Building a Strategic Supply Management Team

By Andrew K. Reese

When Bob Price began leading the transformation of sourcing at the Office Furniture Group of Kimball International two years ago, he quickly drew up plans for four specific initiatives to take sourcing in a more strategic direction at the company. But he also put in place a fifth initiative to help ensure the success of the other four projects by providing vital training and skills development for Kimball's sourcing team. In Price's view, to meet its goals, one of Kimball's most important investments would be in its people.

A Strategic Mandate

Jasper, Ind.-based Kimball International is a $1.3 billion manufacturer of furniture and electronic assemblies, operating in 14 U.S. states and in seven countries on three continents. The company employed about 6,800 people worldwide as of the end of last year. In 2006, about 56.5 percent of the company's sales came from its Furniture and Cabinets business segment, with the remainder coming from its Electronic Contract Assemblies segment.

Back in 2005, as part of a broader realignment within Kimball's Furniture and Cabinets segment, the executive leadership in the segment's Office Furniture Group came up with a vision for transforming the sourcing function into a strategic team that could make additional contributions to Kimball's competitive advantage in the marketplace. At the time, Price headed the sourcing team as director of global sourcing within the Office Furniture Group, and he was charged with leading the transformation of the function. (Price has been named director of global supply chain management for the Kimball Furniture Group since the interview for this article.)

A 20-year veteran of the supply management field, Price's plan for achieving transformation in Kimball's sourcing focused on five initiatives, including supplier relationship management, category management planning, commodity councils, strategic sourcing and globalization target setting, and, importantly, training and skills development. All the initiatives involved little or no investment in new technology or staff changes, while offering the possibility of significant short- and long-term gains, according to Price.

Generating Supplier Ideas

The goals of the supplier relationship management initiative, for example, included fostering closer relationships with key, strategic suppliers and involving them early on in Kimball's product design process. "During product development, we were designing products in a vacuum," Price explains. He believed that by engaging Kimball's product developers with its suppliers in the initial stages of the design process, Kimball could benefit from the suppliers' ideas regarding the design of the products as well as their thoughts on alternative materials and strategies for actually building the products.

The commodity managers working under Price were put into service as the intermediaries between Kimball's product development group and the company's suppliers. As part of this process, Price had the commodity managers "walk the flow," actually getting down on the plant floor at Kimball's own production facilities to watch their commodities go through production. In addition, as part of quarterly business reviews with strategic suppliers, the commodity managers began touring the suppliers' plants, too, to watch products destined for Kimball go through that phase of the production process. In this way, the commodity managers gained a deeper understanding of where suppliers can help improve Kimball's own costs and processes.

The supplier relationship management initiative culminated in September 2006 in a three-day conference that brought together about 50 of Kimball's top suppliers. The Office Furniture Group's executive team — including the president, brand presidents and the heads of manufacturing, quality and engineering — all addressed the suppliers on the company's vision for its products and business and Kimball's overall strategic direction. As part of the conference, the suppliers, like Kimball's commodity managers, also walked the flow through a Kimball plant and saw how their products move through production at the facility. The conference and the tour helped generate a burst of ideas among the suppliers for improvements in their own, and Kimball's, products and processes — ideas that Price has estimated have produced $1.2 million in savings for Kimball. As just one example of how the new collaboration has benefited Kimball, Unisource Worldwide, a Kimball supplier for packaging materials, suggested ways for transitioning from Styrofoam to honeycomb cartoning in certain instances. This move not only saved hundreds of thousands of dollars but also helped Kimball advance toward its "green" objectives by removing non-recyclable materials from the supply chain.

The only tool that Price has adopted for the supplier relationship management initiative is an internally developed Excel-based idea-tracking solution, similar to a lead-tracking application that a sales team might use. The tool ensures that as suppliers propose ideas for improvements, each new idea is assigned an "owner" who takes it through the necessary decision points and, where appropriate, through to implementation. "We have become much more efficient with the way that we manage supplier ideas," Price says, noting that the tool and the new supplier relationship management process as a whole have helped drive up the savings generated from supplier ideas from $100,000 per year in 2005 to $5 million per year in 2006.

Plotting a Skills Roadmap

Price says that he realized from the start of the initiatives within Kimball's Office Furniture Group that the sourcing team would require additional skills development to help them more strategically manage the company's supply chain. The group had a centralized team responsible for global sourcing for a few years already, comprised of eight commodity managers, an administrative assistant and a strategic sourcing analyst. But the team was still early in its development, according to Price. "We didn't have a lot of the basic tools and processes in place to execute on the strategic vision," he says.

Price engaged with Next Level Purchasing, a procurement training and certification firm based in Moon Township, Pa., to do a skills assessment of the sourcing team around such core areas as contract management, negotiation and project management. With that information in hand, Price was able to plot out a development plan for each member of the staff. The development plans targeted three levels: day-to-day tactical skills like contract management and negotiation; commodity-specific knowledge, including technical competency around each manager's assigned category; and leadership skills, focused around project management.

Each team member's "roadmap" depended on where that person was in the company and their current skills, based on the assessment. Some members received more training around the tactical or commodity skills to fill specific gaps, while others focused more on the project management and other "strategic" skills. The overall goal, Price says, was to build all the necessary competencies within the group as a whole so that the staff could, as a team, rise to the challenges inherent in taking sourcing to a more strategic level within the enterprise.

For the commodity-specific competency, the sourcing team members attended industry conferences and took advantage of onsite visits or training programs offered by vendors in their category areas. For the tactical skills, the team turned to several different channels for training and education. First, Price put four of his commodity managers through the Senior Professional in Supply Management (SPSM) certification program at Next Level Purchasing, which offers a series of both online and in-person training courses. The entire team completed other training modules offered through Next Level Purchasing, and Price also worked with the University of Louisville (Ky.) on quarterly workshops for his staff on such topics as supply chain management, strategic sourcing and purchasing groups.

For the leadership skills, several of the staff attended programs at the Center for Creative Leadership in Greensboro, N.C., a nonprofit organization that offers a variety of leadership training programs. Price himself received an Executive Certificate in Technology, Operations and Value Chain Management through a program at the MIT Sloan School of Management in Cambridge, Mass.

Building Global Skills

As the training progressed and the sourcing team continued to implement its improvements projects, Price says that, by and large, the development roadmaps were mostly on target and training met the evolving needs of the team. However, it became evident over time that one gap remained. "If there is one area where we underestimated the gap, it was the strategic sourcing skills around globalization," Price says.

The sourcing team found that their inherent procurement skills and the competencies that they learned as a result of the training programs prepared them with the tools that they needed to go through, for instance, a standard make-versus-buy process for any given product. But they found they still had much to learn about which products could be sourced successfully from which regions or countries of the world.

Recognizing this challenge, Price and his team put together a process for learning about different countries and regions based on the economic drivers underpinning 15 core commodity groups. They chose 10 regions of the globe and looked at a fixed set of criteria to determine whether it was attractive to source those commodities in those regions. For example, for plywood, the sourcing team looked at Brazil, Malaysia, Chile, Mexico and China; for solid wood, they looked at Malaysia, China and Chile; and for glass, Mexico and China. The criteria included such factors as labor content, internal logistics, reliability of supply, intellectual property considerations, currency issues and political stability, among others.

The results of these learnings were filtered into a commodity opportunity matrix that helped the sourcing team understand where they would find the best opportunities for global sourcing. But the exercise also had the additional effect of preparing the sourcing staff to actually do business more globally. "The byproduct was that we started to learn more about the countries and what it took to do business there. For example, should we do business there ourselves directly, or should we go with a broker for 18-24 months to bridge a relationship?" Price explains. As a result, the sourcing team was able to identify an additional $5 million of spend as part of Kimball's import strategy for 2006, representing approximately a 25 percent increase in the company's import spend the previous year, with the total figure for imports expected to nearly double by the end of this year.

Building Success from the Ground Up

By Price's reckoning, the five initiatives that sourcing undertook have allowed it to increase the team's net impact on Kimball's bottom line (commodity increases-decreases less savings) from $200,000 in 2005 to more than $2.2 million in 2006, all with very little investment and no increase in staff. Saving projects implemented in 2006 accounted for $8.6 million, versus $5 million for the previous year. And the team generated creative cost reduction ideas valued at $4.4 million last year.

Asked about success factors for the projects, Price cites the "trickle-up approach" that the sourcing team took to implementing transformation. "The big key to executing a strategy is not involving the executives, it's involving the actual people that have to implement the strategy day in and day out," he says.

Of course, senior executive support is important, Price acknowledges, for setting strategic directions and goals, supplying resources, providing encouragement and recognizing accomplishments. But he says that the sourcing team autonomously took on the challenge of transforming the organization and went out into the enterprise as change agents to instigate transformation. Moreover, they drove the initiative for transformation down the organizational chart, talking to the product line managers rather than the director of the product line, or getting the materials manager at the company's plants involved instead of just the senior material manager for case goods.

"You need to lock the executive team out and get the commodity managers, the material managers, the product development engineers and the quality engineers in a room to iron out the actual execution strategy. The key is having the end users build that strategy themselves and present it to the executive team for their signoff. That was the big 'ah-ha' and success for us," Price concludes.

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