[From iSource Business, December 2000] In the still-idealistic 1960s, the Kingsmen sang, "The best things in life are free, but you can keep them for the birds and bees. I want money."
And while such a mercenary approach is probably a little too Wall Street to be mentally healthy, the bottom line is that money matters.
Job satisfaction, teamwork and shaping a company's future are all great for warming the heart, but they do precious little when it comes to warming the condo. Just try mailing in a wad of job satisfaction the next time the VISA bill comes and see how nicely the folks at the bank treat you.
Luckily, help is on the way. To help you learn the facts and formulate a battle plan for staking your company's claim in the Great Gold Rush, iSource Business spoke with key players in the e-procurement field, from corporate executives to a purchasing veteran. Here's what we found.
The Case for Cash
It's sometimes difficult for the average employee to approach the boss and ask for a raise. One can feel like a member of the Oz quartet approaching the Wizard's intimidation chamber. Worse, employees often end up arguing points that are hard to quantify. How does a groundskeeper, for example, actually prove to his boss that the healthy greens on the golf course are the result of his botanical expertise and not just an especially rainy summer?
But the times are indeed changing. Jim Tyson, director of purchasing for Pier1 Imports, says, "I've seen an increased or enhanced status for purchasing." The reason? "We basically spend the company's money. And they've never looked at us as a potential profit center or a way to generate revenue. But that's beginning to change, and I think it's partly because the purchasing profession as a whole is emphasizing the fact that every dollar we can save by effective purchasing, after we've covered our department's operating costs, goes straight to the bottom line. In sales, only a tiny piece of it gets there. I think the purchasing profession as a whole has done a pretty good job in the last four or five years of pushing that idea, and upper management is beginning to pick up on that."
But even with this shift in perspective, knowing the facts behind your argument is critical. As an old saying goes, "The fewer clear facts you have in support of an opinion, the stronger your emotional attachment to that opinion." And emotion does not belong at the bargaining table. Right now the facts, for a purchaser, are good quantitative, hard-number facts in the form of cost savings for their organizations. A good purchasing professional can have more than a little impact on that all-important bottom line. Clarus Chief Strategy Officer Steve Hornyak says, "I've heard that online savings range from five to 20 percent. If you talk with the big brains, the McKenzies and others of the world, they will say you have the capability, through a properly done strategic sourcing exercise, to take 15 percent down to the bottom line of a company's expenses."
You Can't Handle the Truth
Lou Unkeless, vice president of product marketing at RightWorks, puts it this way: "What people should realize is that every dollar I save in the purchasing process or by buying something for a cheaper price translates directly down to a one-to-one increase in profit. And that's huge. The funny thing is that a five percent reduction in overall purchasing costs could translate into a 20 percent increase in profitability, depending on the structure of your income statement." When companies are looking at ever-shrinking profit margins, 15 to 20 percent gains that you played a part in effecting are huge attention-getters at the negotiating table.
So now you've got numbers on your side, but this is the Internet age. Can't anybody click around a little and save a ton of money? Hardly. Hornyak says that alone, "technologies don't get it for you. One thing people need to understand is that technology and you pull Clarus into it, Ariba, Commerce One and others by itself is not what drives the savings. What we allow you to do is actually enforce, enable and proliferate those savings in a recurring, measurable manner. But what actually drives the savings is the strategic sourcing component." In other words, give a monkey a fancy tool and he's still a monkey; he just costs more to keep on the payroll. Intelligence and experience are assets.
The good thing for purchasers is that, as the Internet permeates more and more of society, and specifically the business world, the bottom-line impact they can bring to a company is only going to increase. Unkeless says, "It [cost savings] will definitely continue to increase because as more and more companies move to e-procurement they start to take advantage of the Internet which was the first common global technology platform enabling companies of any industry of any size anywhere in the world to communicate with one another."
A View from the Front Lines
In his 12 years in the purchasing profession, Jeff Campbell, vice president and chief sourcing officer with Burlington Northern Santa Fe, has seen the role of purchaser evolve from being viewed as something anyone can do, to a career roadblock, to today's increasing valuation of purchasers. Particularly within the last five years, Campbell has seen a tremendous change, one in which "the companies that get it, are the companies that are going to be around here the next 25 years because they can be competitive, because they are changing and because they can truly understand the strategic value that a sourcing and supply organization can bring to a company." As proof, take note of the fact that Campbell reports directly to Matt Rose, CEO of BNSF. And while such access hasn't quite permeated the business world, Campbell is not alone in this respect. "If I had to estimate, I'd guess 10 to 20 percent of my peers have that reporting relationship," he says.
The Battle Plan
So you've looked at the information, you've analyzed the trends and you've decided something needs to change. Either your company doesn't get it, or doesn't get it well enough, but whatever the reason, you want to shake things up. If that's the case, Campbell gives this bit of advice. "A wise man once told me that if the day comes that you're not happy to go to work, and you find yourself being one of those who's complaining around the water cooler, then you have the ultimate ability to change that. And you either change that, or you become a part of the problem." Consider it the e-procurement version of the outdoorsmen's adage to either "fish or cut bait."
But Campbell cautions that purchasers first need to make sure the problem doesn't lie within themselves. "Having said that, if a purchasing professional isn't being paid well enough, and he feels like he's being bypassed or not seen for his value and doesn't understand why, then the first thing he needs to do is a complete, introspective review of himself and his credentials. First of all, does he have his education? Does he have his MBA? Is he willing to go back to school? Is he taking advantage of training programs his company offers internal to the department? Is he willing to travel to external training programs for which his company is willing to pay? Is he willing to retool and retrain for the New Economy? Is he willing to change? It has to begin at home. Companies cannot do it for an individual."
It's also vital that purchasers make sure they are doing all they can to increase their worth in the corporate structure. According to Campbell, "They need to take every opportunity to show their stuff. They need to be their own best public relations rep in terms of adding value, and they need to position themselves as a businessperson not a finance person or a purchasing person but a business person: someone who can cut through the bureaucracy, someone who's willing to push for change, someone who can sell a complete business case based upon facts. I'm looking every day for the best businesspeople I can find."
Unkeless says, "There are always a couple of things you do no matter what industry you're in or what profession you're in. You need to stay abreast of the current practices and future practices, so that you can advise your CEO on directions and trends in your industry." Associations like NAPM or APICS (the American Production and Inventory Control Society) have very huge practices, and they focus on leading-edge business practices, blending technology in with these best practices to figure out how to make procurement more efficient. So if I'm a procurement professional, then I definitely want to stay there and be plugged into that because I'm going to be the domain expert who brings that knowledge back to my company and convinces the CEO they need to pay attention to this, because there are significant savings that can be obtained."
Future Cash
What if a purchaser has done all she can to better herself, done all she can for the company, and is still unsatisfied? Then it's time to bite the business bullet and talk money. The good news? It's getting easier to get the green. The bad news? You might have to take some risks to get it. Hornyak says, "The problem is that the type of people who tend to work in the purchasing department are more conservative relative to compensation plans and leverage. As an officer in a publicly traded entity, I'm faced with people who have to make this decision all the time. Everyone wants to make more money. And I'll say to them, 'Fine, make more money. But, in order to make more money, there's got to be risk and reward based on upside, based on what you derive for us as a company.' I think if purchasing professionals were willing to take a radically different approach to compensation, where it was significantly less base salary and upside based on quantifiable recurring savings, then they, too, could reap the benefits of that. And I can tell you right now, no CFO in this universe would pass on a plan like that."
Roger Herman, a strategic business futurist and director of the Herman Group, a management consulting and futurist firm in Greensboro, N.C., says that putting the burden of proof on a purchaser's back actually puts them in a position of strength. "This gives the purchaser going in to the boss a little leverage. Just say, 'Look, I don't want a raise. Keep me where I am. Don't give me a raise based on merit, don't give me a raise based on seniority or anything like that; instead, let me earn the additional income.' And you lay things out in such a way that they're actually earning it, they see it, they know it, everybody's very much aware of exactly what's going on and if the program is set up the right way, just by doing the kinds of things you ought to be doing and doing them well, you're going to earn about the same as you would with those raises. But then if you do an exceptional job, now you're really showing your stuff, and you're being rewarded for it."
Herman believes that this kind of salary structure will only become more common. "What we are seeing is that more and more positions are going to be paid based on performance. Some positions will be entirely performance-based in their pay; others are going to be partially performance-based and partially flat fee or standard arrangement. But the movement we see is stronger toward people being compensated based on their contribution to the company and, more importantly, to the bottom line."
The Future's So Bright . . .
The upshot is that, for purchasers, the future is "bright, bright, bright," as Campbell puts it. Herman says, "We're moving into an era where people will have a lot more choices about where they work, what kind of work they do and when they work. So, both employers and employees must be sensitive to this and need to design what they're doing with each other based on the fact that people have lots of choices."
In aviation, there is a maxim that says, "There are old pilots, and there are bold pilots, but there are no old, bold pilots." The changing face of business in the new century, particularly the role of the purchasing professional, might mean there will be old, bold purchasers and they'll be easy to spot. They'll be the ones with the money and those best free things, too. Why should the birds and bees have all the fun?
And while such a mercenary approach is probably a little too Wall Street to be mentally healthy, the bottom line is that money matters.
Job satisfaction, teamwork and shaping a company's future are all great for warming the heart, but they do precious little when it comes to warming the condo. Just try mailing in a wad of job satisfaction the next time the VISA bill comes and see how nicely the folks at the bank treat you.
Luckily, help is on the way. To help you learn the facts and formulate a battle plan for staking your company's claim in the Great Gold Rush, iSource Business spoke with key players in the e-procurement field, from corporate executives to a purchasing veteran. Here's what we found.
The Case for Cash
It's sometimes difficult for the average employee to approach the boss and ask for a raise. One can feel like a member of the Oz quartet approaching the Wizard's intimidation chamber. Worse, employees often end up arguing points that are hard to quantify. How does a groundskeeper, for example, actually prove to his boss that the healthy greens on the golf course are the result of his botanical expertise and not just an especially rainy summer?
But the times are indeed changing. Jim Tyson, director of purchasing for Pier1 Imports, says, "I've seen an increased or enhanced status for purchasing." The reason? "We basically spend the company's money. And they've never looked at us as a potential profit center or a way to generate revenue. But that's beginning to change, and I think it's partly because the purchasing profession as a whole is emphasizing the fact that every dollar we can save by effective purchasing, after we've covered our department's operating costs, goes straight to the bottom line. In sales, only a tiny piece of it gets there. I think the purchasing profession as a whole has done a pretty good job in the last four or five years of pushing that idea, and upper management is beginning to pick up on that."
But even with this shift in perspective, knowing the facts behind your argument is critical. As an old saying goes, "The fewer clear facts you have in support of an opinion, the stronger your emotional attachment to that opinion." And emotion does not belong at the bargaining table. Right now the facts, for a purchaser, are good quantitative, hard-number facts in the form of cost savings for their organizations. A good purchasing professional can have more than a little impact on that all-important bottom line. Clarus Chief Strategy Officer Steve Hornyak says, "I've heard that online savings range from five to 20 percent. If you talk with the big brains, the McKenzies and others of the world, they will say you have the capability, through a properly done strategic sourcing exercise, to take 15 percent down to the bottom line of a company's expenses."
You Can't Handle the Truth
Lou Unkeless, vice president of product marketing at RightWorks, puts it this way: "What people should realize is that every dollar I save in the purchasing process or by buying something for a cheaper price translates directly down to a one-to-one increase in profit. And that's huge. The funny thing is that a five percent reduction in overall purchasing costs could translate into a 20 percent increase in profitability, depending on the structure of your income statement." When companies are looking at ever-shrinking profit margins, 15 to 20 percent gains that you played a part in effecting are huge attention-getters at the negotiating table.
So now you've got numbers on your side, but this is the Internet age. Can't anybody click around a little and save a ton of money? Hardly. Hornyak says that alone, "technologies don't get it for you. One thing people need to understand is that technology and you pull Clarus into it, Ariba, Commerce One and others by itself is not what drives the savings. What we allow you to do is actually enforce, enable and proliferate those savings in a recurring, measurable manner. But what actually drives the savings is the strategic sourcing component." In other words, give a monkey a fancy tool and he's still a monkey; he just costs more to keep on the payroll. Intelligence and experience are assets.
The good thing for purchasers is that, as the Internet permeates more and more of society, and specifically the business world, the bottom-line impact they can bring to a company is only going to increase. Unkeless says, "It [cost savings] will definitely continue to increase because as more and more companies move to e-procurement they start to take advantage of the Internet which was the first common global technology platform enabling companies of any industry of any size anywhere in the world to communicate with one another."
A View from the Front Lines
In his 12 years in the purchasing profession, Jeff Campbell, vice president and chief sourcing officer with Burlington Northern Santa Fe, has seen the role of purchaser evolve from being viewed as something anyone can do, to a career roadblock, to today's increasing valuation of purchasers. Particularly within the last five years, Campbell has seen a tremendous change, one in which "the companies that get it, are the companies that are going to be around here the next 25 years because they can be competitive, because they are changing and because they can truly understand the strategic value that a sourcing and supply organization can bring to a company." As proof, take note of the fact that Campbell reports directly to Matt Rose, CEO of BNSF. And while such access hasn't quite permeated the business world, Campbell is not alone in this respect. "If I had to estimate, I'd guess 10 to 20 percent of my peers have that reporting relationship," he says.
The Battle Plan
So you've looked at the information, you've analyzed the trends and you've decided something needs to change. Either your company doesn't get it, or doesn't get it well enough, but whatever the reason, you want to shake things up. If that's the case, Campbell gives this bit of advice. "A wise man once told me that if the day comes that you're not happy to go to work, and you find yourself being one of those who's complaining around the water cooler, then you have the ultimate ability to change that. And you either change that, or you become a part of the problem." Consider it the e-procurement version of the outdoorsmen's adage to either "fish or cut bait."
But Campbell cautions that purchasers first need to make sure the problem doesn't lie within themselves. "Having said that, if a purchasing professional isn't being paid well enough, and he feels like he's being bypassed or not seen for his value and doesn't understand why, then the first thing he needs to do is a complete, introspective review of himself and his credentials. First of all, does he have his education? Does he have his MBA? Is he willing to go back to school? Is he taking advantage of training programs his company offers internal to the department? Is he willing to travel to external training programs for which his company is willing to pay? Is he willing to retool and retrain for the New Economy? Is he willing to change? It has to begin at home. Companies cannot do it for an individual."
It's also vital that purchasers make sure they are doing all they can to increase their worth in the corporate structure. According to Campbell, "They need to take every opportunity to show their stuff. They need to be their own best public relations rep in terms of adding value, and they need to position themselves as a businessperson not a finance person or a purchasing person but a business person: someone who can cut through the bureaucracy, someone who's willing to push for change, someone who can sell a complete business case based upon facts. I'm looking every day for the best businesspeople I can find."
Unkeless says, "There are always a couple of things you do no matter what industry you're in or what profession you're in. You need to stay abreast of the current practices and future practices, so that you can advise your CEO on directions and trends in your industry." Associations like NAPM or APICS (the American Production and Inventory Control Society) have very huge practices, and they focus on leading-edge business practices, blending technology in with these best practices to figure out how to make procurement more efficient. So if I'm a procurement professional, then I definitely want to stay there and be plugged into that because I'm going to be the domain expert who brings that knowledge back to my company and convinces the CEO they need to pay attention to this, because there are significant savings that can be obtained."
Future Cash
What if a purchaser has done all she can to better herself, done all she can for the company, and is still unsatisfied? Then it's time to bite the business bullet and talk money. The good news? It's getting easier to get the green. The bad news? You might have to take some risks to get it. Hornyak says, "The problem is that the type of people who tend to work in the purchasing department are more conservative relative to compensation plans and leverage. As an officer in a publicly traded entity, I'm faced with people who have to make this decision all the time. Everyone wants to make more money. And I'll say to them, 'Fine, make more money. But, in order to make more money, there's got to be risk and reward based on upside, based on what you derive for us as a company.' I think if purchasing professionals were willing to take a radically different approach to compensation, where it was significantly less base salary and upside based on quantifiable recurring savings, then they, too, could reap the benefits of that. And I can tell you right now, no CFO in this universe would pass on a plan like that."
Roger Herman, a strategic business futurist and director of the Herman Group, a management consulting and futurist firm in Greensboro, N.C., says that putting the burden of proof on a purchaser's back actually puts them in a position of strength. "This gives the purchaser going in to the boss a little leverage. Just say, 'Look, I don't want a raise. Keep me where I am. Don't give me a raise based on merit, don't give me a raise based on seniority or anything like that; instead, let me earn the additional income.' And you lay things out in such a way that they're actually earning it, they see it, they know it, everybody's very much aware of exactly what's going on and if the program is set up the right way, just by doing the kinds of things you ought to be doing and doing them well, you're going to earn about the same as you would with those raises. But then if you do an exceptional job, now you're really showing your stuff, and you're being rewarded for it."
Herman believes that this kind of salary structure will only become more common. "What we are seeing is that more and more positions are going to be paid based on performance. Some positions will be entirely performance-based in their pay; others are going to be partially performance-based and partially flat fee or standard arrangement. But the movement we see is stronger toward people being compensated based on their contribution to the company and, more importantly, to the bottom line."
The Future's So Bright . . .
The upshot is that, for purchasers, the future is "bright, bright, bright," as Campbell puts it. Herman says, "We're moving into an era where people will have a lot more choices about where they work, what kind of work they do and when they work. So, both employers and employees must be sensitive to this and need to design what they're doing with each other based on the fact that people have lots of choices."
In aviation, there is a maxim that says, "There are old pilots, and there are bold pilots, but there are no old, bold pilots." The changing face of business in the new century, particularly the role of the purchasing professional, might mean there will be old, bold purchasers and they'll be easy to spot. They'll be the ones with the money and those best free things, too. Why should the birds and bees have all the fun?
