Dick Locke On The Yin-Yang of the Business Universe
Editor's Note: This is Dick Locke's first post as a regular contributor on Sourcing Innovation. (His previous guest posts are still archived.) Dick, who has delivered seminars to over 100 companies across the globe, is a seasoned expert on International Sourcing and Procurement who wrote the book.
Steven Guth proposes that "Procurement pros should be in sales". He implies, but never quite says, that procurement pros should have sales skills. That's right on. I've been there, done that and even got a tee-shirt. Sales skills are essential, especially if you are in a corporate central group that is outside of any profit centers.
Here's the situation. I won't mention the company name, but I hope people will figure out who it is. They had a Corporate Procurement group of which I was a part. I received an assignment to start up International Purchasing Offices (IPOs) in Asia back in the mid 1980s. Funding those offices quickly became an issue. It had been an issue all along for the Corporate Procurement Group, with big annual negotiations and discussions about how much each profit center would pay to fund the corporate group. Now we wanted to add more people and expense for an unproven new function. They might as well have painted a big target on our backs.
The funding solution we came up with was that we had to generate our own funding and using us had to be voluntary. That meant we had to charge our users a fee and that we were in competition with two other groups. One was reps and subsidiaries of (largely) Japanese and European companies who had set up a sales subsidiary structure in the US. The second group was our own company's buyers and purchasing managers in profit centers who felt they could source, purchase from, and manage overseas suppliers themselves.
We realized we had to not only charge less than what sales subsidiaries charged but also less than our profit centers felt it would cost to do it themselves. We came up with essentially a sliding scale of markups on purchase orders. Small users might pay as much as 5%. Large users might pay less than half a percent.
I'm glad to say it worked. The operation was handling more than a half-billion dollars per year in orders when I left. That's not to say there weren't, err, "learning experiences." One of our big issues is that we had selected employees for their purchasing and engineering skills, and not for their marketing skills. It required a tune up for several of our people, not excluding me. It took about three years to become fully self funded. If we had avoided some mistakes we could have shaved about a year off that time.
It had some very pleasant side effects. We essentially were running a small business within a big corporation. Our people got lean, entrepreneurial and very customer-oriented. We quickly developed an antipathy to bureaucracy. We became really efficient. It also took us out of the annual budget battle and the annual exercise to calculate what we were saving. (I refer to that as "lies, damn lies, and purchasing statisitics.") We merely had to state that we received x number of purchase orders per day from people who didn't have to use us and were paying us for our services. That kept management happy nearly all the time.
Where is this model applicable? In companies where there is a lot of independence on the part of profit centers, a center-led purchasing effort, issues with funding the central department and finally where an internal department can develop and market an advantage over their competitors. Check it out, it may be right for you.
Welcome to Sourcing Innovation, Dick.