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A Great Meeting – Insights on the Future of Procurement from BP, Caterpillar, Duke Energy, and others

We had a series of great presentations this week at the SCRC meeting.

Bill Knittle from BP first presented his experience on building a supplier performance measurement system, and how this has evolved into a true supplier relationship management system.  He talked about the importance of segmenting the supply base, and building out a small cadre of suppliers that were truly vetted, before attempting to build a strategic solid relationship.  This involved application of not only a standard portfolio management appraoch, but surveys of supplier views on how they viewed BP as a customer, as well as a power analysis to identify the relative balance of power in the relationship.  His key question at the outset of every strategic supplier meeting:  “How do you view the opportunity of working with us as a partner, given your history with BP?”

Bill noted that “For those we are ready to take to relationship management – we have to ask both the supplier and our internal team – what is the real value of doing it?  What are the value opportunities?  The net result of this exercise is we got down to less than 1% of the supply base to be part of a strategic relationship.  I sit on advisory boards with Honda and Cisco – and they would agree with us on that – you can only really build truly collaborative stratgic relationships with the top 1%  of total supply base.”

Next on the docket was Ron Reising, CPO of Duke Energy.  Ron provided another compelling view on the Future of Procurement, and shared the organization model Duke Energy is using to build their merger activity and integrate a diverse supply base.   A supply chain implication of a merger is to understand not only what are the common suppliers, but also the common best practices that have to be identified.  The supply chain group has guaranteed Wall Street analysts savings  – and this is both a challenge and an opportunity.  The opportunity is that the savings goal is a real goal that every part of the business (Fossil-Hydro, Transmission and Distribution,  Nuclear, Major Projects, and Enterprise) had to buy into.  Ron noted that “Merger was almost a lab to compare and contrast different models – and was there a really good sourcing model that would work in each business?”  A core part of the strategy was to recruit people from each of the businesses to drive category strategies – and that the activity is still on-going.”

Pat Murzyn of Caterpillar shared a compelling presentation about procurement transforamtion, and the incredible impact it is having on the organization.  He used the metaphor of a caterpillar transforming itself into a butterfly – it is a messy and gooey operation, but the net result is incredible.  Along the way, people have to shed things they used to have, and have to learn new ways of living and breathing and sustaining.  This powerful metaphor served as a vision for discussing the massive changes in supply management at CAT, including the focus on analytics, P2P, end to end integration, and category strategy, The rubric he followed covered the following approach:

Know the company

Know the organization

Know the gaps

Know the approach

Know your processes

Know the data and technology

Know the people

Deliver results and expect changes

Chris Hitch from the Shelton Leadership Center spoke on the importance of Value-based Leadership.  He emphasized on the importance of understanding first your own values, and then putting in a plan to act on those values in the things you do and you seek to do.  The issue of leadership is one we will continue to emphasize in our discussions…

Jason Schenker from Prestige Economics provided his bi-annual update on his predictions for the global economy.  The basic message – more of the same.  Don’t expect a huge amount of growth, until perhaps 2014 when things may improve marginally.  He also shared a dismal view on the state of unemployment – and the fact that the figures don’t reflect the massive number of people who have dropped from the workforce, as well as the crisis of young people who remain unemployed.  Predictions including increased pricing on commodities and oil – and in 3-4 years an increase in interest rates that is inevitably coming.

Finally, a good friend, David Minshall, provided his lessons learned from working 40+ years in procurement, based on experiences at J&J, Suncor Energy, Enbridge, and other various companies.  He emphasized that procurement doesn’t have a seat at the table beause they have failed to articulate the opportunity well enough.  He also shared his views on talent – and that companies need to recruit more humble, smart, and hungry students who can challenge the status quo, and be assigned not just to tactical problems, but real strategic issues.  His views concluded with the idea of the importance of properly stating the business case through a position paper for all category strategies that results in a clear statement of what you intend to do, and then doing it.

I want to thank all of our speakers, the students for their great projects, and all of the others involved in putting together this great meeting!