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Wednesday, July 30, 2014

Set Supply Controls and Stick to Them, No Matter What

Discipline, as much as skill, gets results in business. Unless companies develop clear procedures and standards for operations and, more important, ways of validating them, deciphering the full range of returns in a buyer-supplier relationship is difficult.

In procurement, developing and adhering to a total cost approach to supplier life-cycle management is crucial to achieving strategic goals. “Once a process is designed, you put it on a tool that’s global and bake it in,” says Justine MacDonald, an executive with specialty chemicals supplier Sigma-Aldrich Co., in St. Louis.

In a presentation at a recent procurement conference, Aldrich discussed key points in developing and promoting supply relations. First off, she says, is establishing the ABCs of a partnership — i.e., the antecedents, behaviors, and consequences.

A procurement manager must make it simple for a vendor to work the way the manager wants, by clearly stating rules and conditions (antecedents) of supply.

Next is setting up exact guidelines and boundaries that make it difficult for a supplier to not follow directions (behaviors).

Finally, there should be the promise of rewards for outstanding service or penalties for not fulfilling expectations (consequences).

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MacDonald recommends that procurement managers set up a system of analytics to evaluate on an ongoing basis the work of suppliers, and then collaborate with their companies’ internal audit personnel to see how efficient and profitable supply operations are and where improvements need to be made.

Internal audit people, she adds, “are unsung heroes” of procurement, and a valuable resource when it comes to dissecting and putting a cost figure on operations.

MacDonald also advises that procurement managers keep firm control of their departments and the actions of personnel, as well as those of company executives. Company personnel should have guidelines and boundaries to follow in procurement, in order to minimize the potential for costly errors.

“I once revoked a supplier contract that had been signed by an executive of my company,” she says. The executive violated procedure by signing the contract without consulting her, and could have cost the company money if his contract lacked necessary terms and conditions.

MacDonald says the executive was angry. She advised that they both speak to the CEO about the matter. In this case she knew the CEO would back her, which, she adds, is important when it comes to prevailing in such a showdown.

Nevertheless, procurement managers should not be afraid to confront people — inside the company or out — who threaten the procedures, goals, and viability of the process.

“If you want to be in procurement, you can’t be a wimp,” she concludes.

 

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