3.2 Opening Story: The Compliance Conundrum

"Hey, Susan, I'm glad I caught you. Do you have a minute?" Tom Stephens asked as he popped his head in Susan's open door. Tom was a senior buyer with 25 years purchasing experience. Susan answered, "Sure Tom, I'm not going anywhere for a while. What's on your mind?"

"Well," Tom hesitated briefly, then said, "I just wanted to give you a heads up. We had a little run in with production engineering today. I'm sure you'll hear about it from Jim (Olympus' production engineering chief) before too long. You know how he likes to complain. I just wanted to make sure you weren't caught by surprise."

"Tell me more, Tom. What happened?" Susan pressed.

"You know how it is," Tom said. "Production engineering was trying to make an end run around purchasing. They set the specifications on the new extrusion machine so tightly that only one supplier qualified. In essence, they selected the supplier—doing our job for us. The way they've set this up, we'd have to pay 8-10% more than necessary for the equipment. That kind of price hike really messes with our metrics. So, we called them on it, telling them to go back to the drawing board and come up with some reasonable specs. They weren't very happy. In fact, Jim was furious."

Susan responded, "I think I've got the gist. What do you think we should do about the situation? You know we've really been working on improving our image as a professional sourcing organization. If Jim is as upset as you suggest, we probably aren't making progress toward this goal. How should I approach the conversation with Jim?"

Again, Tom hesitated. He hadn't expected Susan to ask him for advice on the relationship between sourcing and engineering. "Well, Susan, it really shouldn't be that complicated. All we want is for engineering to comply with sourcing policy. They are supposed to identify what they need in broad enough terms for us to be able to get a good deal. That isn't so hard, is it?"

"No, Tom, it really shouldn't be that hard. But help me out a little more. If I'm reading the situation correctly, this is a real sore spot for you and the capital equipment team. It's also a real pain point for engineering. What do you think an appropriate solution should look like?"

Instinctively, Tom blurted out, "They should comply! Outfitting multiple plants with new capital equipment is expensive. They don't seem to recognize that we can save the company money if they'd just let us do our job. Remember when we set up that web catalogue a few years ago for standard buys? Once it was in place, compliance wasn't an issue. People had to source from approved suppliers."

"You're right, Tom, the web catalogue worked really well. It made everyone's life easier—at least once it was set up. But, a web catalogue really wouldn't be appropriate for this type of high-dollar-value, one-time buy. What do you suggest we do?"

"You know what I'd like to do?" Tom replied sarcastically. "I'd like to put a compliance charge back system in place. You know, like we use with suppliers. When suppliers deliver late or provide incorrect documents, we charge them $250. If we could do that with engineering, I bet they would get the message. Right now, they don't have any skin in the game."

"Tom, that is an interesting idea. I'd like you to think about the pros and cons of that type of approach. Let's sit down next week and talk about that. It's getting late. For now, thanks for stopping by and sharing your ideas. I'll check in with Jim and get his take on the situation."

"Good morning, Jim. How are you doing?" Susan greeted. "I'm doing well, Susan," Jim replied. "Thanks for asking. And you?" "Splendidly, Jim." Susan smiled, "Thanks for agreeing to chat this morning." "It's my pleasure, Susan. I was planning on giving you a call. I appreciate you saving me the trouble," Jim replied.

"I was sorry to hear about the run in with the capital equipment acquisition team earlier in the week. I'd like to get your thoughts on the situation," Susan said calmly.

"Susan, I think it's pretty simple. You guys over in purchasing are a real pain in the ass to work with. You always go for the lowest cost, regardless of performance requirements." Jim said bluntly. He continued, "I wish you would worry less about compliance and more about helping us help Olympus bring the best product to market. We're both on the same team, you know."

"Jim, I agree, we are on the same team. I sense you find our policies to be frustrating. We operate in a very competitive market. Keeping costs down is critical to meeting our external customers' and our shareholders' expectations. As a result, we do stay pretty focused on costs. I understand how that can feel like a nuisance to you. May I share my concerns?" Susan asked.

Jim paused and said, "Sure Susan, what are you thinking?"

"Jim, among purchasing managers, engineering has developed a reputation for asking for tolerances that exceed real needs. The sense is that you guys always want the gold-plated version. As you can imagine, sourcing to higher specs reduces options, drives up costs, and honestly hurts our metrics. The way you wrote the specs on the extrusion equipment eliminated our ability to do our job, practically guaranteeing conflict between our groups. I'd like to pursue this discussion on a deeper level to see how we can better understand each other's needs. We really do want to work with you to help Olympus win in the marketplace. Would you be willing to join that conversation?"

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