The New Millennium Purchaser/Supply Manager - Taking the Entrepreneurial Approach
Patricia M. Patterson, C.P.M.
Patricia M. Patterson, C.P.M., President, Patterson & Associates, 4721 Allendale Avenue, Oakland, CA 94619, 510.533.0680.
82nd Annual International Conference Proceedings - 1997
Introduction. The effective Purchasing/Supply Manager going into the 2000's is much like an entrepreneur, who must be knowledgeable about all aspects of his or her business, and play an active role. This presentation uses a formal business plan and its major sections and provides a comparison of the similarities of the two -- purchaser and entrepreneur.
The Issues. As companies continue to right size their operations, ongoing questions for purchasers include "how do I make myself more attractive" or "how do I bring myself up to speed with the new requirements of the position of purchaser to a company in transition?" This session deals with preparing oneself for the future, the new millennium, by taking an entrepreneurial view of the situation. The successful entrepreneur must wear many hats, juggle many pins at once to be responsive and on top of the business situation. The purchaser's job has expanded to a much broader position, in which the professional must also wear many more hats than ever and operate very much like an entrepreneur. This discussion describes the basic elements of a business plan and how they parallel with the business of being a successful purchasing manager in the 90's and into the 21st century.
The Business Situation in General. Years ago, as an employee of a major telecommunications company, I went through quite a bit of preparation for upcoming changes in the industry. The change management process was in full swing as employees prepared for divestiture and different ways we would conduct business....no more "mother company" concept. We would operate as independent companies, with fewer directives, less formal procedures, more decisions left up to managers/purchasers, and greater emphasis on "the customer." Customers? Some thought we had no customers. Some felt that if they don't like us, go elsewhere, only there was no "elsewhere"...back then. Now look at the telecommunications industry. Today, customers are well known and nowadays, people do have choices and can go elsewhere. Employees, managers, and purchasers had to adapt to many major changes in the way they operated....and quickly, or were deemed non-responsive. Change and uncertainty were a regular part of business.
Purchasers who spent any length of time in their purchasing departments also were part of the periodic shift from centralized to of upper management, the pendulum might swing the other way from decentralized back to centralized procurement....with all the in-between variations. As purchasing professionals, the unending job was to carry on with the challenges of the company's procurement goal of obtaining the right product at the right time for the right overall cost, and so on. All in all, the role of the purchasing professional meant that functions were performed, while at the same time keeping an eye on the climate of the organization (both procurement and the company you worked for). The role of the purchaser, as with most positions in companies today is much more complex than that of the 70's and even the 80's.
The successful purchaser in the new millennium, and actually in today's environment--must have a diversified portfolio of skill sets and experience, much like that of an entrepreneur. One only has to think of some of the entrepreneurial success stories and what comes to mind are things like: the ability to change quickly, to respond quickly and to be innovative in coming up with business solutions. These are some of the same attributes that a purchaser can use and take advantage of in day-to-day business operations. These and others that will be mentioned later, can put the purchaser out front, with competitive advantages for the years ahead.
I've prepared a number of formal written business plans for small businesses, taking the entrepreneur through the process of detailing each of the significant parts of his business. As the sections of the plan were developed, key skills and experiences were brought to the surface, that were "aha's" for the entrepreneur. In other words, they had each been doing what they do "managing the business," but most had never put much down on paper. Each business plan became a valuable assessment for the business person of what was in place and what could enhance their skills set.
At the same time, after doing several presentations and projects with much larger companies on the need to shift the purchaser's role from the "order taker" role to that of a more proactive, team oriented, supply manager, the correlation between the work I'd done with business plan process and the supply manager came to mind.
The business planning process for an entrepreneur takes the person through a thorough analysis and planning process to truly understand the business and all of the key facets of the business, if not addressed, can be the downfall of that business. The process forces the entrepreneur to make decisions and address how each section of the business will be managed. Many entrepreneurs never go through the process--they are many times experts at the service or about the product that they provide, yet they do not address the other facets of the business. If left untouched, or handled only in crisis time, those areas can bring the business to its knees, leaving the owner perplexed about what happened. The thorough business planning exercise is an eye opener to the many facets of a successful business.
Today, many companies encourage employees to operate their units or departments like profit centers, much like small companies. This places managers in more of an entrepreneurial role and the processes much like those of small business owners. A review of the entrepreneurial business plan can be a useful tool to compare existing skills/expertise and to identify additional needs.
The Business Plan. The Business Plan is a tool that addresses the most significant areas of any business, through a review and assessment of current conditions and plans for going forward. It is a living document, developed by the entrepreneur and it forces its owner to take time to decide on directions he/she will or will not take. We will think of the new millennium purchaser as an entrepreneur and use these significant areas as topics to parallel, examine and ask how they relate to the purchaser.
Sections of the Business Plan.
- Executive Summary - Summarizes the entire business on two pages
- Management & Organization - Who is the management team? How do they contribute? What are their skills, responsibilities?
- Products & Services Plan - Full description of products, services provided
- Marketing Plan - How will the products get to the customers?
The Industry - What is known about the industry, trends?
Competitive Environment - Who is the competition, what are advantages?
The Customer Profile - What are customer characteristics, needs?
Sales and Marketing Strategies - What is planned to attract, retain customers?
- Operations and Control Systems - What processes are in place, what systems are used to deliver products, services?
- Financial Plan - What are the financials, costs incurred, pricing issues?
- Long Term Development and Growth Plan - What are long term plans and continued improvement plans, growth issues?
The process. We will go through each of the business plan sections, as entrepreneur and then reflect on the purchaser role and highlight skills. A chart will follow that can be used as a guide in laying out the process and completing your own responses to the questions. We will leave the executive summary for last, as is done in a business plan process. It becomes the collective overview of the entire business, once each of the key sections has been hammered out. The same will hold true for the purchaser. We will return to the executive summary of the purchaser, once each area has been discussed.
The Business Plan:
Executive Summary: to be completed last
Management & Operations: This section deals with a description of the leadership team, the managers and any others that will be involved in the business. A good biographical sketch is usually included on each person. This lays out the skill sets and contributions that the manager brings to the table. In addition, a good description follows that details the duties and responsibilities of that person.
So, let's start with the purchaser. Can you lay out a good biographical sketch that details what you bring to the organization? Do you have an up-to-date resume? It is not unusual to have never prepared one, particularly having been in the same organization for 10,15 or 20 years. It can be a harrowing experience - much like a trip to the dentist. Clearly, the exercise of resume writing is highly beneficial. The act of pulling together past performance evaluations, old copies of your accomplishments, grabbing that old worn down, dog-eared folder called personal stuff, can boost one into the resume writing exercise. Prepare a resume and it will certainly cause you to do an assessment of where you've been (or haven't been), what training and experience you've attained, plus provide all sorts of other benefits.
Entrepreneurs, after working through this section, suddenly see that they've done much more over the years than they realized. It also permits one to look for holes or missing attributes that need attention. As an example, let's say there is no mention of computers or systems after the resume is completed. This probably suggests training is needed in this area. How about teaming or working with groups, another area of importance as purchasers work more in cross functional teams. Again, a review of the resume will highlight "to-do" items for your immediate attention.
The next part of the management & organization piece is the description of duties. The entrepreneur should be able to list all key duties. The purchaser should also know specific duties and there should be no questions about full responsibilities. There should be real clarity about roles and if there are changing responsibilities, meetings with the team leader or supervisor are important here. The entrepreneur will look beyond the immediate role and will anticipate, and so should the purchaser. The changing role includes that of cross functional team leader, proactive advisor, dealing with different levels of management, different customers, different suppliers, each with their own characteristics. Managing Differences, or diversity as it is now called is a key skill set for the entrepreneur and the supply manager/purchaser. As we go into the new millennium, diversity will be heard more frequently, and the person who recognizes and manages differences, in management styles, learning styles, customer needs, along with the more obvious race/gender/ethnicity issues, will be the one with the competitive advantage.
Products and Services Plan. For the entrepreneur, this section of the plan lays out the fine points about the product or service that is provided. Questions answered in this section show the reader or potential funder that the entrepreneur knows everything about the product/service. The purchaser should know the same about the products/services he or she provides. There should be a thorough knowledge about the products, what problems they solve, what the unique features are, the history, future trends--they newer products coming down the pike, any government restrictions, OSHA, FDA, EPA issues. The purchaser should know of product liabilities, and related services, as well as spin-offs projected. The purchaser should be knowledgeable about any potential issues regarding material shortages if the product is manufactured and any environmental issues. Issues regarding any crisis management issues should be understood and the purchase well aware of actions to be taken. The entrepreneur, in her/his business plan, will have addressed each of these issues. The purchaser should work through these same items through research and with suppliers and be able to communicate information to users. This adds to the purchaser's credibility and value to customers as the true subject matter expert, up on the issues.
Marketing Plan. This section, for the entrepreneur, describes in detail, the marketing strategies that will be pursued to compete in the market place. The plan analyzes the needs of the marketplace and how those needs will be met. The purchaser should be able also to look at the "marketplace," both in and outside the company and his/her customers and develop strategies for meeting their needs. The entrepreneur will need to lay out information about the industry in which he will operate. Same for the purchaser. The entrepreneur will know and have a good understanding of the customer. So should the purchaser. This understanding and thorough profiling within the company will greatly assist meeting the users/customer needs. Marketing strategies for the entrepreneur will entail looking at the customers, targeting certain markets as high, medium and low yield and taking certain actions, depending on the yield. The purchaser should also look at the various "target markets," customers within the company and plan strategies for meeting their needs. The purchaser also becomes the marketer, promoting the purchasing department, its goals and value, in addition to providing a service to the user/customer. Understanding of pricing issues is key for the entrepreneur in marketing efforts and the same holds true for the purchaser. Each should understand pricing and cost structures and what industry structures are prevalent. In both scenarios, knowledge of the customer and their requirements, as well as knowledge of the products and industry are critical.
Financial Plan. One of the most neglected areas of a business plan for entrepreneurs is the financials section. Many times, entrepreneurs will obtain the services of a CPA to develop the required financial documents, so that potential funders may see how the business will make money. Although this is the most efficient method of developing the financials, most advise that the entrepreneur be intimately involved in the laying out of expenses and projections--because it is the owner's business, and he/she should know the financials details from the ground up. The entrepreneur will develop a budget, cash flow statements, income statement and balance sheet. Each of these documents is a control mechanism for managing the business. This section details the bottom line of the business and lets funders know that you have examined closely all expenses and revenues...what it will take to run the business profitably. The purchaser must similarly understand the "bottom line" of his or her own operation. There should be an understanding of budgets, pricing, total cost of ownership and best value to the company. In addition, purchasers should understand and communicate the much discussed, yet sometimes misunderstood value of procurement to the company's bottom line.
Operations & Control Systems. The entrepreneur describes in detail, the inner workings of the operation. Many times, entrepreneurs will tend to neglect this "nuts and bolts" area, to address other more seemingly important areas. This area can make or break a venture. Here, entrepreneurs must lay out the details of how things are done, such as administrative procedures and policies, order processing, claims, invoicing, overdue invoices, paper flow, etc. Contingency plans are also explained here, to allow for all of the "what ifs" that could occur with any business. Risk analysis, many times omitted, is key to assist the entrepreneur in examining each of the variations that might come into the picture. This forces the entrepreneur to examine possible innovative approaches to solving problems, with a well thought out plan, ahead of the problem. The purchaser can do the exact process by reviewing the processes, the policies that are in place and ensuring there is an understanding about each step. The purchaser may also do risk analysis and contingency planning so that steps are in place to handle future problems.
Long term Development and Growth Plan. The entrepreneur should continue to be the visionary that is one of her/his characteristics, by looking at continued expansion of the business. This section involves the entrepreneur addressing the future and growth of the business by detailing new products, new services, new markets, new customers as well as projected revenues. New management personnel may be required, along with new skill sets and experiences. The entrepreneur will lastly address an exit plan, describing how long the business will be in operation and how it will exit at some future date, through merger, going public, selling for cash, etc. The purchaser should also think future and look at growth and development in the business and personally. The purchaser should keep abreast of changes in technology and how it relates to the position and the products and services obtained for customers. The purchaser will look for new markets and new products as well as new customers. In addition as part of continued self-development and growth, the purchaser should look for ways to broaden skill sets and experience, and to take advantage of the position itself. Contingency plans should be addressed and risk factors taken into consideration.
Executive Summary. The entrepreneur, having gone through each of the above sections with a fine-toothed comb is now in a position to summarize the business in a brief one and one half to two page summary, hitting each section's main thoughts. The idea is to provide a snap shot of the business. The purchaser can do the same, providing a snap shot of the person as well as the position.
Closing. In summary, the purchaser/supply manager of the new millennium will mirror the entrepreneur. Both will require a much broader grasp of their business/the purchasing function. The purchaser, like the entrepreneur, will require analytical skills, be flexible in business processes and be ready, willing and able to change and respond quickly. The person will need to deal effectively with diversity in all facets of the business: suppliers, company personnel, products, customers, management styles. The person will be competent with the computer and an good communicator.
A review of the business plan and entrepreneurial skills as a comparison for the purchaser demonstrates the complexity, broad spectrum of information, knowledge and skills needed to manage in the 21st century. Purchasers may wish to review business plan guides for additional information. There are many available at bookstores, libraries as well as on-line resources.
The millennium is quickly approaching and purchaser/supply manager will juggle and wear the additional hats with ease by being pro-active and prepared with needed skills and expertise to meet the exciting challenges of the profession.