initiatives. He participates in more formal quarterly meetings with the ELT where he s frequently asked to present on a particular initiative such as the team s SRM project. Source: Greybeard Advisors There are four areas where procurement can be strategically involved: Revenue, cost, working capital and capital expenditures. David Butler, Vice President, Global Operations and Supply Chain, at Philips Home Health Solutions, reports directly to the CEO and provides him with updates on procurement results each month. In ad- 3

4 dition to global procurement, Butler also is responsible for global manufacturing, logistics and distribution, customer service, product service and commercial operations. Procurement has the attention of the CEO also as the team works on large-scale projects that affect the business such as the Design for X project, and in times of crisis, when the team is consulted on continuity, planning and risk. Mary Kachinsky, Senior Director, Strategic Sourcing, Cubist Pharmaceuticals It is important for the CPO or equivalent leader of procurement and supply management to have full access to the entire c-suite and business unit presidents, says Rudkzi at Greybeard Advisors. Ultimately to be effective in our job we need to reach the decision makers so we can get them involved and potentially influence their decisions to support us in our initiatives. For Procurement CEOs who appreciate the role of procurement and the value the team contributes communicates this to the entire organization through a mission statement or in a series of corporate objectives. Such is the case at Rowan Companies. Shinall recalls that in 2009, a year before he accepted the position as Vice President, Supply Chain, the CEO set a goal for the company to be the industry leader in supply chain management. Brent Shinall, Vice President, Supply Chain Management, Rowan Companies Once on board, Shinall and his team developed a strategic roadmap for supply chain management that aligns with the CEO s objectives. Today, the team is about midway through implementing its initiatives. Asked specifically about the CEO s expectations for his team, Shinall replies: To negotiate aggressively to achieve cost savings and to treat suppliers fairly. I am totally aligned with that. Other expectations for supply chain management include 24/7 support for the company s drilling operations which run continuously where they need it anywhere in the world, and industry-leading inventory management. At Cubist, the CEO s vision for strategic sourcing is expressed in the company s Building Blocks of Growth that include goals for operating income. Our contributions to Cubist s Building Blocks of Growth are clear, Kachinsky says. My focus is to improve spend management and deliver value that transcends simple savings and cost reduction activities. To create that value, the CEO expects strategic sourcing to reach across functions and build consensus. For 2013, she and her team collaborated with functional leaders as part of the operating planning process. Sourcing reviewed line item detail of each spend program with their customers and made recommendations on how to remove cost and increase the quality of those programs. Those recommendations were reviewed and approved by Cubist s leadership team, creating a sourcing savings goal for the organization and outlining strategic sourcing s priorities for the year. 4

5 For Butler at Philips, the very nature of procurement responsibility for managing expenditures directly links to company financial performance. That s a baseline. Then, you quickly recognize that innovation and time to market are important elements that you need to succeed in health care, and the supply base has a key role to play, he says. As such, procurement aligns its objectives with the company s and, Butler says, reports that back to the business. We start with what the business is trying to accomplish. We don t start with procurement objectives in and of themselves. David Butler, Vice President, Global Operations and Supply Chain, Philips Home Health Solutions Then, he says, procurement takes this out to suppliers: Here are the objectives we need to set with you suppliers to meet the higher order objectives of the business. Extends to Supply Base For Philips s Design for X project, procurement invited key suppliers to participate in an innovation week event during which they were asked for help with design. There s clearly an expectation that suppliers are bringing more to the table than just parts, Butler says. At Rowan, suppliers are well aware of the company s goals. Shinall and his team have segmented the supply base. Suppliers that provide equipment that could shut down the operation are identified as critical and meet with the company in Houston four times a year. The president and senior vice president of operations for all regions of the world at Rowan are at these meetings as are supplier executives at the same level of responsibility, Shinall says. The discussions focus on performance to expectations. Strategic sourcing at Cubist challenges key suppliers to bring innovation to the company. We want to improve our relationships by finding synergies, Kachinsky says. We want to bring efficiencies that will ultimately result in process improvements, avoiding or eliminating duplication. At a supplier summit in December 2011, the CEO and his leadership team shared their vision with suppliers, told them they are valued as an extension of Cubist and described how they want to work with them going forward. They introduced the strategic sourcing team to suppliers as the enabler to drive this efficiency, Kachinsky says. Not only cost savings, but what we can do to grow our business collaboratively. Getting to Results Procurement and supply chain management is reporting progress on initiatives they re collaborating on internally and with suppliers to meet corporate goals. 5

6 At Philips, Butler says he can t provide much detail on the Design for X project. But procurement is leading activities such as the recent innovation week event with the company s development group. He loves this approach. It engages more of the organization than if procurement took the initiative on its own, he says. I have a strong ally and will get a better result than on my own. Source: Rowan Companies At Rowan Companies, supply chain management developed a strategic roadmap based on corporate objectives. Kachinsky reports that an initiative her team is working on with the company s clinical research organization (CRO) is already helping to increase patient recruitment activities for a trial that had been behind schedule. The goal was to deliver a high level of quality, streamline decision making and provide clean data that the company could submit to the FDA (Food and Drug Administration). Improving communication and bringing efficiency to the way we operated with the CRO results in ontime delivery of the trial, Kachinsky says. We re also empowering team members to be more effective in execution of the trial internally and externally. The results, she says, is giving strategic sourcing higher confidence that what we are doing is delivering value. Source: Rowan Companies For its Supplier Relationship Management (SRM) initiative, the team is piloting a scorecard to measure supplier performance. Managing relationships with critical suppliers is helping Rowan ensure timely deliveries to drill ships it s building in Korea even as leadtimes for equipment extend out to more than two years. It s a competitive advantage, Shinall says, crediting the regular meetings with executives for helping to make Rowan a customer of choice and saving its customers hundreds of thousands of dollars daily. 6