Case Study: Getting under your customer's sk

I was CoE (Centre of Excellence) for CAPEX (Capital Expenditure) Procurement. Before I arrived at the organization the engineers were making buying decisions for machines purchases. Once I was given access to their very protected domain, I opened up the hood and looked inside. What I found would make any Procurement Professional’s blood pressure rise to dangerous levels. I discovered issues like no maintenance contracts, no warranties, no legal protection for “in-production” machines, and the list goes on. My first task was to prioritize the risks for each of these exposures and then take remedial actions. So I got stuck in and by the end of the project, most of the risks were mitigated.

Then onto the next phase of getting my arms around Engineering Capex Spend; decision making in from who we were going to buy a Radio Frequency (RF) machine. If you have worked with engineers, who do believe that they are G-d’s gift to man, and some of them are, you will know that they do not like non-engineers to question their decisions. So, as I had already established myself as “one of the boys – minus the engineering degree” I was able to sit in on the discussions to purchase the machine.

The Problem: The previous supplier of this machine was no longer supporting the technology and maintenance was becoming more and more frequent.

The Engineers’ Solution: Incentivize the machine manufacturer by investing in their new manufacturing site so that they can continue to build a similar machine for us.

My problem with this Engineering Solution? Reciprocal deals and being tied in. I have never liked reciprocal deals and believed they hamstrung us by predetermining which supplier we use which weakens our bargaining position. Additionally, the incumbent supplier had clearly decided to divest from this technology and if we were going to pay them via investment in their new plant in order for them to build us a machine that only they could maintain thereby making our whole operations reliant on 1 organization, was not palatable to me. I made my view clear to the engineers and pointed out that the supplier had clearly made up their mind and we need to see who else is in the market that would serve our purposes.

The Outcome: Understanding what the machine’s function is was important so of course I proceeded to show them 3 other companies I had unearthed who make similar end-result machines. They agreed to investigate the options and after a number of e-mail exchanges, telephone calls and video conferencing with the 3, we narrowed it down to 2 and went to visit them at their sites in France and Italy. We eventually bought from the Italian manufacturer because not only was their machine state of the art, their after-care service was second to none.  Additionally, we were able to purchase 2 machines for half of what our investment was going to be. The Accountants were happy because the ROI was well within the 3 years specified and there was additional Capex budget for other purchases.

Establishing my credentials with the Engineers was crucial to me being able to open their minds to Procurement and other alternatives. I established this by hounding their steps, asking questions, being interested in what they do, how they did it, why they did it and by showing very early results by sorting out the issues with the contracts and maintenance agreements. Additionally, I was also taking my lunch in the eating area attached to their work space and when they started seeing me as part of them and not “those Procurement so-and-sos” I was able to deliver a win to the Engineers (machine that works and can do the job of the old machine a lot better and quicker) a win to us/Procurement (we got a handle on and was able to influence all Engineering buying decisions after this), a win to the organization (We were not invested in a relationship that was all one-sided, ROI meant the division could get their money back a lot quicker than the other option and less Capex spend in that year) win for the new supplier because not only are they supplying the UK with machines, but also the US and China where our organization have production sites. A job well done!