An Interview with America's Number One Purchasing Professional

When Dave Nelson talks, purchasing professionals listen. And for good reason: during his 10 years at Marysville, Ohio-based Honda of America Mfg., Nelson led the growth of the company's purchasing division from 100 to 400 employees and from $600 million to $6 billion in North American purchases. With Nelson as vice president of purchasing, Honda reduced the cost of the 1998 Accord by more than 20 percent. In 1997 Nelson was made a member of the board of directors of Honda of America, and in 1998 he co-authored a book about his best practices and programs at the car manufacturer entitled Powered by Honda.

Since 1997, Nelson, an Indiana native, has served as vice president for worldwide supply management at Moline, Ill.-based Deere & Company. Prior to joining Honda in 1987, Nelson worked for 30 years at TRW, headquartered in Cleveland, Ohio, including, from 1985 to 1987, as director of purchasing for TRW Automotive Worldwide.

A past president of the National Association of Purchasing Management, Nelson sits on the board of trustees of the Center for Advanced Purchasing Studies and on the board of directors of the Purchasing Round Table. He is a founding member of the board of directors of the National Initiative for Supply Chain Integration, Ltd., a public/private partnership supported by the National Institute of Standards and Technology to develop and enhance manufacturing supply chains.

At Deere, Nelson helps oversee a $7 billion annual spend. The company's legacy purchasing system, developed internally 15 years ago, covers North America and is supplemented by additional regional systems in place elsewhere. Deere is currently implementing a companywide enterprise resource planning system from SAP and, as of early August, was in the process of selecting an e-procurement platform. The company was also looking at how to integrate Net marketplaces into its purchasing strategy, although Deere has already experimented with reverse auctions through FreeMarkets.

iSource Business recently sat down with Nelson to discuss how e-procurement is shaping the supply chain and the purchasing profession and to learn how e-procurement has changed the thinking of America's top purchasing professional.

iSource: What is e-procurement doing to the supply chain?

Nelson: organizations that use multiple e-procurement standards will stress suppliers' capabilities. This favors suppliers that have the technical resources to handle these kinds of demands.

In addition, the technology allows buying organizations to create electronic marketplaces where other buyers can purchase off their suppliers' contracts. This allows buying organizations to create savings opportunities not only for themselves but also for tier one and tier two suppliers, aggregating the spend even further and creating revenue-generation opportunities.

iSource: What are the main roadblocks to implementing e-procurement strategies?

Nelson: The main roadblock for any organization is getting suppliers focused on e-commerce and electrifying their business and tools. It seems to be a struggle to get suppliers enabled in more than the common commodities like office supplies, computer hardware and other basic MRO items.

Another challenge that we face is moving toward central-led sourcing of these commodities. And since most of the procurement function is done at the unit level, a data rationalization effort is required before we can negotiate enterprise level contracts. In addition, there is the cost and know-how involved.

You have to have a plan, and you have to bite off no more than you can chew. When I showed up at Deere 2 1/2 years ago, I looked at how we bought things, mostly on the indirect side. Indirect is easy pickings, so we started some projects there. For every project, we had extreme results. For example, in MRO we went from 1,675 suppliers to 20. That turns people's heads. Then it's an educational process for your top management.

iSource: Honda's purchasing philosophy emphasized the importance of striking the appropriate balance between cooperating with suppliers and ensuring competitive pricing. In the long term, how will e-procurement affect that balance?

Nelson: Electronic marketplaces will be especially valuable for organizations that do not have expertise in a given commodity or for spot buys. Although these tools should be incorporated into the sourcing process, they don't change the decision criteria of the process, which include not only the price but quality, delivery and performance as well.

These are tools. I have a wonderful shop at home, with a three-horsepower table saw. It saws through boards like you wouldn't believe. It'll also saw your thumb off. The point is, these tools typically help you tremendously with efficiency, just like that table saw, but if you misuse them, you're going to saw your hand off.

Every major part should have a written strategy. Then engineers, purchasing people and management can all understand where we are headed with that particular major part. And there ought to be a written strategy for all major suppliers. These two strategies merge, and then you use [e-procurement tools] to optimize those strategies.

iSource: Recently, so-called brick and mortar companies in the automotive, aerospace, retail and other industries have announced the formation of purchasing consortia. Do you believe that these consortia will bear fruit?

Nelson: We have had consortiums since the late 1970s, and they have struggled. Companies have their own specific customs and methodologies of doing things, and it's almost impossible to get a consensus. I think there will be some significant consortia that will work, and the reason that they will work is that if a person puts enough management focus, energy, money and leadership into something, the effort will pay off.

iSource: What will be the long-term impact of e-procurement on the purchasing profession?

Nelson: It causes a greater visibility to your senior management. If your senior management perceives that there is opportunity, that in itself creates greater opportunity for the profession. It creates new, higher-level jobs. Purchasing has had the stigma over the years of just being tactical. Now the tactical work is going to get done through the use of new technologies, resulting in a shift of people in purchasing toward more strategic functions. There will be a far greater balance of people involved in strategic sourcing.

iSource: If you were just starting your purchasing and supply management career, considering the current environment and its varied opportunities, what would you pursue? How would you map out your career?

Nelson: I would get an engineering degree and match it up with an undergraduate degree in supply management. And then I would get a master's degree, with a focus on supply chain management or business administration.

Summers, I'd be an intern or work on a co-op basis. You get to know the company, and whether you really want to work there. And you get to learn the job before you ever even start to work there.

And then I would look for the opportunity to go with one of the best companies. I would pick out the most capable company in supply management. If you want to become really good, you get into a really good department, led by really good people, and you become a team of one of the best.

iSource: How has e-procurement changed your own philosophy regarding supply chain management?

Nelson: The philosophy, in and of itself, hasn't changed one iota. Philosophy breeds strategy, and the strategy breeds the goals or objectives, which breed the tasks that get done to make it all happen. We want more and better products at less cost, and [e-procurement] helps us get there. eProcurement is a tool that will help us to further exploit the concept of supply chain management.

iSource: Has e-procurement changed the way that procurement decisions need to be made, or do the same business rules apply now as applied a few years ago?

Nelson: Exactly the same business rules still apply. One reason companies get guys like me and pay us very well is that typically we have years of experience not just in honing those business skills but particularly in honing those business judgements and what it takes to make them. So a new thing like [e-procurement] pops up, and what do you do? You go learn as much about it as you can. Once you've gathered all the data and information you can process, you then have to take some risk. You can't be afraid to make a mistake. You've got to step out into the deep water, or companies will find other people who will.

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