Mar 03 2007

The Two Buyers

Published by at 3:44 pm under Uncategorized

Each buyer’s philosophy requires he keep production going with quality parts at a fair cost, their styles are different.  Usually one is only successful. 

In my years as a consultant, I have the pleasure of working with many buyers.  Here are two I worked with on a long term basis.  They both had essentially identical jobs, in the same industry, with approximately the same amount of parts to mange and dollars to control. While you’ll never have the pleasure of working with either of these two individuals you might think about their philosophies of being a Purchasing Agent.

I worked with Mike for three years.  When he wasn’t in his office he was usually in engineering ‘explaining’ to the engineers that HE was the only one with signature authority.  If his name wasn’t on the Engineering Change it didn’t happen.  The designers and engineers never went to a supplier without Mike in the back seat of the car to authorize the change on the spot. Engineering got, unless there was an earth shattering reason, a maximum of three engineering changes for any part.  Giving the suppliers dozens of them during a project drove everyone crazy.  You bundled your changes.  The first group was sort of a mid-course correction.  The second was after the first parts were made.  This was a tune-up to overcome the inevitable ‘oops’ mistakes that happened.  The last change (and he was insistent on this) was the change that caused the designs and the approved parts to match up dimension for dimension, test for test.  This last changed removed any possibility of a good part being rejected because it didn’t fulfill all its requirements during a quality audit.  An acceptable part was one that worked, an unacceptable part didn’t.  Period.  It was up to engineering to make sure that definition was measurable with data, not opinions.

When I once went hunting with Mike he explained his purchasing philosophies over a campfire:  “I order, you ship.  You invoice, I pay.”  It was that simple. He negotiated minimum and maximum inventory levels at the vendor’s giving him the luxury of push backs and pull ups as the production requirements demanded at a fixed negotiated unit price per shipment.  Volumes of parts per month were determined by the number of shipments, not the size of any one shipment.

He believed in Delivery Performance: Perfect Parts of acceptable quality, On Time – within and plus or minus three day delivery window, All The Time – you had to keep a consistent track record.  Every month he published a report that went to all his suppliers.  It reflected his Perfect Parts, On Time, All The Time philosophy in a point system.  By using a report coded with supplier numbers, every supplier got to see their ‘batting average’ for the month and year AND how they were performing against their competition.  At the end of the year the supplier with the worst batting average was either dropped or had his business severely cut.  The suppliers with the best average were awarded more business that they didn’t have to bid on.  In all the time I knew him production never was threatened by any part he was responsible for.  He wouldn’t tolerate it.

Mike was a patriot and a conservative.  Whenever someone would come up with a new supplier half a dozen time zones away they were put on equal footing with the local suppliers on the point system. They very quickly failed. Before awarding business based on the ‘China Price’ philosophy he’d point to other buyers with a staff of expeditors who were in a constant state of crisis management because defective product had showed up in a long supply chain and they didn’t know where it stopped and started.  Mike believed in ‘overall cost’ which included the complete cost of expedited shipments (the part cost plus the cost of the expeditor and the premium freight).  In the long haul local suppliers could be proven to be less expensive: their supply chain was shorter, they reacted faster, and their customer service was better.

Mike believed in automated systems.  Orders were placed electronically via an internet MRP system.  He continually told suppliers if he knew their telephone number by memory they were in trouble.  He liked suppliers he could do business with, not those he’d have to continually educate, solve problems with, or harass about delivery or quality issues.  When costs beyond anyone’s control increased it only required acceptable documentation before he’d go to bat for his suppliers.  However if those same costs decreased, he was quick to remind his suppliers and took a cost reduction.  He encouraged price reductions through productivity improvements.  The more capacity you had available, the more business (profit) you could accept.

When Mike was in his office, he’d usually be reading the trade magazines and harassing the engineers.  When he retired, he and his wife went to their cabin in Montana to spend the rest of their years fishing, hunting and spoiling the grandchildren.

I knew Rich for five years.  Rich believed being a buyer was a consistent fight with the engineering department and his suppliers.  Rich had three expeditors working for him and they were fully employed.   Production was constantly on the brink of being shut down for lack of acceptable parts or miss shipments.  He never looked at the Total Cost of any of his parts.  If keeping production going meant overnight freight from Hong Kong, it was cheaper than shutting the lines down and freight was somebody else’s budget anyway.

Rich’s office looked like a recycled paper dump.  He put in many late nights catching up on engineering changes, production schedules and delivery requirements.  He believed most of his supply base was out to overcharge him.  He spent many hours arguing with his suppliers over price or delivery.  The favorite part of his job was his idea of Vendor Management:  handing out ‘tasks’ to demand they figure out how to drop their prices by 5-15% within the next two quarters.  To fail at these Tasks meant you’d lose business.  To succeed meant you’d have the luxury of staying on the bid list with the possibility of future business.

In his frustration Rich continually changed suppliers.  He’d pull a job and place it elsewhere then spend the next six weeks (sometimes months) ‘getting the supplier up to speed’.  He liked the “Five Percenters” who were salesmen in the front lobby who’d tell anybody who’d listen they could do any job for 5% less than what they were currently paying.  He’d use them as a club to beat his current suppliers with.  But when he made the move to the Five Percenter’s company, although the price was low, he politely ignored that their delivery and quality was totally unacceptable.  While he understood their sales pitch was a lie, he always fell for it because “Cost Is King”.

Rich didn’t believe in price adjustments.  If raw material prices tripled, he didn’t care.  He wouldn’t allow a pass through because that was the supplier’s problem not his.  Because of this (to his surprise) over the years several of his major suppliers asked him to take his business and go elsewhere.  Naturally the new supplier used the current (higher) raw material price in his bid.

Rich believed he was smarter than his company’s MRP system.  This led either to job threatening shortages of parts or excess inventory (“Safety Stock”) gathering dust in the warehouse.  Rich believed Supplier Management was an exercise in control:  He demanded, you complied.  It was a privilege in doing business with his company.   He never found a supplier he could like.  Prices were always too high, performance was never good enough, they never kept their promises, and customer service was always lacking.

In his mid forties Rich got out of purchasing.  One morning they found him slumped over his desk dead of a heart attack, having half-written an alimony check to one of his several ex wives he ‘managed’ like his suppliers.

Because this article is free, wasn’t generated by a computer MRP and no buyers were killed in writing it (save the above mentioned one), it can be considered an Egg from the Golden Goose or meritless and without value.  Its only righteous use would be to scare buyers.  If you’re a supplier, pass it along.  If you’re a customer go down to purchasing and have the ‘resident professionals’ read it.  You can even use it as a text for an American Purchasing Manager’s breakfast talk.  It might cure a few ulcers.

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