Supply chain professionals come from all walks of life, with many of them taking a circuitous route to their careers. Many of the “30 Under 30 Supply Chain Stars,” for instance, pursued degrees in such diverse fields as economics, engineering, finance, information management, operations management and public transportation. It seems only natural, then, that the CEO of the Institute for Supply Management, one of the world’s foremost trade groups for supply chain professionals and a sponsor of the “30 Under 30” program, got his degree at Georgetown in foreign relations.
Tom Derry has led ISM since 2012, after having spent the previous nine years as chief operating officer of another professional trade group, the Association for Financial Professionals (AFP). In both roles, he has worked closely with member companies to develop programs and resources with a global economic scope.
At the recent annual ISM Conference in Indianapolis, IW sat down with Derry to get his insights into where the global supply chain is headed in the coming years, and where procurement and supply management professionals fit into that world.
IndustryWeek: What do you see as the most pressing issues that your members have to deal with in their careers?
Tom Derry: There are a couple. One is this accelerating evolution that’s happening, as companies have fundamentally changed their basic strategies. About 80% of a firm’s cost structure on average is spent outside their four walls. And CAPS Research’s data shows that about 80% of that 80% is directly managed by a company’s chief procurement officer. So 64% of a company’s total spend is managed by the CPO and their team, which represents a massive shift in responsibility from the way things had been since 1970.
At the same time, while the focus for the last decade or more has been on reducing costs—that’s what going to China was all about—people now realize that the remit of the CPO and the procurement organization has broadened. When you talk about sustainability issues, there are numerous examples of forced labor in the supply chains, and questions about the sustainable harvest of certain commodities like palm oils. These are important things to be dealt with just because as global citizens we ought to do the right thing, but the risks to a company is that consumers will take their business elsewhere. CEOs know this, and boards of directors know this, and they’re looking to the CPO to make sure that their house is in order so that these things don’t flare up.
IW: How closely do CPOs or anybody on the procurement team work with product development and the core supply chain team? Do companies have a good structure in place to get everybody on the same team?
Derry: That pendulum swings back and forth all the time, but it seems to me the best organizations are on the front end of all product development decisions, whether it’s sourcing for spec, or sourcing for innovation. You hear frequently about engineers that build the best damn widget possible, but you don’t really need to build a nuclear bomb-proof widget. Maybe a pretty robust widget will work just fine, and you can get that for one-third of the cost. So great organizations recognize that procurement has a big role to play, and actually has broader market knowledge than other groups.
Chief supply chain officers and CPOs—there’s a lot of cross-over now between those titles, and people now carry both titles—are participating in the most strategic decisions at their company because they have to.
IW: For the U.S. manufacturing industry, how much influence does the ISM’s Purchasing Managers Index (PMI) have on how they conduct their business? From your perspective, what do manufacturing and chief executives do with that information?
Derry: For any given firm, the PMI for any given month may not be reflective of the conditions that they’re observing, but taken broadly, across the whole sector and across the U.S. economy and certainly over time, there’s no better indicator to where the U.S. economy is headed. And we’ve got 60+ years worth of data to prove it.
People make business decisions about, say, key commodities, and depending on the nature of their work, it certainly could affect employment, about whether to add workers or reduce the size of their staff. If you see trends in certain industries that you’re either upstream or downstream from, that matters a great deal to you, so that’s early intelligence.
We essentially collect the data in the last 10 days of a month and then publish it almost immediately, so one of the reasons the PMI is so valuable is there’s nothing more real-time that’s published. So it gives you that finger on the pulse. You can get an early warning signal that a key supplier or the industry that supplies you might be having difficulty, or maybe a key customer might be having difficulty. And then that could help you to get a jump-start on the competition.
IW: What’s the mission of your organization?
Derry: Our mission is very simple and straightforward: It’s to advance the practice of supply management, and that has at least two components: one is for individuals, and the other is for companies. Everything we do ultimately traces back to that fundamental mission.
For individuals, whether they’re interested in the CPSM (Certified Professionals in Supply Management) certification program, for instance, or our Mastery Model program, our members can sit down with their manager and have a conversation about career development. Maybe they want to be prepared for the next promotion opportunity that comes along. We hear from a lot of companies that even the best and brightest students coming out of great schools with degrees in the field aren’t quite ready to hit the ground running as practitioners, and CPSM plays a critical role in getting them up the learning curve much faster, into the practical realities of being a professional as opposed to the theoretical foundations of the field.
We’re the professional society for our field, so people expect to be able to turn to us and learn what standards are. What are standard models of procurement organizations? What are model job descriptions? What are the competencies and skills that are fundamental to various levels of progression in a career? What are ethical standards? What are the principles of corporate social responsibility? So we publish those standards that companies can use as a reference point.
IW: Is there a noticeable trend right now in U.S. companies to bring work back from China to the U.S. or nearby countries? What’s your perspective on the prevalence of reshoring or nearshoring?
Derry: There was the classic era of the 1980s / early ’90s of labor arbitrage in China, and then as cost pressures began to mount in China, other local economies that were adequately developed with lower labor costs began to be taken advantage of. So U.S. companies would move production to Malaysia or Vietnam, for instance. Most people figured out that that strategy has a very limited shelf life. It might work for a decade, or a decade and a half, but you get to cost parity fairly quickly in most economies.
Mexico is benefiting right now because they have a fairly well educated workforce that is comparatively much cheaper than in China, and so there’s some nearshoring happening. But it’s also happening because companies are much more focused on total cost of ownership. People had not factored in the cost of transportation, or dealing with reverse logistics which involves warranties and the end of product lifecycles. And so these distributed networks became harder to manage when you begin to look at all of those factors. So companies have figured out that being closer to the customer is a good thing.
Where that’s evolving, however, is not so much nearshoring or reshoring. I think nearshoring is definitely happening. I don’t think reshoring will happen in the sense that we’re not going to see the jobs that left come back. Today we have highly automated, highly robotic manufacturing facilities where the handful of employees compared to the large number of employees that might have been involved in a similar project in the past will have totally different skills. They’ll be akin to software and engineering type skills, managing production processes via human-machine interface rather than on a production line. You’re not going to have tens of thousands of manufacturing jobs come back but you might have a few thousand higher-skilled, higher-paying jobs.
And frankly, there’s a scarcity of those skills right now in the workforce. So if I were interested in pursuing a career in manufacturing or I had children at that age, I’d be looking at an opportunity to become stronger in my STEM education. Historically labor costs were the major component of manufacturing costs. Well, in this new world we’re moving into, there will be higher wages but a lower employment base. So labor costs aren’t going to be the same factor that they were—technology will drive it, and so frankly, you can argue: more interesting jobs, better jobs, higher paying jobs than the ones that left when they went overseas.
IW: What kind of a background have you had, and what are some of the biggest challenges you’ve tackled in your career?
Derry: Just to comment on that, I was a pretty non-traditional candidate for this role [at ISM]. I didn’t come with any domain expertise per se, other than business acumen, and a pretty good sense of why managing the supply chain is so important for businesses. I’m a lifelong learner, and a chance to be exposed to a topic I don’t know very well is something I actually find very exciting. And I knew I had a steep curve to climb and I had to get up to speed quickly, and four years in, I know a lot more but I’m certainly no expert.
I have is the chance to have amazing conversations with people day in and day out, so I benefit from talking to the real thought leaders. I think what the board saw in me when they hired me was somebody who had the ability to create teams that like to work collaboratively. I also had a track record of working overseas. I did a couple cross-border acquisitions at AFP and have done some travel. That’s clearly important in my role.
I haven’t always been in roles where I’m the tactical expert, so I’ve had to work with people who have that expertise. That means I have to build teams who want to share and collaborate and work, and it means I have to trust them. That’s the way I work—I create a lot of empowered teams. We’re aligned on the direction where we’re headed, and yes, I want you to keep me apprised of how you’re doing, but I don’t need to know every particular detail. Don’t expect me to relax your deadlines, though [*laughs*]. We’ve made commitments and we’re going to follow through on them, so there’s some discipline involved. And I find that people generally like working in that environment, where they can make decisions.