What I learned when I was Supply Director of a Telecoms Company.
My daughter, Ruth, told me the other day that she was surprised that I never used examples from my past career(s) as case studies in my blog, although I do refer to past experiences at times and all I have to say is informed by the apparently endless list of things I have done in my working life (If you’re really interested CLICK HERE). What she said got me thinking, as I have rarely even told my customers much about my adventures in the corporate world, so today I thought I’d try and summarise what I learned when I was given the challenge of sorting out the Supply function of a rapidly growing telecoms company in the 1990’s.
I got the job because I had proven myself to be adept at sorting out other “problem children” in this large but relatively immature company: Purchasing & Logistics, as it was known internally, had a few problems, not least of which being £140m of stock on the balance sheet. To say that it was a surprise to my new team that a “Supply virgin” like me should have been given the job is something of an understatement, but one day I found myself in charge of a large, and complex area of activity with lots of staff and even more suppliers (actually 20,000!).
Whilst the story really deserves a book of its own, rather than a blog post, here are the main things I learned in two years doing this job, during which time I transformed the activity, reduced stock levels to £25m, culled most from our supplier base so we had less than 1000, and even became a member of the Institute of Purchasing and Supply into the bargain. If you are buying stuff, I suggest you think carefully about the following:
- Whilst buying commodities is fundamentally about control, it can be designed to work without too much intervention once processes and controls are put in place; however, big ticket purchases often demand a more strategic approach. Purchasing strategy is a greatly underestimate professional activity and it can create huge value at times, often by thinking creativity about the design of the supply chain and doing things differently. The simplest example that comes to mind was our large inventory of microwave radio systems. When I arrived they had a 16 week lead time, when I left it was one week; imagine the impact on the business, as we had a very large microwave radio network.
- Tactical, or strategic, make sure you get what you want, not what someone wants to sell you. It does mean though that you need to be fairly clear about exactly what that is: a prerequisite is a clear strategy for the business and that is not always easy to find.
- Appoint a strong leader to manage Purchasing and let them get on with it. Make them a director and give them both power and the freedom to run it imaginatively and somewhat entrepreneurially, as a “profit centre” where you can measure the economic impact of new initiatives. Don’t get dragged into the multi-level selling game if you are a senior “bod”: whilst it is very nice to do all the corporate hospitality and get your ego stroked, it will cost the company money in the long term.
- Choose a supplier to whom you are important. Never buy from big companies, if you can find a smaller company that can provide much the same thing, as you will almost always get better service and delivery from the smaller company. Big companies will often treat you with contempt, no matter how much money you are spending, if you let them.
- Always have a second source of supply, even if that requires an investment of time, energy, and money for more strategic purchases and never outsource competence in an important functional area, or one that delivers part of your differentiating proposition to your customers. For instance, if you outsource Property you will soon find yourself a very inexpert purchaser of property services and that will cost you in the longer term, far more than you save.
- Monitor the performance of the supplier, give them feedback and test the market regularly.
- Don’t allow anyone to take gifts or hospitality from suppliers.
Most of my clients these days are small companies, often selling into bigger businesses with less enlightened Purchasing functions, approved suppliers lists, and even compulsory tendering processes, to contend with. If that sounds like you then maybe you should be looking to expand your customer base away from such demanding hurdles: I’m a fan of the idea “only sell to those who demonstrate they want to buy from you”. All this might seem irrelevant to a smaller business, but it isn’t, as the best opportunities to win business for the first time are from the more enlightened organisations, ones that think a bit like I have outlined, with strong and forward-looking leadership: perhaps you should prioritise them?
Some of the above also applies to a small business making big purchasing decisions too: think strategically and make sure you are very clear about your business strategy first, and then decide exactly what you want from a supplier before looking for one. “Shopping” should not become a substitute for a plan. Ignore the freebees and keep suppliers at arm’s length as much as you can and always have at least two sources of supply. Then choose the supplier to whom you are most important, if you want the best delivery and service, and monitor their performance, telling them what you think in some organised way.
If you think that the above is obvious, congratulations, you are one of the enlightened few.
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