The Analyst Corner: Procurement

Long-time supply management guru Patricia Moody has a dozen books to her credit, but with her latest, The Big Squeeze: Ten Ways to Cut Your Spend 10% Right Now! (The Oaklea Press, 2005), Moody offers a new twist on the standard-issue business tome. First, the front section of the book is in the form of a novel charting the course of cost-reduction efforts at the fictional company United Manufacturing. And second, the latter half of the book offers summaries of entries on Moody's Web log, or blog (at www.patriciaemoody.com), where she asked her online readers to write in with suggestions for achieving quick-hit savings of 10 percent or more. This unusual approach works, in this instance, because the fiction format gives free reign to Moody's inner storyteller — and she is quite the entertaining teller of tales, as anyone who has had the pleasure of hearing her speak can attest — and because, in the latter half of the book, Moody is able to tap into the collective wisdom of dozens of experienced supply management executives to offer up practical, battle-tested recommendations for trimming costs.

For this month's Analyst Corner column, Supply & Demand Chain Executive spoke with Moody about the key takeaways in The Big Squeeze, and we began by asking what prompted her to write this book at this particular time.

Patricia Moody: I had a feeling as I went into this that people had reached their limits working on Lean Manufacturing on the production floor. Many companies had reached what they thought was the limit of their savings, and they didn't know where to go next. That's why I wrote this book: I knew that there were opportunities out there — I call it Beyond Lean — so I established a blog to ask for savings ideas. I asked for 10 percent savings or more, which seemed like a good barrier. I thought I would get a few ideas from the people that I normally hear from, but I was absolutely overwhelmed [with suggestions]. We got some incredible ideas about how to cut back on shipping costs, how to do a better job of running transportation and logistics, as well as a lot of suggestions on MRO [maintenance and repair operations] — the low-hanging fruit — as you would expect. Some of these ideas were yielding 20 to 40 percent reductions.

And they continue to come in. A woman from a recycling company in Texas achieved 20 percent savings by standardizing her whole company of 9,000 people in the United States and 12,000 people worldwide on five varieties of uniforms. And that's MRO, which is so “unglamorous” but hugely important. It's a lot quicker than building a kaizen team to try to figure out how to take a Lean initiative out to the supply base. That usually takes months, but many companies out there right now don't have a lot of time left.

What I'm talking about in The Big Squeeze are areas that they would never think of because they're savings opportunities outside production. For example, I was on the phone with a client three days ago. I can't tell you how much money they lost last year. They want to keep their manufacturing in the United States, so they're looking at easier areas to try to pull out some more cash, like packaging and trucking. They have spent a lot of energy working on the manufacturing and assembly side, but if 60 to 70 percent of their costs are in materials, they really have to focus more on the procurement side.

S&DCE: What are you seeing as far as the skill sets in procurement these days?

Moody: The new people that I see in procurement are well prepared. So many people have undergraduate and graduate degrees in supply management, many of them are engineers, and they're great communicators. All those things are what I described in the book The Technology Machine seven years ago as the ideal supply management- or commodity manager-type person. But there still aren't enough chief procurement officers and heads of procurement who sit on boards and who have a high enough level of influence within the organization. One step below them, incredible people are coming up, but companies still get very wrapped up in process, in manufacturing. You know, if your procurement organization can bring in 20 percent savings that go right to the bottom line, that's a lot easier way to grow your business than building a new factory or coming up with a new product.

But we still have to get the message out to the CEOs that being good in production is just a ticket to be involved in the industry. Manufacturing used to be more of an art than a science, but we know how to do this stuff now. We know how to organize flows so that we don't have piles of inventory sitting all over the place. We know how to do quality so that we have zero defects. We've been doing all that for 20 years. Now some of that art is coming from the procurement side, because it's those people who know where the money is and know how to go after it. And it's important to do that now.

S&DCE: Could you touch on your philosophy on the use of technology in procurement?

Moody: I'm a technology freak. It's the advantage that we have in the United States, the fact that we have technology that we can use to be more flexible and responsive. We've been slow to admit that because, again, we've been very preoccupied with Lean. One of the jokes in the back of my book is that even Toyota uses computers now. For a long time they really didn't; they had a kind of anti-computer bias. But I think technology is the answer; it's the advantage that we have.

S&DCE: And are you finding that the new generation of procurement executives is more accepting of the different kinds of technologies because they're growing up in a technology-laden society?

Moody: So many companies today still are running on volumes of Excel spreadsheets that they pass from one department to another. I would say that the newer people are probably going to go beyond that. They're willing to look at on-demand software, they're willing to look at risk management and consolidation and things that are not horrendously difficult the way forecasting used to be 20 to 25 years ago. They're willing to look at some of the wonderful packages in shipping and logistics that help you do a better job of planning your load. You know, it's always easier when you first get out of school to just do this stuff, right?

S&DCE: Because they aren't used to the old way?

Moody: Yes, and so I'm really hoping that will carry us a long way.

Loading