What You See Is What You Get Mary Lu Harding, Principal Harding & Associates 802/453-5379; harding@sover.

net 91th Annual International Supply Management Conference, May 2006 Abstract. How purchasing is viewed at the executive level of an organization determines not only executive decisions, but also behavior on the front lines. Executive views can be explicitly stated or hidden assumptions. They have power in either form. This paper describes some of those visions and their consequences for the organization. Employees at all levels of an organization understand quite well what the executives of the organization value, and those views affect daily behavior in ways often poorly understood. Each view of purchasing can be recognized by its affect on behavior, measurements, staffing and executive decisions. 1. Purchasing as an administrative support function. If a top procurement executive considers the function to be an administrative support function, then policies, procedures, measurements and hiring practices will reflect that view. Purchasing will be considered a cost center. Expense control will be a major measure of success, including departmental overhead expenses. Following procedures will be important, and a breech of procedure is cause for corrective action. Prompt processing of purchase requests will be a major measure of customer satisfaction. Staff will be selected and promoted on their ability to handle multiple priorities and considerable pressure, process transactions speedily and accurately, and expedite successfully. This type of function is primarily reactive. Demand information comes to purchasing and they react to procure whatever is needed. Consolidation and contracting are done with historical information and some forecasts but little interaction with internal customers. If one were to ask internal customers about the purchasing function, they would probably describe it as a necessary evil - an administrative function that they have to go through to get what they need. They believe that they could do it as well or better. They may feel that purchasing's involvement lengthens the process, and sometimes they resent this delay. After-the-fact purchase orders may be a problem if users contact suppliers and make their own purchases. At the executive level, there are battles to justify budget and headcount. There is constant pressure on administrative costs and pressure to reduce purchase spending. It's all about money, and only hard dollar savings count. There may also be discussions about outsourcing purchasing. Administrative functions are prime candidates for outsourcing, and the less applied intelligence that is expected, the easier it is to outsource the job. This type of organization is the least productive and the least fun to work within.

2. Purchasing as a profit center. In a profit-centered organization emphasis shifts from cost to contribution. Instead of focusing on cost savings, a key measure is contribution to profit. Staff know how their commodities affect the price of the product and how cost reductions affect profitability. There is little spot purchasing, except for MRO items. Routine items are planned and contracted with a long view to both cost and availability. There may be efforts to reduce transactions by using auto-release mechanisms rather than purchase orders to schedule deliveries. Staff are hired and educated with a financial analysis perspective. Performance is measured by contribution to profit, not on prompt response to user demand. Workloads are arranged to provide time for market analysis and supplier contracting. The magnitude and results of those efforts are the primary measures of success and promotability. At the executive level, there is less pressure on budgets and more emphasis on profitability. As long as contribution to profit can be demonstrated, there are fewer battles over budget and headcount. This is a more advanced view of purchasing, but still has considerable bureaucracy. 3. Purchasing as a systems designer. This view of purchasing does not stop at receiving, but follows the flow of goods and services all the way through the organization. The job involves working with internal customers to: - define their needs as far forward as they have visibility - create an ideal system for management of the flow of goods or services - select the best supplier (by mutual agreement) - put the contract (with its system) in place - monitor supplier performance and customer satisfaction The primary differences between this view of purchasing and those described earlier can be seen by observing the daily activities of purchasing staff. They issue very few purchase orders. They are rarely in their offices. They spend the majority of their time with their primary internal customers or suppliers. Their focus is partnership with their internal customers to jointly manage the flow of goods and services to meet organizational objectives. In the hiring process, candidates are given the following job description: "Your job is to work with our internal customers to help them design a system and process by which goods and services flow to where they are needed when they are needed in the easiest possible manner. You will take that plan and translate it into a contract with an appropriate supplier, and once it's in place, monitor system performance to make sure that both suppliers and users are happy. You will be measured on both financial and operational results. If you do this job well, it can be very rewarding." Candidates may come from other internal functions or from outside but should be well-versed in all possible options for delivery and flowmanagement systems as well as contracting in general. Ability to work well with others is also critical to this job. Managers of systems-design-focused purchasing organizations allow both time and budgets for travel. Staff are encouraged to get out to where they are needed. The

emphasis is on partnership for successful business results. Success is measured by the business results of their primary user-customers as well as profitability. Cost savings include both hard-dollar savings and soft-dollar savings such as improved productivity. Validation is not a problem when the user community testifies that the improvements are real. Executives operating with this view of purchasing have little problems with their peers who consider them partners in getting their jobs done. No one even thinks about outsourcing this type of organization. The liaison between purchasing and the user functions is too important and too intimate to trust to an outside organization. Also, user functions would not be willing to relinquish their services. 4. Migrating the organization. If you have inherited an organization that is not at the level you envision, there are some specific things that can be done to move an organization toward that vision. - Step 1: Clarify your own vision. Work to develop it until you can see it so clearly that you can describe it to others and they can see it too. It needs sufficient detail that others can see the same picture and see what they will be doing in that picture. - Step 2: Share that vision with others - first in purchasing, then in primary user functions. Sharing is not a one-time event. It often takes people a while to digest the vision and understand it, so keep repeating it. - Step 3: Decide which measurements foster your vision and which are counterproductive. Keep or institute those that foster your vision. Eliminate those that are counterproductive. Changing measurements is one of the most powerful things you can do to foster the changes you want. - Step 4: Provide resources to help people get to where they need to be, such as training in kanban or contracting processes. - Step 5: Reward successes. Celebrate and recognize achievement or even significant effort. Positive recognition and energy builds on itself and provides an example for others. - Step 6: Be patient. Migrating organizations is not done overnight, but there are few things more rewarding than leaving such a legacy.