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ISM 2019 Dispatch: Challenges of a New Chief Procurement Officer

04/10/2019 By

Caldwell Hart has taken on the greatest challenge of his career, and he is thriving.

As the very first CPO of MKS Instruments, a global manufacturer of advanced equipment with 6,000 employees and nearly $2.5 billion in annual revenue with a major focus on R&D, he has to draw on all of his 20 years of experience in procurement and supply chain management to support 10,000+ products across their lifecycles.

This is not a tale of transformation but rather of procurement enabling growth — rapid growth.

About 6 years ago, MKS’ revenues were in the mid-$600 million range. Now it’s ranked on Deloitte’s Technology Fast 500 with 145% growth from 2014 to 2017 and plans to further double revenues in the next 3-5 years. To enable that, executives realized it was time to invest in a CPO who can help scale the business through supply management best practices: becoming a customer of choice and treating the supply base fairly, aggregating spend and effectively managing supply risk and compliance.

Setting strategy and driving change in a complex and dynamic business is no easy feat. Caldwell quoted the former CPO at Dresser-Rand who used to say: “It’s like tuning the engine and changing the tires on an Indy car in the midst of the Indy 500.”

I’ve known Caldwell for many years. Unlike most, he indeed has the diverse knowledge, ambition, ability, flexibility and humility to take on such a tremendous challenge. As he relayed his approach over the past 3 years, he starts by saying how important it is to “listen, listen, listen with respect.” He is not a new broom sweeping in and uprooting the establishment overnight. He realizes the importance of his people and their buy-in to an updated approach.

When the New Sheriff Comes Into Town…

Upon arrival, Caldwell found a commodity team operating at a corporate level, yet with a decentralized approach to purchasing at each manufacturing site. Besides two different ERPs, most procurement activities ran in Excel and on paper POs with processes running the gamut and many workarounds.

“When you have a process and people aren’t using it, you really don’t have a process at all,” said Hart. Throughout the session, he emphasized the importance of establishing workable processes first, then enabling efficiencies through technology – and not the other way around.

He identified his inherited procurement team members as having a strong work ethic, a ‘this is how we do things’ mentality and a ‘wait and see’ attitude to change. Most team members’ job descriptions all had a similar ring to it and he really needed deep conversations to identify the differentiations between roles. He also found mixed standards and KPIs. “It’s tough to drive excellence when different sites interpret KPI measurement differently,” he said.

How do you introduce new procurement initiatives to scale the business while managing risks, complexity and culture? You start with your people. Caldwell realized he had to both protect and prioritize complementary roles in procurement, invest in establishing a learning organization, measure progress and reward the wins.

“Don’t be afraid to lose your best people if they would be better served elsewhere,” said Hart.

He empowered his commodity team to operate across the global organization and also established indirect commodity management practices. He is consistently instilling that suppliers are an extension of the enterprise and MKS’ reputation depends on the quality of goods and services they provide. “You have to repeat yourself 26 times, and only on the 27th time they’ll get it”, said Hart. “[The] key is to hire the right people – and be sure to look outside the norm. I really believe in that.

“Some of my best commodity managers came from finance,” he continued. “Some of my best process improvement team members were process pros and I trained them in SCM. I recently hired someone right from university to run reverse auctions. He had never done it before, but he read an article and went to train with a consultant. He had the ‘shiny eyes’, a real excitement for the job. Those choices pay off.”

Empowering Your Team to Make Crucial Decisions

A real takeaway from the session for me was Hart’s point around the importance of empowering your team to de-escalate and make decisions in the organization where they need to be made. (More about this practice in our next ISM 2019 dispatch on ‘building a high-performance procurement team focused on value creation,’ based on a session by Dr. Clark Perry at AlixPartners.)

Caldwell is a big believer – and has been for a long time – in aiming for operational excellence through standardized KPIs, measurement, processes and policies and a focus on achieving continuous improvement. “Use the facts,” he said. “Data is nice but information is powerful – plan, do, check, act and fine-tune in between.”

The team is newly conducting value analyses and product lifecycle support to explore removing cost from midlife products through supply chain redesign. “We have to demonstrate how and where you can advance the business at every turn. Fluency in Lean and Six Sigma methodologies are key to driving improvements.”

His team’s vision is ‘to be positioned to support sustainable, profitable growth by being globally scalable and locally focused.’ To do so, Caldwell has invested in e-Sourcing, Contract Lifecycle Management (CLM) and Spend Management technologies to enable the team and procurement processes.

“Supplier Lifecycle Management (SLM) is our third technology investment phase,” he said. “Eventually we want a fully integrated Source-to-Pay (S2P) suite but for now we’re focused on Source-to-Contract.”

As the newly minted CPO, Hart does not have a set budget and needs to make a business case for investment to the executive team. So far, he’s received the buy-in he needs. Eventually, he wants to create a value metric and a P&L statement for his function, but that’s another 2 to 3 years away in this ongoing journey.