The
MBA program in Supply Chain Management
at NC State University is unique among business
schools. With the support of the Supply Chain
Resource Consortium, an industry/university
partnership, the program brings the industry into
the classroom, involving students, faculty and supply
chain professionals in finding solutions to the
real industry problems. This project-based approach
to education reflects the new model for business
schools described by Peter Drucker.
For
more information...
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Peter
Drucker...
"Management is a practice, like medicine;
and the model should have been the medical school,
where the bulk of the teaching, especially the most
important teaching of the M.D. in his or her residency,
is performed by practitioners. Unlike medicine,
where you can bring sick patients into the classroom,
business education does not allow you to bring an
organization into the classroom. You can, however,
bring experience in through your faculty and students.
Business educators should be out as practitioners
where the problems and results are."
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3/17/04
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Managing
Maverick Spend at Deere and Delphi
An Interview with Jon Stegner
by Rob Handfield |
Many
managers today are struggling on how to turn their
procurement organization around and reduce their
maverick spend (spending outside the procurement
process), different approaches are being adopted.
Jon Stegner, a senior purchasing executive at Delphi
Automotive, brings with him a long experience of
working and deploying procurement policies at a
number of companies, including TRW, Honda of America,
and John Deere. He recently shared his view on how
to establish purchasing policies and procedures
and making them stick.
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At
many companies existing sourcing policies are
a bit heavy on the bureaucratic side –
with more rules than are practical to follow.
Some of these rules don’t always drive
value-added work, and don’t always result
in optimum strategies. In certain situations,
procurement must deploy a strategy where there
is a need for a lot of data and information,
but there is also a need for speed. In this
environment, the delegation of authority and
full-time resources are critical to success. |
This is especially important in controlling maverick
spend. Stegner notes that getting your hands around
the data is one of the biggest challenges, especially
on the indirect side. In his experience, the process
should be initiated by getting total control of
spending data, and understand the implications of
trends represented by the data. Once purchasing
obtains spending data, management needs to be very
clear at senior levels on what the policy is: Don’t
compromise! It is up to purchasing to get senior
management to write a policy statement that all
spend is authorized by purchasing through the Chief
Procurement Officer (CPO). If the Chief Procurement
Officer delegates payroll to Human Resources, or
delegates tax payment to Finance, then this policy
must become the rule.
It may take some time to deploy purchasing policies
that control maverick spend. To do so, Stegner advocates
putting contracts into place, and determining where
money is being spent that is compliant with the
contracts. Once purchasing determines who is responsible
for not abiding by contracts, the CPO can initiate
discussions (positive or negative) around those
spend items. Purchasing can start by informing people
of the benefits of being on contract. If people
choose not to comply, then purchasing can take other
avenues to work on engaging them and their organization
into getting the spend on contract. An important
way to obtain buy-in into the policy and control
maverick spend is to bring people into the strategic
sourcing process. As you bring them into the sourcing
process and bring them into the decision, you quickly
get a feel whether or not there exists the level
of buy-in that is needed from each particular functional
area.
In answering the question of how to get people to
comply with purchasing policy, Stegner’s response
was very direct:
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Here
at Delphi it is NOT an option – everything
MUST go through purchasing, and our internal
audit will find who is breaking the policy and
the unit will be written up. We are bureaucratic,
but if people find out that policy is being
broken, get an audit comment, and willfully
disregard it, they will be discharged. There
is some maverick spend here, but there are certain
limits we won’t test for (less then $50K).
For the most part, we catch 80% or more of the
maverick spend.
At Deere, this was an evolutionary process.
Deere was a decentralized organization, and
it took a while to influence people to convince
them to get all of their spend on contract.
In the process, however, we did some things
that were fun that got their attention. In one
instance, we had an opportunity to look at work
gloves. A student intern went around to all
of the fourteen factories and collected one
of every glove in each factory, identified who
purchased from, and how much was spent on each
glove. The result? The intern discovered that
Deere was purchasing 424 different work gloves,
in a dozen different manufacturing processes
(assembly, welding, rubberized gloves), and
noted some other very odd patterns! For example,
the same supplier shipped the same gloves to
different factories with different pricing –
and they were all being used in the same process!
At one point, we brought in all 424 different
pairs in a set of piles, and before the board
meetings, asked the division presidents to go
through the piles and see how many gloves they
were buying, what they paid for it, and which
operation they were used in! They began to joke
around and discover that ‘We got a good
deal at this plant – but not over here.’
This created a mandate from the group. ‘Work
gloves don’t differentiate our product
– as long as our employees are safe!’
The sourcing team then engaged safety directors,
did a strategic sourcing process, and got it
down to a dozen work gloves – down from
12-20 suppliers down to one supplier, and cut
the cost of work gloves by 50%! This worked
because we made it real to senior management,
and by making it real and tangible, they were
absolutely incensed. It didn’t make a strategic
different for the customer (who was buying tractors).
We did this for other areas as well.
I hired the intern, and she became the commodity
leader for all safety supplies! This became
a traveling road show and stopped at all the
factories and division headquarters – a
compelling message that people could rally around.
We then asked people whether they wanted us
to do the same for safety glasses? The response
from people was immediate: No – I believe
you! In this manner, we were able to drive home
our purchasing policies by making it tangible
and real to users throughout the company. |
Sincerely,
Rob Handfield
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