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Ellen Lasser, VP of Strategic Sourcing CMC (Commercial

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Ellen Lasser, VP of Strategic Sourcing CMC (Commercial ...

THE BIG SQUEEZE NEWSLETTER ARCHIVES

Copyright Patricia E. Moody CMC 2006, All Rights Reserved

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    THE BIG SQUEEZE NEWSLETTER

    April/May 2006, Extending Your Reach

Think lean, think purchasing, think logistics, think packaging, think

    transportation, think distribution every nickel!

CONTENTS

1. One Plus One Equals Three, Consolidation of Manufacturing and Supply Management Is

    There Any Other Way?

    Smart companies are looking not for somebody who

    understands all the acronyms, but someone who has

    experience in the profession, not in the industry.

     Guy Carter, executive recruiter

Why would any company that spends 70, 80, 90% or more of its total

    costs outside the company not consolidate all the money management with a single professional, someone who understands

    suppliers and contracts and technology trends, and true costs? Why

    not structure an organization that reports in to the Chief Financial

    Officer so that internal materials sourcing, and insourced and

    outsourced processing/manufacturing, is managed competitively?

    Makes sense, but only a few company CEO‘s have this degree of

    financial control in their operations because they have not

    consolidated manufacturing with supply management.

We asked three top search consultants for their take on the best way

    for professionals to meet this challenge…

    2. Enough Arreddy Spend Management Counts!

    This morning I spoke with a leading lean consultant about

    helping a client. What he said scared me…..

3. The Big Squeeze, Another Savings Idea from

    the Experts,

Lean Packaging

    ―There‘s money in them there little packages,‖

    Professor Diana Twede, Michigan State

    University

     You know we love those little packages, and the

    big ones too. We love the way companies are saving

    huge amounts of cash by moving to returnable

    containers ―Cardboard,‖ as my friend Mark Preston

    of Respironics says, ―is not a world-class material!‖

    But there‘s more to the packaging game than just

    cutting corrugated and working deals with suppliers.

    Harley-Davidson sits packaging engineers on their

    design teams to ensure best value for best packaging

    design, at the same time they are creating their

    winning bikes and accessories.

    In fact, one of Harley‘s favorite suppliers, Milsco, is the

    source of the following incredible payback stats. Dale

    Opgenorth, Milsco‘s packaging honcho, is always

    working the cost reduction angle, and he‘s built a great

    reputation for results, including half a million dollars

    worth! …..

4. Savings Throughout The Enterprise

    It’s hard to be an expert in all functions,

    especially Product Design and trucking. Start with

    an Assessment that will identify your true savings

    opportunities areas.

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1. One Plus One Equals Three, Consolidation of Manufacturing and Supply Management Is

    There Any Other Way?

    Smart companies are looking not for somebody who

    understands all the acronyms, but someone who has

    experience in the profession, not in the industry.

     Guy Carter, executive recruiter

Let‘s try that one more time. You‘ve outsourced 80% of your spend

    but you still don‘t control manufacturing?….. Hmmm, I see problems

    ahead.

Why would any company that spends 70, 80, 90% or more of its total

    costs outside the company not consolidate all their money management with a single professional, someone who understands

    suppliers and contracts and technology trends, and true costs? Why

    not structure an organization that reports in to the Chief Financial

    Officer so that internal materials sourcing, and insourced and

    outsourced processing/manufacturing, is managed competitively?

    Makes sense, but only a few company CEO‘s have this degree of

    financial control in their operations because they have not

    consolidated manufacturing with supply management.

Extending Your Reach

    That‘s right, we‘re not talking just about elimination of maverick

    spending. That‘s so-o-o 90‘s. We‟re talking complete spend consolidation! Consolidating global manufacturing operations, and

    supply management under the CFO solves the Lean Manufacturing

    ―sustaining the gains‖ syndrome that companies like Boeing and

    others have experienced when they tried to extend Lean outside their

    walls. It gets a lot easier when the financial reasons for picking and

    managing the right suppliers become the organization‘s mantra. And

    it puts a lot of reality into Lean.

When Theresa Metty left IBM for Motorola, her job description started

    in supply management, but soon included manufacturing. The

    combined responsibilities produced more leverage to cut millions.

    Willie Deese, a veteran GlaxoSmithKline supply management exec

    now working a turnaround at Merck, covers global manufacturing as

    well as supply chain. When shareholders insist on accountability for

    profits, especially in downturns, the Income Statement becomes key

    because that is where top execs shine, where product costs

    subtracted from revenues equal net profit.

    It’s personal, real personal… But how does this concept relate to my career you ask? Well, if

    you‘re a besieged lean manufacturing pro knocking elbows with

    thousands of other equally well-prepared Black Belts, you‘re feeling like an endangered species about now. If you‘re a young

    professional just starting out in Supply Management, the world may

    be brighter and safer, but it‘s still, let‘s face it, not the glamour job the

    analysts and Boards fawn over. Sure, supply management has been

    known to save companies, but that‘s not a base requirement in your typical job description.

Three Pros Respond

    We asked three top search consultants for their take on the best way

    for professionals to meet this challenge. Guy Carter, of the Carter

    Group (http://www.thecartergroup.com/) in Mobile, Alabama, an area

    of North America to which so many automotive assemblers and

    suppliers have migrated, is optimistic. ―From where we sit, we are not

    seeing as much combination of the functions. We have seen it

    combined by $100 200M or less companies, but the billion dollar ones tend to keep functions separate.‖ Manufacturing may not take

    center stage, but other less glamorous functions such as logistics and

    packaging, are stepping right up into the limelight.

Carter sees a strong trend here ―But I have to say that logistics has

    become very important in the last couple years. What we are seeing

    is large firms getting very serious about the complete supply chain

    and its impact. They want to use the supply chain executive to be the

    lead candidate in the turnaround of the company. There are dollars

    to be made - usually it‘s the supply executive doing the major piece of

    helping make that turnaround.‖ Good news for any up-and-coming supply management pro.

Career advice

    Carter has some advice about how to prepare for taking on

    turnarounds and profitability challenges ―Candidates should have a variety of experience. There‘s an equal number of females – it‘s no longer just men doing this. We see strong professionals with degrees

    out of Arizona State, for instance. On the analytical side, finance

    people have moved into supply chain sector, so it‘s clear people are

    going to have a variety of experiences.‖ And that could be a problem

    with veterans who have some twenty-plus years experience

    concentrated in one area. ―Not,‖ warns Carter, ― to tell them to move

    around, but they have to build their knowledge base ―

Building your knowledge base helps candidates looking to cross

    industry lines as well. ―Take the utility industry‖, says Carter, ―They

    figured out that they didn‘t have the right skill set, and so they have

    brought in some outside professionals, as well as the usual good

    people from Florida Power and Light, a pioneer in quality operations.

    They understand they will have to look elsewhere for infusions of

    experienced professionals. Smart companies are looking not for

    somebody who understands all the acronyms, but someone who

    has experience in the profession, not in the industry.”

This powerful shift has benefited professionals from some pioneering

    industries high tech being one. ―High tech people,‖ says Carter,

    ―have done a lot of supply chain work. Twenty-five years ago they were sitting in manufacturing. Now, they have moved up the power

    curve, and companies are looking for people with that experience.

    They have to go outside to get that experience, and that‘s a big shift.‖

Heidrick and Struggles

    Heidrick and Struggles, one of the premier executive placement firms,

    is the group that placed the late Gene Richter at IBM where he

    completed a $12B turnaround. This firm remains a continued leader

    in big supply management searches - everyone wants to be on their

    Rolodex. I posed the same questions to Cliff Wright, Heidrick and

Struggles partner based in their Atlanta, Ga. office

    (http://www.heidrick.com/Offices/OfficeDetail.aspx?OfficeCode=ATL).

Question: Do you see that combining supply management and

    manufacturing responsibilities - at a high level - is happening, and if

    so, do you think it will continue, and why?

Wright takes a wide view of the power of an integrated supply chain

    to contribute to genuine profitability. ―There are four buckets - -

    supply chain planning, manufacturing, logistics, procurement. That‘s

    kind of your integrated supply chain. When you incorporate the other

    functions - Finance, IT and marketing - all of those other pieces get

    tied into it and from a corporate perspective, that‘s what makes the

    whole thing hum.‖

Total delivered cost is what counts

    It‘s not just about profits, but complete integration that gives

    companies what many of them still wrestle with better cost info,

    what Wright calls total delivered cost. ―At the end of the day it‘s all

    about total delivered cost, that‘s why companies get lost. One hand is not watching what the other is doing.‖

He paints a familiar, nightmare scenario. ―Sales, for instance, is

    focused on driving top line - they might be running a special on

    something, or running an ad, but no one tells manufacturing that

    they‘ve got a special running on a product. So manufacturing has to

    run an extra shift to get this product out but if the idea was not to cost extra money in labor or overtime! They wanted to make more

    money.‖ And that, warns Wright, is the crux of the integration/communication problem. ―If there is greater

    communication, greater collaboration, that‘s how companies will do

    better.‖

Green Volvos

    Wright recounts another story to illustrate. ―Three or four years ago

    Volvo found itself long on green sedans, so they ran a special to get

    rid of those greenies. It worked people walked into showrooms and drove off with those green bargains. Green Volvo inventories started

    to drop, when all of a sudden up on the manufacturing production

screen, popped an Alert ‗We‘re short on green Volvos - we better

    get going we‘re scheduling another production run - nobody told us

    about the sale wow, we‘d better make more!‖ And that‘s what

    happens when there is bad communication inside the company!

Well-known examples such as Theresa Metty and Willie Deese aside,

    why is it taking companies so long to integrate manufacturing and

    supply management? ―Most of them,‖ says Wright, ―don‘t get it. It

    goes back to the four C‘s - coordination, communcation, collaboration and compliance that‘s what drives the supply chain, and that‘s a lot of effort, and that‘s a difficult thing to do in any

    organization, and the larger you are, to do on a global scale, it gets

    very difficult.‖

When Jerry York, now a Kirkorian honcho on GM‘s Board, was IBM‘s

    CFO, Gene Richter knew that his mandate - to eliminate maverick

    spending and consolidate to leverage IBM‘s multi-billion dollar spend

    - was clear and well-supported. York, a West Pointer who had also

    worked for Iacocca, has a reputation for being tough and straight.

    Richter said IBM at that time of the turnaround was like a drowning

    man, desperate for a lifeline, no questions asked.

But that is not the case with all companies that truly need to

    consolidate. In fact, Wright feels that ―most CEO‘s are very hesitant

    to issue any mandates - no one likes to do that sort of thing, so it‘s really up to the individuals to go in and influence, persuade and build

    that trust with those relationships, to make things happen.‖ It‘s a

    softer approach, but is it really what American industries, such as

    automotive and its suppliers, can afford to do right now?

How much time do we have?

    Wright believes that the softer approach takes longer. ―And the

    problem is you have to be in those roles long enough to build the

    relationships. Normally if you are not in that role long enough, if you

    move out of that role, somebody has to go back in and start all over

    again. There has to be a commitment at the C level - commitment at

    the ver top - to make this happen. And until people really understand

    the value of supply chain it‘s not going to happen.‖

That‘s tough news for eager professionals in supply management

    ready to tackle the whole enterprise, from Value Engineering and

    supply management, down through manufacturing, packaging, and

    logistics - because it means their next job may still be limited to

    traditional procurement.

Different industries define their supply chain with different borders. A

    narrow view, simply procurement, is missing a lot of opportunity. ―If

    it‘s a retail environment you can pull out manufacturing, but the

    challenge will be planning logistics and procurement,‖ says Wright. ―It

    depends on what world you are addressing. Most people say procurement is where you can have most influence.‖

Our third question was aimed at helping ambitious supply

    management pros and their CEO‘s focus on the right skill set. We

    asked our three executive recruiters if, in the ideal combination of

    supply management and manufacturing responsibilities, it is better to

    bring in a lean expert or a supply management executive? What

    skills/experience would one look for as essential in someone to

    handle both these functions?

It depends….

    The answer, of course, is it depends. Wright feels ―I think honestly it depends on what your problem is. If you are a manufacturing

    company and you have problems on both ends a manufacturing problem you‘re trying to ―lean out‖, and if you‘re not buying well either,

    I would bring in a procurement person. Because here is the thing, if

    you can reduce your costs 5%, to equal that you would have to

    increase your sales by 50%. They still don't get it - the smart ones

    do, the big guys. If you are one of the top 25 consumer-branded

    companies, most of them get it.‖

How much you gonna pay for that?

    But are they willing to pay for the kind of talent and experience that

    can integrate a supply chain and deliver profits? Not always. Wright

    cites a disappointing, but not uncommon, story to illustrate.

    ―Here‘s an example. This is almost sad, but spot-on. I was talking to a company that is a $5B distributor of steel. They needed a

    procurement person who would be responsible for their spend, about

$4B.‖ When Wright asked, ‗How much are you going to pay?‘ the

    response was disheartening ‗We don‘t want to pay him more than more than $200 225k.‘ ‗You‘re kidding‘, Wright responded. ‗Is he

    on the executive team?‘ ‗Nope.‘ ‗Well okay, does he get stock

    options?‘ ‗None.‘ ‗Well, I‘m confused. I don‘t think we‘re going for

    right level. If somebody were controlling 75 80% of my revenues and I didn‘t have them that close to me, I would be concerned that I

    did not have the right person.‘ He looked at me with defiance, and I

    said ‗I think you need to find someone else to do the search.‘ ‗Well,

    maybe I do.‘ Although he tried to convince me to take the search, I

    priced myself out of it. It‘s disappointing, but that‘s the mindset - ,

    here is a $5B company with this kind mindset, and it was coming from

    the CFO! He was in the right place - he should have known better -

    he was thinking small.

―Now,‖ said Wright, ―if that were me, I would want the best person I

    could find in that particular arena of metals, someone who knew the

    commodity metals industry backwards and forwards, somebody who

    could bring me the right deals.‖

What‘s it worth to you?

    What does ―the right person,‖ a well-educated, experienced pro with knowledge of his or her profession, command today? (You can

    exhale now, it‘s good news folks….)

    ―The right person would have been $275 – 300K with a 50% bonus, a $450 500k per year guy, because that person is going to bring an

    additional 5- 7% maybe 10% to the bottom line, an additional $200M!

    So they didn‘t get it, and they are still not a client. There are times when you don‘t want people as a client, because they don‘t get it.‖

Wright makes his living doing search, and he knows a dead-end

    when he sees it. ―Being in the business for as long as I have, I get to

    pick and chose who to do business with. There‘s a headhunter out

    there for everybody. There is somebody who will do that assignment.

    He will do a very average to mediocre job, exactly what that client

    wanted, somebody he could control. But we all know that what that

    CFO really needed is an exec who, when he got bad direction

    would push back.‖

So what is the ultimate measure of the success of combining mfg.

    with supply management? Is it profitability, or simply solid cost

    reduction? Dave Nelson, former worldwide supply management

    chief at Delphi, has seen both, and he is, says Wright, still ranked as

    one of North America‘s top supply management leaders, despite

    Delphi‘s troubles.

―Some things, ‖ says Wright, ―you can‘t control. ―Sometimes you

    bring on the absolute best you can bring on, like Dave, but Dave

    doesn‘t know what has been agreed upon (the GM/UAW contracts,

    for instance), what‘s has been put in place, so his hands are tied - he

    can only negotiate his way out of certain things.‖

―So, what is ultimate measure of success? the ultimate measure is

    having a totally integrated supply chain that is working with all the

    other functions, working well with them, finance, sales and marketing,

    really focused on total delivered cost.‖

Another manufacturing recruiter weights in

    Rich Witowski is a executive recruiter and president of

    Sanford Rose Associates in Greenville, South Carolina

    (http://www.sanfordrose.com/about/statelistings.asp?specialt

    y=SC&submit=Show+Offices). His recent searches have

    included manufacturing management, site management,

    controllers, manager of inventory and cost.

    Witowski posted a unique VP position that combined supply

    management with manufacturing on Monster.com. I wanted

    to know more about this unique search and Witowski‘s

    expectations. I asked how often Witowski saw this type of

    combined position. ―It‘s not something that we see fairly

    frequently - this company is not as big as Motorola and

    they have a unique problem they are trying to solve in their

    supply chain. So rather than trying to hire two people, they

    decided on this new job.‖ In a business that is 100% outsourced it makes sense. Here,

    the product is highly engineered - final operations consist of

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