INTERVIEW With "Purchasing Magazine"
Reporter Emily Kay asked ART's Managing Director his opinions on what skills are needed in today's Purchasing Officers
PURCHASING MAGAZINE: What are some of the latest business/economic/technological trends in procurement that could have an impact on the skills that purchasing officers need to attain such positions, retain them, and advance in their field?
ART: "Trends such as e-procurement, along with a strong understanding of relevant ERP software, are causing Procurement V.P's, Procurement Directors and Procurement Managers to upgrade their technical skills, but the greatest overall change to the field is that there now are requirements that simply cannot be learned in one easy seminar or by buying a book. How does one teach a procurement person who has only dealt with a limited group of vendors for years or decades in his or her own metropolitan area, state or country, to suddenly become more worldly and more knowledgeable about every region of the world? It's especially difficult when most other company managers and when most Americans in general know little about the world outside of these 50 states.
"The globalization of the Industrial Revolution is a tremendous opportunity for American companies to become greater than they have ever been, even though less and less manufacturing is currently being done in the United States. There are opportunities worldwide to gain greater access to exciting and high quality technologies and products that are made outside of the U.S., and U.S. manufacturers have an opportunity to spread their products in greater numbers to more customers. Valuable vendors are to be found not only in low cost countries, but also in the most expensive industrialized countries, yet many U.S. procurement managers fail to tap into the panoply of options simply because they are afraid to look beyond what they have known. Many do not want to spend a lot of time doing international travel to investigate the cost versus quality versus delivery reliability equations. So they make big mistakes or miss great opportunities.
"If American companies wish to survive, they need to have the most effective supply chain organization that they could afford - including upgrades to purchasing, materials, logistics and distribution groups. With an ordinary or substandard supply chain organization, in this world economy, these companies will cease to exist in a few years, because the supply chain organization has become the heart of a company's vitality, and through this heart's veins and arteries, components and finished products need to flow very effectively. If there is a hiccup, a blockage, or an unexpected diversion, the entire corporate body quakes. It doesn't matter how well financing has been handled, or how brilliant product development has been, or how precisely manufacturing has been timed, methodized, and organized, or how aggressive or creative the sales and marketing people have been, if the customer never gets the product delivered as expected.
"In a world where US companies are doing less of their own manufacturing and are depending upon new and usually foreign vendor sources of components, the quality of the procurement staff could make or break the company. They could needlessly overpay vendors for years and end up making their products too costly compared to the competition, or they could buy low with poor or inconsistent quality and destroy their customers' confidence in the company's brands overnight. Truly an entire company's fortunes could depend not only on the VP Sourcing, but on a single buyer's competence.
"It is dreadful just how many large, medium and small companies still organize supply chain structures according to 1960 models - the 'you buy stuff from the same vendors that you've always known, and you stock the stuff in the warehouse the way that you've always done it' philosophy. Sometimes even billion dollar companies are little better than that. There is still a great randomness in the sophistication and quality of supply chain organizations in the U.S., and it is generally as bad or worse in other countries in the industrialized world. Supply chain organizations are still only partly organized with the understanding that manufacturing will probably not be done in the home country, or that an increased share will be done worldwide. Manufacturing departments are organizing to globalization, but purchasing and materials departments still often lag behind and hold onto older habits. Part of this reason is simple: it's a lot easier for a company to move a manufacturing plant to another city or country, than it is to teach its purchasing department how to do their job entirely differently and to think differently. To do that, there has to be someone at the top who knows how to provide the road map, but those people are often absent from senior management.
"A big challenge for US procurement departments is for purchasing staffs to obtain as quickly as possible a knowledge of the big world outside the U.S. There is more burden on them to do so than on sales managers, who usually think locally based on their own local sales territory, or manufacturing people, who usually focus on getting the job done in their own plants. The corporate procurement person needs to be the company's ambassador to a world of vendors around the entire planet, so that person must need to know the world better than do other people in the company, even than the CEO.
"There is some sort of strange irony that despite America being a diverse country whose people have family or personal links into virtually every country in the world, the place is filled with a huge number of people who not only have never travelled outside the US, but who will proudly tell you that they don't own a passport, and that even if they could travel overseas, they would not go. It doesn't matter that their job security probably will depend in some part on customers and vendors overseas. Sometimes people like this somehow end up as CEO's, VP's, or as heads of supply chain. In our work, we are constantly finding that many senior American managers do not know anything about China, Taiwan or Hong Kong. Many people identify Korea, which has winters about as cold as Chicago's, as being in tropical Southeast Asia. Most have minimal knowledge of Mexico, although there usually is some idea that people there speak Spanish. Brazil is almost entirely out of their manufacturing world view. India, with a billion plus people and quite more English speaking scientists and engineers than exist in the US, is still distant from their sight. One Vice President even identified the Netherlands and Germany to me as being in Southern Europe.
"In a century where a company's expansion, worldwide market share, or survival could depend upon how a company's managers' balancing US versus global product content or global manufacturing, there is a special requirement for companies to have the right procurement heads in place, and those people absolutely need to know something about the entire world. A good start in achieving this knowledge is to go to a toy store and buy a globe. It might cost a company about ten or twenty dollars. This investment should be stationed permanently on the procurement manager's desk to remind the person that there is a whole world of vendors, customers and opportunities.
"For people in purchasing who want to advance in their fields, they need to become citizens of the world. The more that they really know how to identify, qualify and negotiate with the best vendors for their companies, the greater will be their achievements, the higher will be their salaries, and the greater will be their career opportunities. For those who prefer to stick with their same traditional, narrow field of vendors, there will be less career opportunities.
"It seems that many companies come to us with a similar problem: our supply chain organization does not work properly. Sometimes, to be very frank, they need to get rid of the person at the top of their supply chain structure. In many cases, we have seen companies move an inadequate manager up the ladder from Purchasing Manager to Supply Chain Director to SVP Supply Chain, when that person really is still in the mindset of a 1960-era factory and purchasing department model. Often when the person at the top has the wrong outlook, they make it harder for good staff to develop, because they just are stuck in a different mindset. Another complication is salary. The person at the top who is not very good, might be happy with a salary that is paid by the company, but because s/he is happy with that salary, that does not mean that it would be easy to bring in good Directors and Managers below him or her, because good supply chain managers are making very good salaries. In many companies, good Managers or Directors are earning more or almost as much as VP's."
PURCHASING MAGAZINE: How have/are required skills changing to meet demands of today’s supply chains?
ART: "Some companies are putting millions of dollars into the coffers of management consulting firms selling them millions of dollars of software and supply chain related 'solutions,' without putting time and effort into hiring the right VP's of Supply Chain, Director of Supply Chain, Sourcing Manager, etc. It kind of reminds me of the old story about a famous automaker's early foray into robotics - they put millions worth of robotic equipment and software into a state of the art factory, but all that happened was that the same errors were consistently and efficiently banged out each time. People still count. Technology in the hands of unprepared or unsuitable managers is a waste of money and time. In the hands of the right people, technology can be of great advantage. But let's remember that there is hardly any investment more cost effective to a company than hiring a smart and hard working procurement manager. It's sad, but it seems that for corporate execs, it is easier to pay millions of dollars for technology than to redo your organizational chart a little, train or fire one or two people, and pay some good people what they are worth."
PURCHASING MAGAZINE: How have such trends changed the jobs of purchasing officers?
ART: "A lot of people are trying hard to learn the technologies, and that's great, because they need that. Some people are finding themselves on planes travelling far and wide for the first times in their lives, and many people with these exposures are the better for it. Many procurement jobs are being based all around the world, especially China. This has particularly been of value to people with Chinese (Mandarin or Cantonese) language skills."
PURCHASING MAGAZINE: Do companies hire purchasing officers or hire consultants rather than full-time employees?
ART: "There are all different models for supply chain organizations. Often we see older companies that recognize that they have a problem, bring in a consultant to sort out what their bottlenecks are and to make recommendations. That's a good first step before hiring a new head of supply chain."
"If a company does not employ their own purchasing head, in my opinion, the person who made that decision had better have a really good reason for doing so. That would sound to me like a classical 'penny wise yet pound foolish' strategy, because if a firm engaged in manufacturing does not control its own purchasing and relies on strangers to bring them the supplies that they need to survive, they might not be served by a party that is dedicated full time to their needs.
"We often see large companies tell us, for example, that they have a buying office in Hong Kong, Guangzhou or Shanghai. Our follow up question is this: is the person running that office your employee? The second question is: does that person speak Chinese? If the answer to either question is 'no,' we believe that the client should quickly seek to change that situation. It is perfectly reasonable even for small companies to be able to hire a competent bilingual China Sourcing Manager. Remarkably, we have seen a good number of multinationals have their own sourcing office in China, but the person running it is a person who could not read the simplest sentence in Chinese! Imagine if a U.S. firm hired a supposedly 'really good' purchasing manager in the U.S. headquarters, but that person was a functional illiterate in English. How effective could that person really be in that job? Fixing supply chain organizations sometimes just takes a little common sense."
PURCHASING MAGAZINE: What are must-have skills for purchasing officers?
ART: "Purchasing people must know how to analyze the veracity of vendor claims. Choosing vendors on low price alone can be a trap for a purchasing person and can destroy a company. They need to get on a plane accompanied by some manufacturing or industrial engineers and make surprise inspections of the factory where the vendor's product is made. They need to take into account the conditions of the workers at the vendor plant and judge the morale of the staff, because poorly run vendor factories where their staff are mistreated, are likely to be bad bets as vendors. Business partners who cheat their staff might also cheat their customers. They need to see evidence that quantities of product have been produced on schedule and received with the quality expected. They need to know how to negotiate with different speeds and styles - the way that a good baseball pitcher might have a good fastball for some batters, a good curveball for other batters."
PURCHASING MAGAZINE: Are these skillsets the same across all industries?’
PURCHASING MAGAZINE: What are salaries/benefits purchasing officers can expect?
ART: "Salaries for good Purchasing Managers, Sourcing Directors, Procurement Vice Presidents, etc., have been generally remaining high despite slowdowns in many markets. This is due to the fact that there generally are a shortage of really good Supply Chain Managers, Supply Chain Directors, and VP Supply Chain candidates in the various industries, and as companies try new business models in manufacturing, such as relying on overseas plants or vendors to make their products, having the best possible purchasing and materials supply chain managers and systems is critical. There is a rush by many good companies to find top supply chain heads, and while there is a scarcity of people available in any given industry sector or region, salaries adjust upward according to this demand. Depending upon the region and industry, a purchasing manager in the US could be earning from $70-120K, a director might be earning between $80-140K, and a VP or SVP could be earning between $150-400K. Bonuses targeted to the achievement of certain personal or departmental or company benchmarks also can be very important components in these compensation packages."
PURCHASING MAGAZINE: Is work as a purchasing officer a high turnover and/or burnout career? If so, can you offer any tips for avoiding burnout?
ART: "Just like any other job, if the person is fit for the job and is given enough encouragement by one's employer, the job should be rewarding and an enjoyable ongoing challenge. Some people who are in the wrong company might feel burnt out, but it probably isn't due to the purchasing profession as much as what they have to do at a particular company. They need to change jobs at that point. There are a lot of exciting things going on in the supply chain world, and there are more opportunities than ever before for those who are adventurous and who have active minds.
"Another nice thing about a career in supply chain is that because it is so pivotal to the revenue and success of a company, there is unprecedented interest by others in supply chain people. This translates into promotions to general manager and president roles, COO roles, and CEO jobs. If done right, the job of a purchasing person will offer that person insight into the entire structure of a company, as purchasing and supply chain will have links into sales, marketing, finance, manufacturing and IT departments. The supply chain person will be the 'go-to' person, be the bridge builder, and that person, whose 'customers' are the entire company's staff, will be highly visible, With visibility, often promotability follows."