If You Can't Beat Them, Join Them - Inter-Company Teams - An Innovative And Effective Route To Further Cost Reduction
Gerrit Kasteel, Director of International Purchasing, American Cyanamid Company, Ingleheim, Germany 55218, +49 6132/789201, firstname.lastname@example.org
Peter Evans, Ph.D., FCIPS
Peter Evans, Ph.D., FCIPS, Principal and Director of Strategic Purchasing, ADR International Purchasing Consultants, Bracknell, Berkshire RG12 1RP, +44 01344/303078, email@example.com
84th Annual International Conference Proceedings - 1999
Abstract. As the new century approaches, many leading corporations are expecting their purchasing groups to continue to produce improvements in the cost and value delivered from their supplier base. Many people ask us the question "how to you keep reducing cost and delivering incremental value year on year?"
In this presentation we shall demonstrate ways of addressing this issue by releasing the value in the supply chain by using the resources of both the customer and supplier in a concerted fashion. We shall illustrate that this is not a "rocket science" approach, rather a result of building trust and confidence between the parties to create the climate needed to generate significant benefits to both parties. Difficult issues such as resolving disagreements without conflict, developing opportunity location methods and obtaining consistent senior management support have to be overcome.
Naturally, we need to recognize when and how to deploy these inter-company teams and to realize the critical aspects of the relationship between the two companies - both at senior level and in the operational areas of implementation. We shall discuss the different skills and techniques which must be applied to the inter-company team situation and to highlight the importance of communication and developing effective Performance Indicators.
Finally, two case studies will be described where inter-company teams proved to be an effective solution to difficult situations.
The Opportunity. Inter-company teams can offer the prospect of improvements from the supply chain beyond those which can be realized from the application of leverage techniques. They offer:
- The application of additional resources without expanding the purchasing headcount
- Truly cross-functional approaches, due to the involvement of the best "expert" resources
- An in depth process approach which strengthens the reliability of the supply chain
- An increased appreciation and understanding between the two businesses
Objectives. The objectives of this presentation are:
- To create an understanding of where and when inter-company teams can be successful
- To illustrate how these teams can be set up and to indicate the key features of their effective operation
- To show the benefits from inter-company teams by reference to case studies.
Selecting Categories for Inter-company Teams. One of the first key questions is when and for which categories of purchased expenditure are inter-company teams a productive mechanism for increasing value? Once again, we make no excuses for returning to the basic Portfolio Analysis matrix to identify that those categories in the STRATEGIC quadrant (where there is high expenditure and there is a significant amount of market difficulty) would appear to be prime candidates for such team working. Figure 1 describes Portfolio Analysis.
In the STRATEGIC segment it is likely that the selection of possible alternative suppliers is quite limited and the possibility of using a tactical or LEVERAGE approach to managing price and maximizing the value delivery will be limited.
Naturally, before starting off the inter-company team process, it is important that the more commonly used purchasing techniques have been deployed perhaps to the extent that their effectiveness has been exhausted. We would expect that the category had been managed by using a selection of approaches such as the following:
- The creation and stimulation of competition
- Tactical price negotiation
- Use of Purchase Price and Cost Analysis (PPCA)
- Creation of packages and other volume leverage methods
- Market Analysis and Supply Chain Analysis
- Consideration of alternative solutions or different materials
- Starting to take advantage of the relationship with suppliers
The initiation of inter-company teams will radically change the relationships between the supplying company and the purchaser. We use a simple model of Relationship to demonstrate the importance of understanding and controlling the relationships with suppliers. See Figure 2.
This Relationship Map shows the progressive nature of relationships between businesses and gives some of the key differentiating features of the different types of relationships. It is important to realize that Relationships can develop in TWO directions - they can get closer, but they can also deteriorate when the participants are unable to resolve points of difference.
It is vital to define the nature of the relationship with suppliers and to establish the appropriate level of relationship to ensure that the required amount of value is delivered from that supplier. It is far too easy to say "lets all be friends and have a partnership". We will strongly challenge the need for close relationships unless the resources invested in the association can produce an appropriate level of measurable return. We have always insisted on using the word PERFORMANCE before PARTNERSHIP when used to describe commercial relationships. This indicates that the relationship is underpinned by a joint commitment to delivering tangible benefits to the partner.
The Process for Inter-company Teamwork. There needs to be a well defined method for establishing and chartering the inter-company team with the demonstrated support and commitment of senior management on both sides. The selection of the leaders for the Teaming activities will be a crucial factor in the success of the process. There may be a need to structure teams at a number of different levels and it is usual to have a top level group to discuss, agree and define the PRINCIPLES which will form the bedrock of the new working arrangements.
Quite often the inter-company team will be a logical progression from a cross functional team already working on supply management issues.
Other issues will need to be addressed, such as:
- Resources for inter-company team activities, this will need to be reviewed in terms of quantity and quality of personnel to be committed
- Locating and defining the opportunities to produce better value from the relationship for both participants
- Deciding on the Key Performance Indicators (KPI's) to be used to monitor progress
- Recognition and inclusion of the"stakeholders" from both businesses
- Communication of progress and successes
- Training of the team participants in both the techniques that will need to be applied and in effective ways of working in team situations
- Resolution of disagreements and disputes - this is one of the most difficult issues to be resolved and often requires a senior management intervention
- Planning and implementing the actions agreed in the team working environment
- Status reviews and re-assessment of goals and objectives
- Recognition of the value of the work done in the inter-company team in the performance appraisal of the individual team members.
The inter-company team will probably follow the conceptual models that we presented at NAPM in 1998 using approaches such as the POPP model shown in Figure 3.
Case Studies: Two case studies will be presented to illustrate the ways in which inter-company teams were used to create significant extra value to both the purchasing company ant to their supplier. We will highlight some of the practical challenges that must be overcome, and we will present both a summary of the processes used and a selection of the techniques deployed in reaching the desired future state.