"One on One: An Interview with Robert G. Talbott" By Roberta J. Duffy, Summer 2004, Vol. 40, No. 3, p. 2
Journal of Supply Chain Management Copyright © August 2004, by the Institute for Supply Management, Inc.
Roberta J. Duffy
Interview by Roberta J. Duffy, editor of Inside Supply Management®
Robert G. Talbott is vice president, supply management for Fireman's Fund Insurance Company headquartered in Novato, California. He is responsible for the strategic sourcing, procurement, contracts and real estate departments for this national property and casualty insurance company. He reports directly to the organization's chief administrative officer. Historically, Fireman's Fund had no formal supply management processes, and the company recruited Talbott in May 2002 to develop and institute the required systems and performance measures. In less than one year, the Fireman's Fund supply management department realized savings of more than $16 million. Talbott received a BS in business from Azusa Pacific University. He had previously held managerial positions in supply management at ARCO and was a principal consultant in operations strategy with PricewaterhouseCoopers LLP.
The Journal of Supply Chain Management: You were recently brought on board Fireman's Fund Insurance Company to implement formal supply management processes where none had previously existed. What were some of your initial challenges?
Robert G. Talbott: Our biggest challenge was to introduce a discipline that is rare in financial services organizations, especially insurance, and to demonstrate that significant benefits can be achieved without sacrificing quality or service. As is typical in many services companies, the only coordinated supply management activity prior to 2002 was for IT equipment and travel and entertainment. All other spending was done at the individual business level. We sometimes found the same suppliers charging different fee rates to different departments. There was no requirement that goods or services be competitively bid. As a supply management department, we also needed to prove that we weren't going to substitute existing suppliers with lower-cost alternatives just to save money. We needed to demonstrate that we have methods to consider and weigh all the subjective elements that affect the value of a good or service. The best supplier may not have the lowest purchase price but will have the lowest total cost. Previously, supplier qualification was based on subjective factors such as past experiences. The supply management department implemented a supplier prequalification and risk assessment process enabling an objective set of measures to identify the strengths and weaknesses of supplier candidates. The measures use credit scoring, business health, experience and management incumbency. Internal clients quickly appreciated that these tools were based on sound objective measures and often validated the strength of incumbents. At other times, the tool identified a level of risk that we needed to bring to our internal client's attention. In those cases, the tools revealed insights and additional information about business risk that our clients could use to make informed decisions concerning the risk versus benefit from using a supplier.
The Journal: What were your first priorities when you came to Fireman's Fund Insurance Company? How did you start out?
Talbott: I asked for and was given six months to understand the situation before I committed to deliverables. For the first six months, I gathered information, retooled the department and developed a vision. During the restructuring, we had nearly 80 percent turnover in the supply management department. We didn't replace people. We introduced new skill sets, attitudes and a sense of opportunity for the organization. For example, for a sourcing specialist, I sought skills in communication, team management and internal customer focus, in addition to supply management, negotiation and industry experience. When recruiting new team members, I hired 50 percent skill and 50 percent attitude. I viewed strategic supply management skills as higher priority than experience in the insurance industry. Now, I have about 40 people on the supply management staff, and two of them have insurance or financial backgrounds.
The Journal: What goals did you initially set? What successes have you seen?
Talbott: We have both annual and program goals. Our program goal is to save the company $75 million for the years 2003-05. In the first year, we realized more than $16 million. For 2004, we are on track so far to meet our cost-savings goal of $20 million. In 2003, we took actions that saved $16 million but also had a $12 million "tail" into 2004 and 2005. Usually, this reflects savings from a multiyear agreement. These follow-on year savings will apply to our program goal of $75 million but not our annual goal. Even though we identified $12 million in savings for the year 2004 during 2003, we don't count those toward our annual goal, which is $20 million. The reason we structured the goals this way was to provide a disincentive to get into a less than optimum deal simply because it's the end of a quarter or year. During 2003, we consciously deferred agreements into 2004 if it meant a better agreement for Fireman's Fund.
The Journal: How did you begin to earn trust among internal users, who were not used to working with a strategic supply management department?
Talbott: Frankly, it was the low-hanging fruit that paid our admission to get the attention of individual business departments and company executives. There were several cases where we could consolidate contracts and bring multiple users in on better negotiated rates. This allowed us to gain credibility and take the organization's supply chain management opportunities further. From there, we needed to have the ability to dissect the company's spending patterns and validate our spend. Previously, we didn't have the structures in place to capture categories of spend by buyer or spend type. The systems centered on the regulatory requirements of insurance accounting. They were very accurate for that purpose but didn't serve the purpose of telling us what we buy and from whom. We contracted with a third party to help with the initial spend analysis, but we believe the systems we are currently implementing will allow us to do that analysis in-house. Another critical point in gaining acceptance was to help our clients understand that we are completely aligned with their objectives. For example, we won't take lightly our responsibility to our policyholders. The timely and fair settlement of claims is a key part of our business that will not be compromised in order to simply save money on claims services. We needed to convey this clearly to our internal departments so they would place their trust in us.