Enterprise Supply management

Summary

This program explores the strategic importance of procurement in businesses like Honda, emphasizing the need for Chief Procurement Officers (CPOs) to focus on board-level strategy and execution. It discusses the role of suppliers in cost reduction, the value of ethical relationships, and the impact of strategic sourcing on supply chain management. The speaker highlights the potential for CPOs to significantly increase profitability through effective procurement strategies.

Takeaways

• 🚗 Purchasing is a critical function for companies like Honda, where 80% of the product cost is purchased and only 20% is value-added in-house.
• 📉 In a crisis, such as the one faced by Honda with the yen-dollar relationship, drastic measures like reducing costs by 30% can lead to innovative solutions and significant savings.
• 🤝 Suppliers can be allies during tough times, offering renegotiated payment terms and discounts to support their partners, rather than increasing their risk exposure.
• 💡 Suppliers often have valuable insights to offer, as they benchmark many customers and can provide comparative data to improve processes and services.
• 🛠 Strategic sourcing is more than just cost reduction; it's about understanding the total value, including quality, delivery, and the ability to innovate.
• 🔮 Predictive monitoring and proactive management are essential in supply chain to prevent issues like the failure to deliver due to a supplier's bankruptcy.
• 🌐 As companies become less vertically integrated, their reliance on third-party suppliers grows, emphasizing the importance of supply management and coordination.
• 🤔 Strategic sourcing involves understanding not just who to buy from, but also how to monitor and manage supplier performance for ongoing value creation.
• 💼 The role of Chief Procurement Officers (CPOs) has evolved from managing purchase orders to strategic board-level strategy and execution.
• 🏢 Centralization of procurement can be highly effective when managed correctly, leveraging company-wide assets and supplier relationships for competitive advantage.
• 📈 The potential for cost savings and increased profitability in supply management is significant, with the right strategies a CPO can substantially impact a company's bottom line.

Q & A

What is the significance of purchasing in a company like Honda?

Purchasing is crucial to Honda because 80 percent of the cost of the products they produce is purchased, with only 20 percent value added in-house. This makes purchasing a key driver of the company's overall cost structure.

How did the crisis in the dollar relationship impact Honda's approach to cost management?

The crisis, which threatened Honda's financial stability, prompted the company to make a strategic decision to reduce costs by 30% in the next car model under development, demonstrating the critical role of cost management during financial crises.

What was the outcome of Honda's initiative to cut costs by 30% in the 98 Accord's purchase parts?

The initiative resulted in over 800 ideas from suppliers, of which more than 400 were adopted, leading to a 26.8% reduction in costs compared to the 94-97 Accord models, showcasing the power of collaboration during a crisis.

How did suppliers react to the crisis at Honda, and what actions did they take?

Surprisingly, suppliers offered to renegotiate payment terms and provide discounts to support Honda during the crisis, demonstrating loyalty and a willingness to adapt to help the company weather the financial storm.

What is the role of Chief Procurement Officers (CPOs) in today's business environment?

CPOs are now responsible for board-level strategy and execution, moving beyond just purchase orders to play a pivotal role in the overall strategic direction and success of a company.

Why is strategic sourcing considered a critical component of supply management?

Strategic sourcing is where the selection of suppliers and long-term relationships begin. It sets the foundation for ongoing supply management, including performance management and driving value into the supply chain strategy.

What is the importance of aligning suppliers with a company's business objectives?

Alignment ensures that suppliers are not just procured but are working in sync with the company's goals, leading to better service, innovation, and competitive advantage in the market.

How can a company ensure that its procurement function is aligned with its overall business strategy?

By integrating procurement into the senior management team's decisions, setting clear goals, and using the company's scale to leverage commodities and supplier relationships to their fullest potential.

What is the potential impact of strategic sourcing on a company's profitability?

When done correctly, strategic sourcing can lead to significant cost savings, potentially doubling the profitability of a company by reducing expenses and improving efficiency.

Why is it essential for a CPO to have the support of the CEO and senior management?

The support of senior management, especially the CEO, is crucial for the success of procurement initiatives as it helps overcome resistance to change, ensures alignment with company goals, and provides the necessary resources and authority to implement strategic sourcing effectively.

What is the role of technology in the future of supply chain management?

While technology is important, it is not the sole focus of supply chain management. The future is more about business processes, change management, communication, and coordination, as well as leveraging both the company's and the market's assets to create better products and solutions for customers.

Outlines

00:00

🚘 The Transformation of Procurement in the Automotive Industry

This paragraph discusses the evolution of procurement from a transactional function to a strategic board-level activity, particularly within Honda. It highlights the significance of purchasing in the cost structure of a product, as illustrated by the 80% purchased cost versus 20% in-house value addition for Honda. The narrative recounts a crisis situation in the 1990s that led to a strategic decision to cut costs drastically, which was achieved through collaboration with suppliers. The suppliers not only adapted to the crisis but also provided innovative cost-saving ideas, resulting in a significant reduction in the cost of the 98 Accord model. The story emphasizes the importance of supplier relationships and the strategic role of procurement in business survival and success.

05:00

🤝 The Strategic Importance of Supplier Relationships

The second paragraph emphasizes the value of supplier relationships beyond mere transactions, focusing on the strategic insights suppliers can offer due to their dealings with multiple customers. It discusses the importance of ethical and integral dealings, even when not in a formal partnership or strategic alliance. The speaker shares personal experiences from a conference that highlighted the traditional, often flawed, approaches to supplier relationships. Strategic sourcing is identified as a critical component of supply management, with suppliers often accounting for a significant portion of a company's total cost base. The paragraph concludes by stressing the importance of understanding total value, including quality and delivery, not just price, in the procurement process.

10:02

💡 Supplier Innovation and the Holistic View of Sourcing

This paragraph delves into the strategic approach to sourcing, where the focus is not solely on cost reduction but also on the value that suppliers can bring to a company. It discusses the importance of understanding the capabilities of various suppliers and aligning them with the company's business objectives. The speaker argues against the simplistic use of auctions based solely on price, advocating instead for a more nuanced understanding of the quality, delivery, and technological aspects of the products or services being procured. The paragraph also touches on the importance of having the right incentives and synergies within the company to work effectively with suppliers and the role of the Chief Procurement Officer (CPO) in this process.

15:03

🛠 The Role of the CPO and the Evolution of Procurement

The fourth paragraph discusses the evolving role of the Chief Procurement Officer (CPO) and the importance of procurement in a company's overall strategy. It emphasizes the need for CPOs to have the support of the CEO and to be part of the senior management team due to the significant impact procurement has on a company's profitability. The speaker shares insights on the importance of centralized procurement and the potential pitfalls of decentralization, advocating for a 'center-led' approach that leverages the company's collective strength in procurement. The paragraph concludes with a cautionary tale about the dangers of failed procurement initiatives and the importance of having the right goals and support from the top management.

20:05

📈 Strategic Sourcing and the Pursuit of Cost Efficiency

In this paragraph, the focus is on the strategic approach to sourcing and the pursuit of cost efficiency. The speaker shares a personal account of presenting a strategic sourcing program to senior executives, outlining the potential for significant cost savings and the transformational impact it could have on the company's profitability. The paragraph discusses the importance of setting clear goals, the challenges of achieving savings over consecutive years, and the need for continuous improvement and innovation in procurement strategies. It also touches on the broader implications of procurement decisions for the company's overall performance and the importance of educating senior management about the strategic value of supply management.

25:07

🌐 The Opportunity and Impact of Effective Supply Management

The final paragraph underscores the vast opportunity that effective supply management presents, particularly for manufacturing companies in the United States. It discusses the untapped potential for cost savings through strategic sourcing and the significant impact that a skilled Chief Procurement Officer (CPO) can have on a company's profitability. The speaker argues that with the right strategies, a CPO can easily save a substantial percentage of the company's costs year over year, effectively doubling the company's profitability. The paragraph concludes by emphasizing the importance of best practices in procurement and the role of the CPO in educating and enabling their teams to achieve these goals.

Keywords

💡Supply Management

Supply Management is the process of overseeing the supply chain, including sourcing, procurement, and logistics. It is integral to the video's theme as it discusses the critical role of supply management in reducing costs and improving efficiency within a company. The script mentions Perfect Commerce as an industry leader in enterprise Supply Management, highlighting the importance of this function in today's business environment.

💡Chief Procurement Officers (CPOs)

CPOs are executive-level professionals responsible for a company's procurement strategies and processes. The video emphasizes the evolution of the CPO role from managing purchase orders to being involved in board-level strategy and execution. The script recounts a story of a CPO at Honda who had to lead a cost-cutting initiative during a crisis, demonstrating the impact of CPOs on company performance.

💡Strategic Sourcing

Strategic Sourcing is the method of selecting suppliers and managing the supply base to ensure the best value for the company. It is a key concept in the script, where it is described as the starting point for Supply Management. The video discusses how strategic sourcing involves more than just cost reduction, focusing on total value, including quality, delivery, and innovation from suppliers.

💡Cost Reduction

Cost Reduction is the act of decreasing expenses to improve profitability. The script uses the term in the context of a crisis at Honda, where a decision was made to cut 30% of the cost from the next car model. The video illustrates how cost reduction can lead to significant savings and competitive advantage, with the 98 Accord's cost dropping by 26.8% compared to previous models.

💡Value Added

Value Added refers to the creation of additional worth or utility in a product or service. In the script, it is mentioned that only 20% of the cost of a Honda product is value added in-house, with 80% being purchased, emphasizing the importance of purchasing and supply management in the overall value creation process.

💡Supplier Relationships

Supplier Relationships are the connections and interactions between a company and its suppliers. The video discusses the importance of ethical and integral dealings with suppliers, moving beyond the traditional approach of either complete control or trust. The script provides an example of suppliers offering renegotiated payment terms and discounts during a crisis, showcasing strong supplier relationships.

💡Vertical Integration

Vertical Integration is a business strategy where a company owns and controls several stages of the supply chain. The script mentions that companies are becoming less vertically integrated, increasing their reliance on third-party sources for supply or services. This shift underscores the growing importance of supply management and strategic sourcing.

💡Outsourcing

Outsourcing is the practice of contracting work to external entities rather than performing it in-house. The video mentions that critical functions are now outsourced to third parties, which increases a company's dependence on external suppliers. Effective Supply Management becomes crucial to ensure the success of these outsourced functions.

💡Benchmarking

Benchmarking is the process of comparing one's business processes or products to industry leaders or best practices. In the script, it is noted that suppliers can benchmark many customers, providing valuable insights to a company on how to improve its processes or services, which is an essential aspect of strategic sourcing.

💡Total Cost of Ownership (TCO)

TCO is a financial estimate of the total costs related to the purchase of a product or service. The script discusses the importance of considering more than just the purchase price, such as delivery performance and inventory, to understand the true cost of ownership. This concept is central to strategic sourcing and supply management decisions.

💡Crisis Management

Crisis Management refers to the process of handling and resolving critical situations that threaten the business. The video uses the example of the dollar relationship crisis faced by Honda, which led to a strategic decision to cut costs. This keyword is significant as it shows how companies can leverage crises to drive significant change and improvements.

Highlights

Perfect Commerce is the industry leader in enterprise Supply Management.

Chief Procurement Officers (CPOs) are now involved in board-level strategy and execution.

Honda's cost of product is 80% purchased and 20% value added in-house.

A crisis in the dollar relationship in 1995 led Honda to take 30% of the cost out of the next car in development.

Suppliers contributed over 800 ideas, leading to a 26.8% cost reduction in the 98 Accord.

In times of crisis, suppliers offered to renegotiate payment terms and provided discounts, showing unexpected support.

Companies are becoming less vertically integrated, increasing dependence on third-party suppliers.

Suppliers offer benchmarking capabilities, allowing companies to learn and improve processes.

Ethical behavior and integrity are crucial in supplier relationships, even outside of strategic alliances.

Strategic sourcing and Supply Management are key to managing costs and ensuring supply chain success.

Predictive monitoring of suppliers is essential to avoid disruptions in supply chains.

Strategic sourcing involves selecting suppliers, managing long-term relationships, and negotiating value.

Trust in supplier relationships must be built gradually and not rely solely on control or trust.

Supply Management is not just about technology but also about business processes, change management, and communication.

Aligning suppliers with company goals and leveraging relationships can drive significant cost savings and value.

Transcripts

this program was made possible by a

grant from perfect commerce the industry

leader in enterprise Supply Management

ndn be the leading provider of global

business information and technology

solutions and working at Honda and

understanding the value of importance of

purchasing to a company like Honda in

talking to in talking to their chairman

he would say ever how it goes purchasing

goes Honda and the reason for that is is

because the cost of the product Honda

produces is 80 percent purchased twenty

percent value added in-house and so it

doesn't take a genius to figure out that

ever how it goes Percy goes hunt

this program is about cpos chief

procurement officers

last century their job was about

purchase orders this entry it's about

board level strategy and execution

it started doing a period when there was

crisis and crisis's are wonderful things

to make great things occur and the

crisis was the in dollar relationship

sliding to the point where Honda was

even counting the months before it would

go broke if the slide continued as they

thought it might so in that crisis a

decision was made when I was at the

meeting where we should take 30% of the

cost out of the next car that's that's

in the development stage this was about

1995 and so I thought that was crazy

because I thought we already were buying

in a very lean fashion but nevertheless

two three weeks later I was in front of

a meeting of all of our suppliers

explaining the crisis and how we needed

to work together to take 30% out of the

cost of the 98 accord incoming purchase

parts and the most amazing thing

happened during the course of next two

or three weeks and that is that the

suppliers came in with ideas more than

800 ideas of which more than 400 were

adopted and in the end the cost of the

98 accord compared to the 94 to 97

Accord dropped by 26.8%

it's just extraordinary we were

threatened with bankruptcy a threat that

was so real it was talked about on the

evening news every night for months you

can imagine that a supplier would be

threatened by exposure to payables and

all of the kind of continued business

and and whether or not we were going to

be able to pay our bills so the typical

reaction in those cases is for suppliers

to do things like advance payment cash

on delivery for providing materials and

in many instances simply refusing to

supply material so as to not incur any

more exposure in terms of their risk and

our our response from suppliers was very

different

we actually have suppliers come to us

and offer to renegotiate payment terms

and give us discounts as a utility it

was a unexpected totally impossible to

imagine event but these suppliers stayed

with us without a doubt they didn't ask

for special protections of any kind they

simply went to bat allowing us to

continue to supply our customers with

electricity under adverse circumstances

and otherwise to get word out to

decision-makers this was a critical

function in California and we were doing

it well

in today's world more and more companies

are becoming less and less vertically

integrated as a result that their

dependence upon third-party sources of

supply or services is growing and

critical functions are now outsourced to

third parties if we don't have the total

cooperation of the expertise the subject

matter expertise within the company to

assure the success of that supplier we

cannot assure the success of our company

because our customers in many cases only

touch our company through our suppliers

suppliers have the advantage of

benchmarking many many customers we're

only one they have the ability to tell

us not only how we do it but how Joe

does it down the street good or bad and

what's the ways which we can learn from

not only in the way we do it but the way

all their other customers interact with

them so it's another way of sharing this

process knowledge and the and the people

are successful are the ones who take

hold of it and use it and execute

against it you know we're tough in

negotiation but once the negotiation

part is out of the way you have a true

relationship and you know the term

partnership and strategic alliances is

an overused term there's very few of

those that that typically companies have

but even in the dealings that you have

with suppliers that are not of that

nature you still want to be ethical you

still want to have integrity and you

still want people to enjoy doing

business with you and they feel

motivated to service the Hilton account

as well it's not better than any other

account that they have I went to a

conference and I was trying to get up to

speed on what traditional procurement

meant and exactly sort of understand the

practice and a fellow at this conference

described the way that companies

traditionally approach their supplier

relationships was comparable to someone

going up to a pretty woman in a bar and

saying will you marry me we tended to

either be completely controlling or

completely trusting and that that wasn't

the nature of trust that trust had to be

built

strategic sourcing is a vastly important

part of it because our suppliers are 50%

of our total cost base and in some

businesses 7 year 80 or 90% that's not

unusual

and so they represent the biggest part

of not only the cost but the capability

to deliver those goods and services to

our customers so there's predictive

monitoring and predictive capabilities

out there that people aren't even

looking at perfect example and these are

real real life was major aircraft supply

or a provider couldn't deliver the

aircraft because their ashtray company

went out of business true

major bus company couldn't deliver the

buses their bumper manufacturer went out

of business right so it's it's really as

I said it's about information and when

you look at what do you need to do it's

not just sourcing because sourcing just

says who do I want to pick it's also

about Supply Management what do I need

to monitor about these guys so that I

don't end up with a bunch of buses that

I can't revenue because they'll have

bumpers we look at strategic sourcing as

the springboard for Supply Management

Supply Management is a huge area there's

a lot of processes

there's front-end planning and

forecasting there's back-end supplier

management and score carding strategic

sourcing is where it all starts it's

where you select suppliers it's where

you enter into long term relationships

you manage the performance of that

supply base and then on an ongoing basis

you're negotiating to drive value into

your Supply Management and into your

supply chain strategy do they understand

what they're buying

who the buying from who they're buying

it for how much does spending across the

corporation on a global basis and I have

they realize that rationalize that and

determine who are the best suppliers

strategic sourcing I think the

fundamental question we're talking about

is what are we really trying to achieve

through strategic sourcing and if it

were all about cost reduction

price transparency and low bidder

approach will achieve that what we are

trying to achieve is a view that

understands price and total value if you

will in terms of the things that are

important to us and to our customers

someone not that long ago furnished

tainted beef that killed several people

well isn't that a supply issue and a

supply management issue it's just that

simple the the complexities aren't just

price its quality its delivery it's it's

fit

it's a supplier who looks ahead and in

brings to you ideas to make your process

or your service better or your process

simpler to help you develop new product

to help you be Prost's competitive so so

prices is indeed an important factor and

it always will be an important factor

but it's not necessarily the key factor

by any stretch of the imagination in

some cases

we're very upfront about saying these

are our goals in this area our goals are

taking our total cost down which may

mean the price of the product may mean

delivery performance it may mean

inventory but whatever that that that

equation is it's about taking the total

cost down and as long as you're on the

same road as we are have the same goals

about being the most productive in that

area we're okay but it is going to be a

very frank direct and sometimes

unpleasant conversation now in other

cases we have we have suppliers where

cost has nothing to do with it it is

about what value they're providing to us

that that we can then uniquely transform

into something for our customers I think

we've taken a very strategic view and a

holistic view of sourcing now that's not

to say there aren't some components you

know rope soap and dope nuts and bolts

that cost is everything and the quality

differential isn't that huge but when

you start talking about complex services

and specialty chemicals and things like

that you know there is a huge cost

quality trade-off and you have to get

that trade-off right so it's not just

beating down and picking the 14 cents

over the 15 it's really understanding

capabilities that the various

contractors and suppliers have and how

do we get them not just procured but get

them aligned with our business it's that

you know they're working with us and

their incentives are the same

dinners that we have I think that

there's nothing that's that a company

buys that I can think of where only

price is important I think in everything

we buy whether it's a material or

service whether it's a production

component or a non production tool that

we're going to use within our company

there's a price quality delivery

technology issued everything so the

purist use of auctions where everything

is judged by only price and the lowest

bidder gets the business no matter what

I think are terrible

I think what you need is alignment you

know if purchasing would just operate in

isolation then you know the the the

sense of belonging on the other side if

you're an operator they would see a

Cheeto need us you know you know the

people in person don't even talk to us

but what we do is we try to bring the

operators and our purchasing folks

together from the outset bring in the

supplier and and go through an RFP and

then really with I think the

relationship starts I think it's really

the ability and the synergies that you

get from working with the other

functions in a company marketing

manufacturing finance qualities so forth

is really this analogous to how you work

with suppliers it's just a matter of

listening and a matter of articulating

your point of view and getting together

a meeting of the minds if you are doing

things only for your departments point

of view you're probably doing things

wrong companies have made huge

investments in technology and now

they're trying to figure out how to get

the return and supply chain management

of future is just not about technology I

think some people are putting a lot of

emphasis on that it's more about

business process it's about change

management

it's about communications it's about

coordination it's about taking the total

assets of a company whether they be

physical or intellectual and merging and

we're the best they can find physical or

intellectual assets in the marketplace

to create even better products and

solutions for the ultimate customer we

have a number of people that are in sort

of strategic procurement jobs in the

company but I would say their job has

evolved more into helping put together

tools and standards such that you know

we can have many people in the line

accountable for their own procurement

because they're closest to where the

work is and if you get an example that

one of the things that we found doesn't

work so well is if you empower a

drilling crew or a drilling team to go

out and drill me a well in a mile of

water and do it safely and do it you

know in in world-record time you know if

I if that person doesn't feel like he

has he has the accountability but not

the ability to really impact putting the

team's together putting the sourcing

plan together then we're not going to

get a good solution so the key is I want

that person whether he's a rig

contractor I mean a rig Foreman or a

field Foreman to ultimately feel like

he's the CTO of his operation

now I want him to be the CPO taking

advantage of my company's scale so I

want him to understand what the

standards are so you know this guy's not

gonna buy chemical X from Nalco

this guy's not gonna get buy the same

chemical X from vets and they're gonna

be a $20 you know a ton day we don't

want that but I want that person to be

accountable and feel like he is that CPO

at his operation but he has to use the

corporation standards

and importantly he has to have tools to

do things better than he did in the past

if you can synchronize your suppliers

factories with yours and then your

customers I mean you have an advantage

that's going to be very difficult to

compete with Dell is a good example of

that in terms of the build order process

what they put in for personal computers

so my view I asked bill certainly we

want to be worried about price we want

to do all we can to advantage ourselves

a price but at the same time we want to

have we want to get a supply base that

it's responsive to us in terms of our

being able to get a supply chain that

makes our working capital more efficient

that gives us the flexibility and the

adaptability to deal with quick changes

in the environment take September 11th

for an example and when we do that well

we just have a competitive advantage

with the level of outsourcing with the

intricacies of supply networks it's not

just my company versus another company

it's my company my customers my

suppliers and other partners versus

their company their customers and their

suppliers and I need to do that in a

better way and that's what I mean by

supply chain and competition of with

supply chain

without a CEO support I would not expect

any CP o to be successful or his his or

her function to be successful you cannot

do this on your own this has to be a

company mindset that we are going to use

the value that's potentially derived

from the supply chain and that has to be

demonstrated and voiced by the senior

management of the company I believe that

every CPO should be in the boardroom a

member of the top management's team and

the company and the reason is is because

most of manufacturing companies purchase

50% of their total revenue and looked at

another way of the cost of the products

they produce purchase 70 or 75% of that

cost as an average 30 years ago that was

only 20 25 percent therefore there's

been a big shift and the importance of

Supply Management and a lot of folks

even in senior management doesn't yet

realize that it's the CPO who knows how

to block and tackle who who understands

the strategy of moving down the field

and the CEO who understands the role of

supporting that and in dealing with the

people who are going to fight it yeah

you would think in a corporation that no

matter where you were if somebody came

along and could take costs out of the

system thus improving the profitability

of the overall corporation that would be

a good thing you would be naive there

are Wars when one tries to centralize

Supply Management for example and and

take control away from business unit

managers and the CEO is the only one who

has both the carrot and the stick to

make that change this EPO doesn't and so

they are clearly a team and where you

see it working it's because of that team

you have to almost do it by

a Fiat to begin with it becomes an

operating mechanism that works

harmoniously over time and in this

company now I think bill would be the

first to tell that's not an issue that's

the way it works and people have been

the beneficiary of it and we don't have

any trouble making sure that it stays in

place so I don't want them to get

fixated on one thing I want them have a

broad mandate of what he's to do I want

it I want him to set goals in each of

one of those areas which he does and so

seriously it's a it's a crucial role in

though in the corporation that's why it

reports to me

we had a real bad experience with the

well so we might have been saving 10% on

this contract 5% on this contract we

have this chemical for 5% cheaper and

the well ended up taking three times as

long as it should have to drill so the

well took twenty four million dollars

versus eight and then is that is the

real disaster there the 16 million no

the real disaster is those guys out in

the field that really didn't ever want

to change all of a sudden had a great

story to tell everybody in the

organization why this central purchasing

was a fiasco right because it made for

great sound like yeah well you know they

saved a thousand dollars on that

chemical and it cost the company 16

million on the well and so my disaster

was that type of thing and again it

wasn't the 16 million it was the huge

emotional and Nursia that was created as

a blockade for for further change and

that you know that that cost us time and

I think that that is by the way that

that's the biggest danger I think to

fledgling strategic purchasing and

procurement initiatives if they're done

wrong they've they become incredibly

powerful fodder for the change resistant

people to spread their gospel and their

gospel is look what this idiot from

central purchasing did inside of many

companies of course are pullings and

tugging is in every direction by

different leadership pushing for their

particular interest what they believe is

right in a company and these often

result with the chief purchasing officer

coming out on the bottom of that

because so often he's not necessarily a

part of that senior team and his

interests sometimes get set aside just a

little bit and there's in many American

companies in particular a large there

there's a large emphasis on

decentralization and decentralization is

okay managed well and in these companies

the word centralization is almost like a

nasty word but I don't think a company

has to be centralized because it has its

own set of problems as well but

companies need to be Center led to where

they're able to leverage each of the

commodities they buy to the fullest

extent and leverage the relationships

with their suppliers to a hundred

percent and those happen in centered

lead companies if I were a CEO and I was

only going to centralize one function in

my company I would centralized

procurement and I would anoint them with

the honor and the privilege and

responsibility of being a leader in

making all the procurement decisions for

all the different products and

geographies and divisions in the company

and I think that that's very best for

Karen I don't think there's a second

best kind of a procurement company and I

would advise people frankly candidly who

were in in companies where that's not

understood and where they're not

anointed as a leader in making

procurement decisions

I'd suggest they get a job in a

different company

the stakes are very high in strategic

sourcing it is in my view one of the

most benign sources of new shareholder

value that has traditionally been

overlooked by a more typical view of a

purchasing function it was in a ten

minute presentation to our senior

executive team that I made the case for

a strategic sourcing program and the

support that would be needed to

introduce this level of change across

the entire company and I did it by

staking out ground and saying in three

years I believe we can deliver two

hundred million dollars in cost savings

strategic sourcing brought us

extraordinary benefits the bottom line

benefit half 1 billion dollars five

hundred million dollars over six years

is striking and it's way beyond what I

think any of us really imagined at the

beginning of this process and that five

hundred million dollars is it's real

it's it's against a very disciplined

process to evaluate the program and the

true cost savings from my judgement

approximately eighty five percent of the

companies particularly manufacturing

companies in the United States have this

great enormous opportunity and it's

currently untapped and this change that

has occurred has not really taken effect

and so a chief purchasing officer if he

puts in the correct strategies can

easily save three percent per year net

of all the all price increases on those

products that he purchases if he does

this for six years in a row and he can

do this simple as falling off a log

he doubles the profitability of the

company and this is this therefore is

the enormous opportunity that the chief

purchasing officer has in a company if

he steps up to the plate when you go

through this best practice and you say

is that important that's

do you do that now is this important

absolutely do you do that now by the

time they get to the end it's

self-evident you don't need to tell

anybody you know because they're there

to do their job they're there to enable

their people they're there because they

have a goal and most of these goals are

pretty tough when you're talking about

and it's not uncommon for us to see 200

to 300 million dollars worth of savings

a year as a target these people are

looking for help you might be able to do

it once based on low-hanging fruit the

second time gets harder and the third

time gets harder and somehow people just

don't say wow you gave me that money

back last year thanks a lot you don't

have to do it next year every management

wants to do the right thing they really

do and if they don't understand the

contribution that Supply Management can

make to their organization that's the

definition of ignorance and so many of

them have over the years such little

knowledge about Supply Management and

the contribution that they can bring and

therefore they just don't know so one of

the things that CPO can do to help his

company and to help his CEO is help

educate them in every way possible

sometimes just little bits at a time but

over time that builds up into a real

strategy where the CEO will adopt it

their own way

this program was made possible by a

grant from perfect commerce the industry

leader in enterprise Supply Management

ndn be the leading provider of global

business information and technology

solutions

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