"One on One: An Interview with Gene Richter" By Marilyn Lester, Winter 2000, Vol. 36, No. 1, p. 2
Journal of Supply Chain Management Copyright © February 2000, by the Institute for Supply Management, Inc.
Marilyn Lester, a freelance writer based in New York
R. G. (Gene) Richter, vice president and chief procurement officer of IBM Corporation, joined the organization in August 1994 with more than 30 years experience in purchasing. Prior to this post, he was executive director of procurement at Hewlett Packard from 1988 to 1994, vice president of purchasing at Black &anp; Decker from 1984 to 1988, and held various purchasing management positions at the Ford Motor Company from 1961 to 1984. Mr. Richter earned a bachelor’s degree in marketing and economics from the University of Maryland, and a Master of Business Administration from the University
The Journal of Supply Chain Management: IBM is an 88-year-old organization that recently reinvented itself in the development and manufacture of information technologies. Total revenue in 1998 was $81.7 billion with a net income of $6.3 billion. Forty-two billion dollars of that revenue was spent in purchasing dollars. The number of employees worldwide totals about 291,067. How would you describe your role in this huge buying organization?
Gene Richter: I have responsibility for production and distribution (largely transportation) procurement, and for customer solutions and services procurement. The latter entails buying for internal users and for customers who outsource information technology (IT) operations to IBM under IBM Global Services. My time is mostly spent visiting IBM sites — our purchasers and procurement
engineers are distributed all over the world — reviewing objectives and current and future performance, and visiting major suppliers who are much more vital to IBM today than 10 or 15 years ago.
Journal: Why is that?
Richter: Were much less vertically integrated now. Ten years ago, less than 30 percent of revenue was spent with outside suppliers; today its over 50 percent. In the past, IBM was internally focused; we didnt place trust for mission critical assets in an outside supplier. Now we routinely give outside suppliers our trust and responsibility for very important items.
Journal: What challenges are uppermost and unique to your organization?
Richter: The uppermost challenge is e-procurement: a 100 percent conversion to purchasing over the Internet. We set a goal for 1999 to get 10,000 suppliers online to IBM, purchasing $12 billion worth of goods and services, which weve met. We believe were leaders in this area and the challenge is to stay in that position: were not the only ones who figured out the Internet is a faster, easier, and cheaper way to buy. Consumer transactions online in 2000 may amount to about 10 percent at most. That means 90 percent is going to be business-to-business. Thats where the phenomenal growth and economic payoff is going to come. The consumer will benefit because the cost and speed of business transactions will shrink dramatically. Another challenge, which is unique to IBM, is procurements strong participation in Global Services. We participate on bid teams, for example, when were trying to competitively bid with a customer to have their IT operations outsourced. Its a challenge to partner with Global Services to provide value to help them expand and become more competitive in the marketplace.
Journal: How does your work at IBM differ from your previous career experience?
Richter: Thirty years ago, I started out negotiating with the typing pool to get my orders out. Its a whole different world now. We have a large consulting arm for services for customers, who tend to be unique with different goals and needs. At other companies Ive worked for, we didnt do this kind of purchasing at all. E-procurement is entirely new.
Journal: Youll be retiring within two years. Where do you want to take the organization and what kind of a legacy would you like to leave your successor?
Richter: Id like to leave IBM having achieved leadership in e-procurement and Id want my successor to continue IBM leadership there — the Internet is a marvelous tool thats going to make us more effective than we could have ever been using the old tools. We can use it to make the organization more competitive, with procurement having a more strategic role in the company. Id want my successor to be creative and innovative, and exploit the Internet in ways we havent even thought of today — theyre there.
Technology leadership is another important direction. The engineering arm of IBM procurement works hard to make sure we are dealing with the best of the best in the supply base, and this emphasis should continue. If you dont make sure you have the worlds technical leaders in your supply base, you are doomed. Technology rolls over every three or four years in this industry, heading to every two or three years, and the leaders keep changing. So you have to keep up or you put your company at risk. You have to know who tomorrows leaders are going to be by studying their research and development efforts and whats going on in their engineering departments. Then you have to cultivate, establish, and strengthen relationships with those suppliers.
Journal: What key factor will allow you to accomplish your goals?
Richter: Thats easy — the key to success is build a strong team by good recruiting, sound policies, and a large investment in training and skills building. Training is everything. We spend a lot of time training our people in what we consider world-class procurement techniques.
Journal: What is your strongest asset in this direction?
Richter: Experience! Ive seen procurement done well and not done well. Ive seen budgets cut and therefore training and recruitment likewise cut. You pay a big penalty for that. You need to be focused constantly on the future and where you want your organization to be in the future. You cant just optimize for today.
Journal: What has been your biggest lesson learned in purchasing?
Richter: Keep looking ahead.
Journal: Where do you see purchasing and supply management trending in the future?
Richter: Outsourcing will continue to grow and I think it will become a major trend in Europe and among the larger Asian companies as well. Inevitably as organizations outsource more, they become less vertically integrated, less dependent on internal resources, and more dependent on their suppliers resources. Therefore procurement becomes a more vital function in the company. The structure of purchasing may change, too. For instance, procurement may report to a higher level such as the chief operating officer. Purchasings structure will also be centralized, not physically, but organizationally. This will allow the organization to leverage its buying power and its expertise.
Journal: How well is purchasing and supply management prepared to meet the future?
Richter: Purchasing is prepared, though different organizations may be moving at various speeds. Whats interesting too is how the Internet is leveling the playing field between big and small companies. The Internet is the perfect tool for the small company. This is a spectacular revolution thats been handed to us and Im glad I got to be in on the start of it.