A few years ago I wrote a column entitled Everyone’s Got to Eat. It generated the highest level and most intense of any of article feedback over the years. Readers on the supplier side opined that it captured the essence of how suppliers feel when they are treated by many of their customers today. OEM supply management feedback was along the lines of, “I know, but I feel trapped in operating by my performance metrics and my company’s culture.”
This column will pick out and build on selected points from that column.
I took my first purchasing job in 1988 as a procurement engineer (translation: technical buyer) of hydraulic components. One of the responsibilities of that job was to negotiate pricing on newly designed and/or revised parts and components. Although I had a mechanical engineering degree with experience in design, reliability and quality, I was ill-equipped to do this, so my employer sent me to one of those “two-day wonder” negotiating seminars. You know the type, the ones that tout things like, “You don’t get what you deserve—you get what you negotiate.”
Anyway, after attending the training I felt I was ready to rock. Luckily for me, one of my first negotiations was with the owner of a cylinder company who had been around the block at least a few times with “young bucks” like me. When we had finally arrived at what looked to be a fair agreement, I pulled the “ask for one more thing strategy” and said, “We are going to need something more to finalize this deal.”
He sighed, looked me straight in the eyes, and said, “Paul, you know everyone’s got to eat.”
Well, my negotiating training hadn’t prepared me for such a fundamental truth and, after a moment of contemplation, I replied, “You’re right” and shook his hand on the deal. After that experience, I came to the understanding that even after — perhaps especially after — my two days of negotiating training, I was still ill-equipped to successfully conduct collaborative business negotiations. That capability, by the way, came to me only through years of further learning and experience — not some “silver bullet” training seminar.
My January 15 article posed the question of whether corporations can be ethical with today’s business practices. The above example brought that question to me in a real manner. Specifically, I know that those up the line in purchasing would have wanted me to hold out for that “something extra.” Why? Because this is what my performance metrics were based on in spite of our corporation touting a company culture of integrity.
This company I had been negotiating with had a long-term record of high performance and, in my mind, deserved better treatment. In retrospect, I came to understand the issue was whether I wanted to gain a minor pricing coup that, over the longer run, would likely result in less overall support from this supplier. In other words, did I personally want to “look good” in the short run to the detriment of my company over the long haul? Believe me when I say I’ve seen what over-leveraging can do to a formally collaborative supplier relationship, and it’s not pretty. Usually, going forward, the impacted supplier starts working with you on a strictly commercial basis.
So I did what I did without letting my bosses know that I perhaps could have gotten a slightly better price. Understand, I am nobody’s pushover in the negotiation arena. For instance, when I retired, I was told by one of our important suppliers that while they regarded me as a hard bargainer, they also felt I was fair. That meant a lot to me. I can say that my experience with the cylinder supplier was the basis of this type of reputation.
I didn’t relate the above story to somehow stake out the position that Paul is a good guy. Rather, I think there is an important lesson here. Specifically, regardless of actual company culture – versus what might be stated publically – individuals can play a role in how a company operates. This is an important point. From my perspective, the kind of individual who, when told to do something they think – or knows – is not ethically above-board, does it anyway, is not someone I want working for me. I was only following orders isn’t much of a defense of one’s actions when you know what you are doing is wrong.
If I were an OEM purchasing manager today who is continually positioned not to work collaboratively by suppliers because of the performance metrics passed down to me, I’d ask the following two questions.
Specifically, are the supplier goals being set:
1. Realistic or based on wanting to have a short-term positive impact on the company’s stock price?
2. The same as the goals set internally for the OEM itself? Or does the OEM expect its suppliers to out-perform them in continuous improvement?
I think you know what the typical real answer is to the above questions: “My role as a purchasing manager should be working with my employer’s executive team to set realistic performance goals for my people and suppliers that are in the overall best interests of my employer.” And answer like that is a sign that upper management considers the function supply management function tactical.
If this is the case, it is unfortunate because it will prevent your company from attaining status as a world-class manufacturer. Why? It will become an ongoing barrier to the development of a lean-performing supply chain. And, as I’ve said many times before, a lean-performing supply chain should be the goal of all supply management organizations.
To my credit I listened to and learned from the cylinder supplier who told me, “Everyone’s got to eat”. I hope many of you are also listening. Individuals can take actions that will positively impact the feeling that suppliers — and other people outside their organization – have about an OEM’s ethics.
Paul Ericksen is IndustryWeek’s supply chain advisor. He has 38 years of experience in industry, primarily in supply management at two large original equipment manufacturers.