I became materials manager at our corporation’s third largest-spend factory after 11 years of successfully filling positions of increasing responsibility within the purchasing function. The industry our factory participated in was a bit outside of the norm for our company since it was very competitive. For instance, it wasn’t unusual for one of our other divisions to hold market shares over 50% in important product categories. Our division enjoyed a few of those in minor niche markets but, for the most part, was happy to achieve double-digit percentage market shares for our primary products.
The reason for the intense competition in our business was that the financial investment needed to gain entry into it in was relatively small. For instance, it was not a stretch to say that some of our competitors had actually started out as garage-based operations and done so not that long ago. The investment needed to enter the markets our company’s other divisions sold products in was prohibitive to-an-extreme, which limited the number of participants.
To differentiate our division’s products from that of our competitors we focused on designs that delivered higher productivity, better user-friendliness, the highest quality and the longest life. Consequently, they had the reputation of being the crème-de-la-crème in our product category. This was a good position to be in but even so most demand in our market was from homeowners, which meant that while prestige might be a factor in buying decisions, price and availability were usually the dominant considerations. This presented a different procurement predicament for us than our factories in other divisions whose customers were often willing to both pay a premium for their products and wait months (not kidding!) for their delivery. In fact, our factory’s market situation was such that if our products weren’t priced right out-of-the-chute and immediately available, customers would likely purchase from the competition.
Because of this the procurement function at our factory was focused on keeping our initial purchase prices competitive. At the other end of the spectrum were our colleagues in the other divisions who tended to leave a little more meat-on-the-bone for their suppliers. This is not just my opinion. I heard this voiced from many suppliers that sold to multiple units across all our divisions. Because of this our factory’s year-to-year Material Variance (piece-price reduction performance) didn’t measure up to the top performing factories in the company, i.e., when there is more meat-left-on-the-bone initially it is easier to cut from it. In fact, over the last couple of decades our factory’s annual Material Variance had consistently been adverse, with prices typically going up in the 1% to 2% range. On the other hand some factories in other divisions would consistently deliver favorable Material Variances of up to 2% a year. In other words, year-to-year pricing comparisons across the corporation made our factory procurement function look like it wasn’t doing the job in controlling prices. Consequently, when I became materials manager the primary mission I was given was to start delivering favorable Material Variance performance, i.e., achieve lower pricing on a year-to-year basis.
We worked on cost reduction just like every purchasing department in our company, and did a pretty good job at it. However, in investigating our factory’s past Material Variance performance, I found that to compensate for the extremely competitive initial pricing needed to compete in our markets we had tried to honor reasonable supplier price increase requests. Why? Because if we didn’t capable suppliers might not to want to do business with us. As a consequence piece-price increases more than offset our cost reduction efforts. The fact was, though, that we had probably become a bit too lenient in our price-increase request approvals.
I met with my department and told them that we intended to continue to collaborate with suppliers on year-to-year pricing—after all, everyone-needs-to-eat—but that going forward we would be less open to granting price increases involving controllable costs. In other words, if the worldwide price of steel rose we would certainly grant price increases related to steel content. But, on the other hand, we would look very closely at things like price requests related to labor rate increases since at our own factory wage increases were expected to be offset by productivity gains, i.e., total labor cost would not rise. Feedback indicated that this seemed a pretty fair strategy and, while suppliers would certainly need to adjust their practices, they would understand and accept the basis of the change.
As mentioned in my previous column (“The Drop Kick Heard 'Round the Plant”), at about this same time the top purchasing position at corporate had been elevated from director to vice-president. The company had then been able to attract a well-known procurement VP from another corporation to fill that position. At every step this individual’s strategy tended to be to try to centralize purchasing power and decision-making at corporate, a difficult “sell” at a company known for distributed authority. He also thought to standardize procurement practices across the corporation which, of course, wouldn’t take into account market-related differences and necessities.
It was obvious the new VP wasn’t used to getting the type of pushback he received on his “one-size-fits-all” plans from our company’s individual factory materials managers, but he remained persistent. Within a year he had gotten CEO approval for an ongoing year-to-year Material Variance goal that would apply equally to all factories. The expected annual price reduction was 5%.
It was clear that the new-kids-on-the-block (directors) brought in by the new VP had very little understanding of our company’s products, the industries we competed in, or our corporate culture. And worse yet, they didn’t care to learn about them. In other words, they were interested in rolling out a corporate-wide procurement cookie-cutter approach regardless of the significant differences in our businesses. This wasn’t just my perspective, I assure you. There was a lot of behind-the-scenes discussion among my materials manager colleagues as we sought to adjust to the new purchasing regime.
I decided I needed to go to my general manager for guidance. He had grown up in the company—his father had managed a dealership—and the rumor was that when he suffered a cut he bled blood the same colors as the primary paints used on our company’s products. His advice to me was to stay-the-course relative to annual Material Variance goals, regardless of what corporate was demanding. In other words, if we could introduce a trend of positive Material Variance he would look upon that as a major victory.
So how did we do? A year into my tenure we had a favorable Material Variance of 1.29%! I was ecstatic and so was my general manager. I sat down with my group and congratulated them for what they had accomplished and asked what they thought they could deliver as a follow-up, as we were setting next year’s budgets and financial projections which required a Direct Material cost projection. They took up the challenge and agreed there was a legitimate chance of achieving a 2% reduction. I asked for details on how they expected to achieve this—commodity-by-commodity and supplier-by-supplier—and they put together what I considered to be a great plan.
I would need this because I was soon to report to our division’s new VP of operations on my department’s fiscal year-end results as well as our goals for next year. I was excited about this because we had good news to report. This person was whom my general manager reported to. I had heard things about the new VP that worried me. For instance, he was the sort of guy who demanded strict loyalty. What do I mean by this? In staff meetings he would regularly say things like “if you aren’t with me, you’re against me.” I had also heard that he had visions of becoming a division president some day and because of this came down hard on his people whose performance didn’t make him look good. I think you can see where this is going.
I spent a lot of time and effort putting my presentation together. It focused on our factory’s historically adverse Material Variance performance; the favorable Material Variance the team had delivered this year, and the plan to improve upon this year’s performance next year. The VP didn’t have much to say until I ended when he said, “Your department’s performance for this year wasn’t acceptable, nor is the goal for next year.”
I was stunned and asked him what he meant. He said, “This factory’s Material Variance performance lagged compared to factories in other divisions. Next year’s corporate-wide goal is a 5% favorable Material Variance, and if you don’t deliver it, you will have failed.”
I again reminded him of our factory’s past Material Variance performance and the progress we had made this year, telling him that in my opinion my people had gone way above-and-beyond in making it happen. I went on to say there was no materials manager in this company that thought setting an annual across-the-board corporate-wide cost reduction goal of 5% was either reasonable or even the right thing to do—which was true. He replied, “A 5% favorable Material Variance is next year’s goal and I expect you to propose a plan that will deliver it.”
Hmmm. I had been pretty proud of my team’s performance and this reaction was unexpected. I told the VP that while we could set the goal at any level he wanted, next year’s financial projections needed to be based on reality and a 2% reduction in Direct Material cost represented a realistic stretch goal for our factory that we would be hard-pressed to delivery. I went on that if we set our Material Variance goal at 5% and didn’t deliver, it would introduce error into those financial projections. He replied, “Your goal is 5%.”
At that point I lost my cool and said, “If what you’re interested in is an attention-grabbing performance goal, why not set it at 10%?”
He replied, “Ok, this factory’s Material Variance goal for next year is 10%.”
My boss gave me a look that indicated I should stop talking—and now—but I went on anyway. I said, “Why stop at 10%, then? Why not set it at 20%?”
Well, that was the end of my update. Shortly thereafter my boss let me know that I was being replaced as the factory materials manager. When I asked why he replied that our new VP of operations didn’t believe I was committed to cost reduction. Really?
As you can imagine I was devastated by this and the Materials department was in shock. I realized I had been out-of-line at the presentation but didn’t think my comments merited me losing my job—one that I had worked long and hard to achieve. Evidently, as a result of those comments the VP of operations judged me as “not being with him,”, therefore, I must be against him. Fortunately, I had supporters at the division’s executive level and they made sure a job was created for me that didn’t result in a drop-in-grade. In fact, the new position remained in Purchasing and gave me multi-factory procurement responsibility in several areas. Unfortunately, it was in the operations VP’s organization.
I’ve always felt that when one door closes another opens, if only you’ll let it. I tried to put a good spin on what had happened to me with my ex-employees by telling them that I had heard the new materials manager was a good guy. But I have to admit that many of them who had worked elbow-to-elbow with me over the last decade or so weren’t necessarily placated. In other words, they thought I had gotten a raw deal. I will say that the job I enjoyed the most in my career was as a factory materials manager. This must have been noticed since prior to retiring from this company I was given the opportunity to fill in for an extended period of time in that position when it became vacant at one of our factories. I treated that as a sort of farewell gift. We made great progress there, too.
So what happened as a result of the above? The new materials manager put together and presented a plan to deliver a 5% favorable Material Variance. The actual results came in under 1%, i.e., less than had been delivered the previous year when I was in charge and also less than the 2% goal I had tried to propose. But I guess that must have been OK because even though the department didn’t come close to hitting its performance target, the fact that my replacement had been willing to set an unrealistic performance goal implied that he was with—not against—the operations VP. Consequently, my replacement continued on in the materials manager position for several years, setting annual cost reduction goals of 5% and never coming close to hitting them. While I had been both doing things the right way and looking out for the best interests of my company, evidently that was not what the VP wanted out of his managers.
What happened to the operations VP? He launched a personal vendetta against me with the goal of getting me fired. Unfortunately for him my work record was sterling and continued to be in my new position. Because of this I managed to hang on to my job. Towards the end of my career I eventually got out from under the VP’s shadow by getting transferred to a process owner position at Corporate.
What happened to me? I stayed employed but never got another promotion in that corporation.
What did I learn? I should have kept my mouth shut at that meeting. There would have been better times and channels to make my point but I had lost my cool and so responded as I did. I felt that by taking the position he did the operations VP was setting my employees up for failure. I have an admitted weakness in that I can’t tolerate bullying—either against me or my people—and his position on our performance failure tripped-my-trigger. Realize, I would have been trying to justify pay raises for my group in the near future and his “unacceptable performance” comments were sure to get around, making it very difficult to make a strong case for them.
In the end, though, everything happens for a reason and things turned out as they should have. When our division president retired the operations VP didn’t get promoted to that position. Shortly thereafter he retired. Later on I did some digging through contacts I had in Corporate HR and heard that this guy’s perceived lack of people skills was the primary reason for him being passed-over for the president’s position. Better yet, I was told his treatment of me was brought up as an example of his lack of skill in that area. I was glad to hear that our corporate leaders didn’t think placing a bully in such a position of high authority would be a good thing for the company. I guess Karma is real and this guy’s eventually caught up with him. Sorry, but I couldn’t help but feel somewhat vindicated.
In addition, I was able to “turn lemons into lemonade” and in my new position enacted the Lean Supply Chain strategy that allowed my division to successfully enter a big-box marketing channel, i.e., previously we had sold our product exclusively through company dealerships. Due largely to our ability to support incremental sales by having worked with our supplier to significantly reduce their “true” lead-times (Manufacturing Critical-path Times), we were named that initial year as our big-box’s supplier-of-the-year in our product category. The primary reason for this was that we were able to support a significant amount of incremental sales—well over 50% above the initial forecast—which delivered a significant amount of additional revenue and windfall profit to both our big-box customer and my company. This was something that couldn’t have happened without purchasing’s direct involvement. And guess what? That involvement hadn’t related to piece-price reduction!
Note: With the recent national visibility given to a couple of terms, it seems appropriate to relate one more detail about the operation VP’s attempt to get me fired. After being removed as materials manager I still remained on the division’s management team. At one of its periodic meetings I expressed a perspective that the VP apparently didn’t agree with. He responded to my comment by loudly proclaiming, “Ericksen, you are a grandstander and show-boater.” He said this loud enough that it could be heard by the division’s entire upper management group.
Everyone was shocked—including and especially me—and he and I exchanged several pleasantries in front of everybody, i.e., after all, what did I have to lose? The next day as I was walking through our divisional headquarters I noticed people avoided looking at or talking with me. On the other hand I must have done all right in defending myself at that meeting since a few days after it the division’s president called me to his office and complimented me on how I had handled the VP’s attack. In fact, he said that the way I had represented myself was probably why I still had a job.
But make no mistake about it. The operation VP’s public comments tainted me to the point where I was shunned by many of my peers, at least for a while. And it all occurred because I offered an opinion that wasn’t completely aligned with one of the VP’s talking points.
In my book there is a primary characteristic to being a bully: namely, denigrating publicly (or trying to) someone lower than you in the pecking-order. And this guy had done that to me in-spades. And in doing so he confirmed to many of the people present that he was, indeed, a bully.
My next article will follow up on my previous column regarding MBAs.