Ford, Hardee’s and Government: Vendor Management

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Paris Hilton with Hardee's burger

Paris Hilton
with Hardee’s burger

Paris Hilton bites beef.

Your Business Blogger(R) once had the assignment of getting more efficiency from a department’s supply chain during a tour of duty in government.

My public sector experience was somewhat different from the recent initiatives by Ford and Hardee’s to improve operating margins by reducing the number of suppliers.

Andy Puzder, Hardee’s incoming new CEO saw that he had a complex business that needed to be streamlined:

Hardee’s 50-item menu, … was a mess of complexity… and stocking all that stuff was a supply-chain nightmare.

Hardee’s Puzder was able to reduce his restaurants’ offerings, gain efficiency and improve operating income.

The Ford Motor Company has a similar supply problem.

Ford assembly line 1914

Ford assembly line
1914

 

The Wall Street Journal is reporting that Ford is looking for savings by revamping their supply system, Sept 29, 2005.

The auto manufacturer is looking to reduce their 2,500 suppliers down to 1,000.

Ford’s only real challenge is not in the change in the number of suppliers but with changing its purchasing department corporate culture: beating up suppliers on price.

Ford looks for efficiencies by managing a fewer number of vendors.

we_the_people

 

A few years ago I tried the same thing in the public sector. It didn’t work.

I started by reviewing the vendors for this $400 million department. It had over 11,000 suppliers.

—Easy MBA 101 stuff—

So I directed the staff to report on the number of vendors that did most of the business with us, say 80-90% of the dollar volume.

—More high-priced MBA inquiries—

To no one’s shock and awe, save mine, we learned that 900 vendors did 90% of the business with my government agency.

I addressed the staff. “You mean,” says I, Your world-wise Business Blogger, “We have to manage over 10,000 vendors to deliver 10% of our purchase orders?” My chin thrust with smug incredulousness.

“So?” the staff asked as one man.

—Shortly, smug MBA would meet political realities—

I strongly suggested that we should look to consolidate some vendors and look at ways to reduce the number of transactions and paper work.

The team jumped to it.

In mere hours the calls came in. No, not from disgruntled vendors, but from locally elected officials representing the disgruntled vendors.

No one was happy that rice bowels were going to be broken.

And the fact that this all took less than a day alerted me that back channels were working at the speed of light.

The vendors and the politicians were aided and abetted by the army of bureaucrats that pushed all that paper around.

The politicos clamored for efficient government as long as suppliers in someone else’s district were cut.

I didn’t have a chance. Nor did the citizens’ tax dollars.

This was my first rude lesson in ‘multiple points of accountability.’ In government a civil servant answers to his boss, of course. But he also must be mindful of other politicians, the press, the public, the unions, the lobbyists and peers making a grab for his budget.

The supply chain efficiency fight wasn’t worth the political capital necessary to win.

(Bureaucrats can be managed. But there are real reasons why governments are seen to be so inefficient: as in Katrina and the military base closings’ commission.)

My lesson learned, I quickly moved on to other battles where I had half a chance.

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Thank you (foot)notes:

Blawgreview is hosting Carnival of the Capitalists this week.

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20 Responses

  1. Links and Minifeatures 10 24 Monday

    Carnival of Personal Finance is up! I got a couple ideas for new articles by developing what was there.

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  2. Capitalist Digest

    Here’s my link to this week’s Carnival of the Capitalists.

    Two things you should check out from this week:

    Ford, Hardee’s and Government: Vendor Management gives some insight on why government is inefficient.

    Doing the right thing: Bravery at what …

  3. Robb Quiller says:

    This article can be seen as a way to emphasize the power of collective bargaining. While the smaller vendors were seen to be more expendable, their overall support structure and vast collaborative network was able to quell their opposing efforts. Additionally, this article stresses how not all efforts to make a company more efficient are good ideas in practice. The value of human relationships and well-being is also an important factor. Many of the laws put in place to support unions help to ensure individual liberties remain despite overpowering corporate efforts to maximize efficiency, which can at times conflict. Each industry is different, but this is why it is pivotal to understand networks, industry accountability, and laws that direct corporations.

  4. Rudy Dockery says:

    Regrettably, the U.S. Government is not a model of efficiency to say the least. Fortunately for us, Jared is all over it! Good luck with that. Facetiousness aside, it really is sad and unfortunate that there is so much Fraud, Waste, and Abuse in the Federal Government which goes unchecked. While the civil servant answers to his/her boss and must be mindful of politicians, the press, the public, unions, etc., he/she should also be mindful of their obligation to be good stewards of the dollars of the taxpayer. I see on a daily basis, inefficiencies that would not, or could not, be tolerated in private business because inefficiency costs money. Government’s inability to monetize its efforts simply results in waste to the tune of millions of dollars. How sad is it that our esteemed Professor’s quest to increase efficiency and decrease inefficiency was deterred and deemed not worth expending the political capital to pursue.

  5. Adonis Armstrong says:

    The article can be seen as a highlight the control of collective bargaining. Although the lesser vendors stood seen to be more dispensable overall provision structure and massive cooperative network was able to suppress their opposite efforts. It pressures how not all labors to make a business extra effective are worthy thoughts in training. The price of social relations and comfort is also a significant influence. Most of the laws are put in place to fund unions to certify specific permissions to remain overwhelming business efforts to exploit productivity that could also mean conflict. All businesses are different but it is a major way to have knowledge of networks.

  6. Tori Marcavage says:

    This article speaks to the inefficiency in our federal government. The same inefficiencies would not be tolerated in the private sector. The private sector tends to be more efficient. In the private sector, ideas that save money and time get you promoted. In the federal government, like stated in this article, Professor Yoest’s work was not worth the hassle. The federal government needs more checks and balances because our tax dollars could go a lot further if the government worked more efficiently.

  7. Gregory Jones says:

    As a former purchasing manager at a computer firm, we sought to streamline our purchasing power and reduce the paperwork load by combining our orders (corporate and government contracts) with our commercial operations division (banks, schools, and private business). Our commercial operations unit was a separate business which had their own purchasing department, accounting department, contracting department, etc. It was an enormous task, as we developed a new financial/purchasing system via a newly developed SMART team. The team was comprised of both purchasing, contracts, accounting and legal departments. We first conducted an audit of who our vendors were, what were the most purchased items, and what was the interest paid on the purchases, and how much was spend by both entities. We brought in the vendors and established contracts for future orders based upon projections of both entities confirmed contracts. Financially, the merger worked, but the morale completely dropped, and the promise of no one losing their job was short lived. Currently, I enter purchase requests for goods and services as an additional duty at the federal agency I currently work. The list of vendors in the system is quite massive, and the question in my mind is “are we using these vendors? Should the list be purged?” When I compare the private industry against the governments, it was much more streamlined and less cumbersome, however, the enormity of the U.S. Government and rules and laws in which we operate is what makes us great, no matter how slow the process.

  8. Arturo Mancilla says:

    Unfortunately, in the public sector some rules are broken in order for big vendors to succeed. In this case, the article highlights the control of collective bargaining and how this can affect productivity and decision that might affect small vendors. Fewer opinions are considered where there is no equal opportunity to supply demand with just few options.
    A lot of counties are adopting an act of “exclusive bargaining agent” of all employees in a local government. Local governments must negotiate beforehand in order to succeed. They also need to be negotiating conditions before they have an agreement with companies or employees. This should be implemented on the business side of federal governments as well so the supplier can cover every demand so there can be equal opportunity for everyone.

  9. Karli Ryan says:

    This article discusses the chain of efficiency throughout businesses and the government. As it states in the article, that work in the government is aimed to please many different outlets, not just the tax payers. These outlets include the press, other government workers, and the public as well as many others. The lesson of this article is that in the government, many people are holding an employee accountable as it seems to work as a big chain. In business, this could also be applicable if not as intensely as it is in the government. As every office does have a chain to work through, it is done mostly in the best interest of the customer.

  10. Abdulmajeed Algahtani says:

    The information presented in the article shows the power of collective bargaining. As a small vendor, one may fall because of a weak bargaining power. However, in the event that small vendor coalesce to form one single unit, then the bargaining capability improves since their individual bargaining power aggregates in to one. On the downside, there seems to be a lot of waste in the federal government that originates primarily from the bureaucracy. This wastes need to be well managed since some people actually earn a living from it. Proper management will allow for more efficient service deliveries and more effective application of resources

  11. Connor Keenan says:

    When it comes to any type of decision, the bottom line or the focus on whatever it is you’re trying to improve cannot be the only focus. Lines of communication need to be implemented to all parties involved or those that represent those parties in order to make sure fairness is in play. Yes, some of those that are involved and that are represented might not be 100% satisfied with the choices overall, but as a majority collective bargaining unit, whatever is best for the entity is what needs to be done. This reading highlights the prime example that collective bargaining needs to be an integral part of any type of business decision because any type of decision affects multiple people across multiple areas. I’m not saying every single person must be heard, but those that are directly affected need to have some type of voice or representation in order to bring in the best discussions possible for the best outcome.

  12. Soaring government spending and trillion-dollar budget deficits have brought fiscal responsibility — and reducing government waste — back onto the national agenda. Taxpayers may wonder why reducing such waste is now merely a bargaining chip for new spending rather than an end in itself.

    Reducing wasteful spending is not easy. Even the most useless programs are passionately supported by the armies of recipients, administrators, and lobbyists that benefit from their existence. Identifying inefficiencies and abuses is much easier than devising a system to fix them. Many lawmakers focus more on bringing home earmarks than on performing the less exciting task of government oversight. Exasperated taxpayers see the cost of government rise with no end in sight.

    Government waste is the low-hanging fruit that lawmakers must clean up in order to build credibility with the public for larger reforms and changes.

  13. Sykeem Lewis says:

    While supply chain efficiency can help businesses if done well, it can hurt vendors and or other businesses. It seems to display self-interest and a lack of flexibility. Several other posts suggests the usefulness and or effectiveness of collective bargaining in this case and I agree. One purpose of collective bargaining is to support the interest of both sides, so that both may win at the end. The way this article states in supply efficiency appears to be set up in a way that only one side wins. Furthermore, another benefit or useful tool in collective bargaining is that is builds and improves both sides in that they work together to support each other. When business are encouraged to trust, maintain good practice, fairness, and working relationships, it can truly improve both ends of the spectrum.

  14. Stephen Bower says:

    Supply chain efficiency is incredibly important as it is such a well-rounded process of maintaining healthy relationships with your suppliers, while also making sure it is most cost efficient for your business. I thought this post was a terrific example of finding ways to cut costs through supply chain management. The company had 4,000 vendors, but 900 of which handled 90% of their business. In other words, think of all the excess paperwork that involved the other 3,000+ vendors just to handle 10% of the business. Eliminating all of those vendors not only saves the company time and money, but it frees employees of unnecessary paperwork for such a minuscule portion of the business. A company wants to reach a maturity level over time that they are operating as a well-oiled machine. Supply chain management is such an important facet of your business in helping to reach that optimal performance level.

  15. Jon Miller says:

    This article reminds me of some of the work done by Gus Pagonis in reference to logistics and supply chain management. Good supply chain management is not only important in military/government, but is also translatable into the corporate realm, as seen by Gus Pagonis and his work with the Sears brand several years ago. Streamlined supply chain management can not only save costs and administrative workload, it can also create a sustainable, competitive advantage for organizations to use in a dynamic market. Sometimes just manufacturing the ‘product’ is not enough. More often than not, the service and the streamlined process of getting ‘it’ out into the market is just as important. Leveraging something as important as supply chain management can have a positive downstream effect for any organization.

  16. Rylee Kenney says:

    In a situation like the one described where management is attempting to cut costs with a supply chain overhaul in the public sphere, collective bargaining becomes important. Management cannot simply eliminate suppliers as would normally happen in a private business but needs to use advance notice and negotiating tactics not only with the suppliers but with the politicians that represent them. This advance warning and planning could help all parties understand the vastness of cuts happening to government spending, that it affect both parties, all states, and vendors across the board.

  17. JoHanna Metzger says:

    Price has so much to do with decision making within a company. This involves choices being made, which vendors to partner with, and overall how your business will be ran. This in turn builds the culture of that certain business. As mentioned in the article, Ford started looking to reduce their 2,500 suppliers down to 1,000. This seems quite minuscule compared to the 11,000 suppliers in which Professor Yoest faced in a $400 million department; 900 in which did 90% of the business with his government agency. That is the biggest difference between a private sector and a public sector. Private sectors are not owned or operated by the government, while public sectors are usually composed of organizations that are owned and operated by the government.

  18. Maura Johnston says:

    When I started reading this article i could not believe the inefficiency of the number of suppliers in this case. 3,000 suppliers for 1/10th of their total business is a clear waste of time and energy. However, after continuing to read I now understand how there are other factors that go into supply chains that I would not have considered. For example, the government involvement and the valued relationship the company might have with certain suppliers. There is so much more to supply chain and it is much more complicated then just cutting vendors when a company is trying to increase efficiency.

  19. DENNIS M SAWYERS says:

    What can appear to be simply can sometimes turn out to be a coiled, knotted, and complex reality; case in point, the inner workings of our Federal System. Political ramifications are noted specifically in the article, but there are also matters of vendor diversity and affirmative action and quality and true business need that comprise the issues that are not immediately recognizable. Through both my personal and professional networks, I know Federal employees who have a solid pulse on some of the inner workings of Federal processes. Some of the stories of cronyism, financial waste, and lack of willingness to correct obvious wrongs are mind-boggling. To the latter point, correcting hideous wrongs is never an easy job. It always takes a champion who sees the job as worthwhile – even critically necessary. Where there is commitment to a worthy mission, great things can be accomplished (i.e., the Boston Tea Party, the Civil Rights Movement, etc.).

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