The purchasing practices of original equipment manufacturers (OEMs), as applied today, are falling short. And they haven’t been for a very long time. For example, if you take a look at it, you will find that there is very little difference in how Ford bought material for its Model-T and how Boeing buys parts for its 787.
Sure, email, the internet, and other computer applications made the process easier, but if you had to resurrect a buyer who had worked at the Rouge River Ford plant when it opened in 1919, I’m pretty sure this no one would be able to quickly integrate seamlessly into modern purchasing services. Why? Because there is really very little difference between the traditional three quotes and a cloud of dust quotation process and “streamlined” today three keys and a cloud of dust.
A similar comparison can be made between the purchasing strategies applied by Ford at the time and those used by OEMs today, despite the significant evolution observed in other functional areas over the past 100 years. Changes which, by the way, have significantly improved the business results provided by these functions. Yet purchasing performance continues to be judged almost exclusively by how much material costs rise or fall year over year (price per item), and by how much. So in essence, the financial contribution of purchases to the business results of the company has remained constant for generations, despite changes in all other areas of business.
For the most part, purchasing impacts beyond those associated with the initial piece price and the reduction in the piece price have remained under the radar. Of course, Covid-19 has drawn attention to some shortcomings in current purchasing strategy and practices, but many more remain unrecognized in the corporate world. It would seem quite logical to fill these “hidden” gaps at the same time as those related to Covid-19 are addressed. Hopefully this will happen.
There is general recognition among OEMs that the value equation offered by individual suppliers may be beyond what can be achieved by focusing only on the price per piece, but for the most part, the elements of this added value are considered “soft”, relying too much on anecdotal stories to be noticed by business leaders. What is needed, instead, is a way to quantify the added value of suppliers. in concrete figures so that it will get their attention. A great way to do this would be to show that the value-added capabilities of suppliers – or lack thereof – can have a positive (or negative) impact on performance metrics at management level! If this can be demonstrated, I guarantee that the issue of supply chain added value – and strategies / processes on how to harvest them – will be a topic at CEO staff meetings.
I wrote a book called Better Business: tear down the walls of the purchasing silo that I believe accomplishes this. Part 1 of the book lays out the financial rationale for OEMs to change their purchasing strategies and processes, while Part 2 offers a proven, step-by-step process for deploying to suppliers what is needed to build the world. -class supply base necessary to extend the positive financial impacts generated by the purchases.
This is my first book and I think the end product is very good. But don’t take my word for it: I’ve had the chance to review people who are very knowledgeable about business and the supply chain. Best deals. Here are some of the feedback I received:
In my opinion, anyone in America who does anything – anything –and wish to increase the competitiveness of their business should read this book and act on the lessons it contains.
Benjamin Treuhaft, co-CEO, Helpful Engineering
Paul Ericksen uses his decades of purchasing experience as well as interesting examples to explain why supply chains are a key strategic asset and should be managed as such. In this book, current managers will learn how selecting sources and managing suppliers based on ‘real’ supplier lead times (rather than on the piece price) delivers both better bottom line and better performance. of the supply chain. Perhaps equally important, in the second half of the book, Ericksen provides a step-by-step process on how to financially justify adopting his new strategies and processes at a company’s C-level.
Susan Helper, former Chief Economist at the Department of Commerce and Professor of Economics at the Weatherhead School
This is a rare book on business management, combining an insider’s perspective with that of a stranger. Paul Ericksen presents a strategy for how the fundamental transformation of the purchasing function, from an often counterproductive focus on the cost of materials to a broader focus on lean supply chain management, will translate into a improvement of the company’s finances. It articulates an original strategy to develop supplier capabilities to reduce the risk of order fulfillment and increase manufacturing agility. At the same time, it provides insightful analysis of corporate culture, including insightful observations on leadership and how to present a business case for lean supply chain performance. Every business executive and purchasing manager should read this book.
Matt Vidal, Associate Professor, Institute for International Management, Loughborough University
We live in a world where supply chains can become a critical source of competitive advantage, but too often they are not. Because many executives don’t really understand the true cost of parts because they don’t account for time properly. Paul Ericksen offers a solution. It provides a new understanding of what it means to become lean and how it relates to developing a supply chain advantage.
Josh Whitford, Associate Professor of Sociology, Columbia University
This type of feedback confirms – at least in my mind – that I did a pretty good job putting this book together.
The book is now in publication and available for pre-order. Hope I got your attention with the above discussion and approvals. If you are a reader of my bimonthly column, you will recognize that my writing style tends to be interesting and informative, yet easy to read. In other words, don’t expect textbook-worthy read.
It should be quite obvious given today’s supply chain issues that purchasing needs to change. My hope is that this book exposes a basic common sense basis for the need for some of these changes as well as how to justify and implement them.
i hope you read Better Business: tear down the walls of the purchasing silo. If you do and think it makes sense, please forward the above link to friends and colleagues who also work in the business and purchasing profession.
Paul Ericksen is IndustryWeek’s Supply Chain Advisor. He has 40 years of industry experience, primarily in supply management with two major OEMs.