Toyotas Time to Squeeze Suppliers

Monday, January 4, 2010 at 09:26PM Toyota is making a renewed push to produce cars more efficiently and at lower costs. Per a recent WSJ article the worlds biggest carmaker set a target for suppliers of 30 to 40% in three years. The a program is called RRCI, which stands for Ryohin (quality), Renka (low-price), Costs and Innovation

Much has been written about Toyotas lean manufacturing capabilities. Their ability to partner with suppliers to drive cost reduction and innovation is admired by many. But I have no idea how to provide a broader definition for Renka. An internet search provides no clues.

DEFINING 5 S FOR PROCUREMENT: Mary Walker over at Purchasing.com concisely explains 5S for Manufacturing in her post titled Is 5S Implementation Truly Worth the Effort. 5S, abbreviated from the Japanese words Seiri, Seiton, Seiso, Seiketsu, and Shitsuke, are simple but effective methods to organize the workplace. I thought Id try to answer the question how would a purchasing professional organize their buying categories? After a quick Google search I could not find 5S for purchasing. Here are my thoughts.

1.

Survey gain a deep understanding of internal business needs, external market conditions and supplier capabilities for each buying category

2. 3.

Strategy develop a category sourcing strategy with a cross-functional team approach Selection based upon the strategy, select and contract with the supplier(s) that can meet the organizations needs based upon the sourcing strategy

4.

Solutions constantly challenge suppliers to drive continuous improvement to meet the quality, cost, service and innovation needs

5.

Sustain through relationship management measure, monitor and sustain supplier performance

5S for purchasing doesnt exactly match 5S for manufacturing. For example, the visual tool aspect is missing. It should help manage the procurement process, deliver cost reduction and drive supplier continuous improvement. Id love to hear any comments thoughts from other procurement professionals or lean experts.

PROCURMENT ROLE IN LEAN SUPPLIER MGT.

Industry Week has an interesting interview with lean guru Jim Womack titled "Thought Leaders, Lean on Me". When asked which American Companies are the best at lean; he answered by defining the five key elements of a lean system. 1. 2. 3. 4. 5. Lean Factory Lean Product Development Lean Supplier Management Lean Customer Support Lean Management System

What's of interest is "Lean Supplier Management" element. Lean experts realize that in order to fully leverage the advantages of "lean", manufacturers need to extend the lean principles to their key supplier partners. Lean supplier management has the objectives of eliminating waste, reducing cost and driving continuous improvement based on lean principles. Procurement can provide a significant leadership role as value chain supply managers.

PULLING SUPPLIERS TO LEAN:

How can supplier's be pulled to lean? That's the question that Bob Hawkey and Dave Strothmann answer in a manufacturing business challenge at Industry week. Bob is a Partner at Lean Horizons and Dave is a Industry Principal at SAP. According to Bob Hawkey: Lean can never be imposed on the supply base, but it can be made to operate as a filter in the supplier selection process. The right filter is the request for proposal (RFP), and lean-thinking operations know how to send the right message to the market. Another alternative would be to tier supplier's based upon the importance of the business relationship and pre-defined lean criteria. Tier I suppliers would be candidates for a highly collaborative relationship while tier III would remain transactional suppliers. An interesting approach for evaluating the supplier's during the bid process is provided: Suppliers will be asked to bid on a total-delivered-cost model (TDC), which governs the total acquisition process from creation to usage to disposal. Here is the link to the article in Industry Week.

World competitiveness chart:

This chart may come in handy for LCC work. Comparison of hourly compensation for manufacturing for U.S., China, Canada, Poland, Mexico, Philippines and India.

Procurement leadership: Dos and donts

How should CPOs develop themselves and their teams so that they create respect and trust throughout the business? Spring 2010 By Stephen Wills

Illustration: John Hersey

I believe it is the capability to lead teams and individuals that delivers procurement transformation and results. Being a procurement leader is not a part-time job that you can leave behind at work; your leadership style defines everything that you do. Indeed, many of procurements values overlap with such traits of leadership as integrity, honesty, fairness and transparency. These are my top dos and donts for senior buyers. So, among other things, do put a man on the moon, develop your capabilities and deliver what you promised and dont limit your ambitions, ignore the power of networking events or settle for the quiet life Do Put a man on the moon As a leader, you need a clear vision of where you want to take the function. Articulate what success looks like: this can be done with a road map image that helps everyone to understand how as a team they reach the destination. I use this to enable my team to fully engage with the vision of making procurement into a world-class operation. Build your vision on solid foundations When setting out a vision, use objectives at its foundations. Make sure these are always specific, measurable, achievable, realistic and timely. In addition, because it is important to have frequent and formal reviews to demonstrate your support and commitment to the vision, arrange these in advance at regular intervals with your team. They include developing and measuring each individuals performance. Measure this through agreed objectives, which are designed to stretch employees and assist in delivering key performance indicators around your overall vision. These agreed objectives, which are then driven by yourself and your employees, should include: high savings delivery per buyer; high compliance with the process; full coverage in all areas of spend; improved new savings each year. Be a business function When you are CPO, it is important to develop strong stakeholder engagement across the business. By building these relationships, you ensure that full spend is under procurements influence in order to deliver results. In my case, I ensure that procurements objectives are fully aligned to the business objectives so my team understand how they make a difference. This helps to keep them motivated and provides high engagement from the business. In this economic climate, generating in-year savings is our highest priority. This also helps the business with its reinvestment plans and improving margins on competitive product lines. Develop your capabilities As well as setting stretching objectives, your role includes providing a personal development plan (PDP) to each of your employees that agrees the areas where they need to improve. An effective PDP is built on constructive feedback, so encourage 360-degree feedback from the business, including your customers and key stakeholders. This is a powerful tool: the more open the feedback is, the more effective you are as a leader.

In my experience, personal development is crucial for procurement staff to advance beyond their core expertise and develop their soft and business skills, making them more commercially aware. This is then matched with appropriate training and coaching courses. This is essential when you approach new areas of the business and need to demonstrate that procurement understands how that business area operates. Always deliver on your promises It is very easy to overcommit and then not deliver on those targets. If you are going to be effective in delivering your vision and objectives, you must be consistent and seen within the business as trustworthy. Being reliable is a basic leadership trait but it can differentiate you from others. Reliability also opens doors into more areas of the business. Communicate In many businesses, procurement staff are the unsung heroes. So at Axa, they know what is happening and where procurement is going. This keeps everyone informed from a business, procurement and personal perspective. I do this by publishing procurements achievements and marketing what my team has done. Among other things, this includes new savings and protecting the business from risk. Building an awareness of your teams achievements also creates motivation and engagement from the business. Provide recognition It can be hard to attract talented people into procurement, so once you have recruited capable people you must do everything to retain them. In addition to the hygiene factors (which reduce motivation if theyre absent, such as working conditions or job security), provide powerful recognition tools to motivate and retain employees. For example, a talent programme, mentoring and awards for achievements form a suite of motivational tools that I can use to great effect. For a job well done, it is difficult to say thank you too often. Lead from the front Adopt a visible and high-profile leadership style, which sets the tone for how you expect your team to behave and what you consider to be acceptable values and behaviours. I dont limit this to Axa but take it to the wider profession at public speaking engagements. As I also sit on the management board of The Chartered Institute of Purchasing & Supply, with responsibility for education, I see points of comparison between my business role and my role in the institute, because my vision includes transforming our profession to make it relevant within the business. I also appoint business partners as role models in my team to champion my leadership style within the business. This all helps to build your profile. Someone recently referred to me as a character of the profession! I am not completely sure if this was complimentary but it means I have visibility. Trust your people For procurement to deliver what you intend it to, you have to trust the people in your team and empower them. In addition to agreed objectives and a capability improvement programme, you also have to allow people to make mistakes without the risk of criticism, which can be a challenge.

Its worth repeating that people need to know what is acceptable and allowed. Having trust in your team is paramount to leading a successful function. This brings additional business benefits because procurement becomes a commercial function, delivering revenue as well as cost savings. Broaden your expertise When working cross-functionally, your team must have a broader expertise than simply being procurement experts. This broader capability helps to find points of entry into the business. Dont Overpromise Procurement is still maturing and gaining awareness, so it needs ambassadors. As you want people in business to trust your team, be careful not to overpromise as this would reduce their trust in us. Overreact Procurement faces many challenges and frustrations. One of the most common is the business failing to comply with the preferred suppliers that are approved by procurement. The familiar comment that we have chosen a new vendor but we just need procurement to sign the contract springs to mind. In that kind of situation, stop and count to 10 before responding because people may read more into your reaction than you intend. Instead, respond with facts rather than emotions. That will help to get your point across without clouding the issue. Limit your ambitions No one likes doing the routine aspects of their job but they are the foundations of what procurement does. But the CPO is also a change agent. Procurement provides the business with a competitive advantage so raise your ambitions beyond business as usual to make the function become more business relevant. Miss an opportunity When you are in front of the board or a stakeholder, it can sometimes be under difficult circumstances. However, you want senior management to know about procurement so you should still see that sort of situation as an opportunity to sell the value of procurement. Spread yourself too thinly Focus on the big priorities and dont try to think about everything. Your key objectives and priorities need your full commitment so thinking anything less than that is good enough is not being a leader. This consistency of focus is something to instil by example in your team. If procurement is going to be recognised in the business as a partner, then the quality of our contribution must be high. Wish for a quiet life Not every one understands procurements contribution to the business. As a leader you should be evangelical about procurement and what we do. Our profession is also constantly evolving. Problems are the new challenges for procurement leaders and I see this as a chance for all of us to establish the function within the business. So if youre looking for a quiet life, then you may need to think about joining another function.

Ignore the power of networking events You should be ethical and selective about the networking events that you attend. However, it is worth remembering that however strong your policies and process are, business is being discussed at these events and they can provide a rich network of advice and ideas. Ignore talent Have succession plans in place and bring new talent through your team not least because you should enjoy developing talent and realising peoples full potential. In helping people to achieve their potential, you cant spend time looking over your shoulder to see whether someone wants your job. As a leader, you need rising talent in your team to help procurement to progress and to convince the business that your function can continue if you move on. Miss your key results Always deliver the priorities while pushing your function towards world class. Your business is relying on you to hit the targets that you, as the CPO, said you would. How procurement delivers the results is as important as the results themselves. Be arrogant Be confident but being overconfident tips easily into arrogance, so humility is always the preferred style as a leader. Be fully committed to developing your leadership capabilities and to your team. Without them, you will never manage to deliver your strategy and vision.