By Vantage Partners
In this interview, Scott Paull, recently retired Chief Procurement Officer at KLA-Tencor, talks with Vantage Partners about his tenure at KLA, including the most significant challenges he faced, and lessons he learned in addressing them. He also shares his perspective on the future of supply management, and the competencies that sourcing and supply chain management leaders and professionals will need to be successful.
Paull served as CPO and Executive VP of Global Supply Chain at KLA-Tencor, a leading global manufacturer of monitoring and process control systems for the semiconductor manufacturing industry, from 2008 to September 2015. He joined KLA in 2001 as the Vice President of Strategic Materials, following roles in engineering and later, supply chain, at IBM.
What were your proudest accomplishments during your tenure as CPO at KLA-Tencor?
I would say my proudest accomplishments were the two transformations of how the company did business. When I joined KLA, it was being run by many different divisions, each with their own General Manager, engineering, and marketing departments. The larger ones also had their own factories, manufacturing and supply chain leaders. The degree of independence was designed by KLA’s founder, because he felt that having focused teams on a customer problem produced better solutions, and was reinforced by serial acquisitions. And, it had been working for a long period of time. Still, there was rarely communication between these divisions, and there were situations where some divisions even competed with each other for supplier attention and resources.
First, I had to create a management system that drew these folks together. The head of manufacturing and I took control of bonus and incentive structures for the manufacturing/supply chain community, with support from the CFO and CEO, to enable collaboration across units. Along with goals and objectives within a division, we defined a number of cross-division supply chain and manufacturing objectives, and built those into the business plans and individual incentive plans of executives of each of the divisions. Different executives were given responsibilities for different goals, and everything was publically reviewed. So, it created a mutual dependence. A “screw the other division” mentality wouldn’t work, because you also would need help from the other divisions to meet your goals. We transformed KLA from a local, divisionally disparate, narrowly focused supply management organization to a global, collaborative, and strategic organization.
The second accomplishment built on that foundation. As we consolidated and shared objectives, we saw increased collaboration between the various groups. That was a big deal; it hadn’t occurred before. This was a change to the internal culture, driven by the need to generate more value and the needs we saw externally. We also extended the enterprise’s ability to collaborate with suppliers. We looked to third-parties to help us increase our strategic competitive advantage, increase revenue, and enhance profits. Teams began engaging in joint product and technology development with third parties. For example, teams of engineers and supply chain professionals would co-develop a new technology with a supplier. The result was multiple new technologies that substantively increased competitive advantage in the marketplace.
What were the biggest challenges you confronted?
Overcoming a culture of divisional fiefdoms as it related to supply management and collaborative development while at the same time, preserving the highly beneficial focus that each division provided our customers. To accomplish this, we leveraged our results-driven and performance goal management system to create objectives to drive alignment and collaborative behaviors.
As we grew, especially with the second transformation, there was a lot of training across a wide variety of skills and disciplines to develop the internal and external collaboration and negotiation skills needed for such a structure. Some people aren’t the right kind of people to influence an external party. You have to hire and assign the right people to these roles. You need someone who is going to care about the other party’s interests, if for no reason other than because otherwise, your interests will suffer. It’s not altruistic.
We did this in two ways. First, we established the basics, training the supply chain organization, and second, training those who interact with the supply chain. This, of course, was one of the places that Vantage was active. There were actually more engineers trained than those in the supply chain organization. Showing the engineering team the benefits of these skills and having them see the results created pull. You now have buy-in from critical voices in the community, and those voices can sell these concepts to other voices in the organization. It proliferated.
The first important distinction in how we looked at metrics was that qualitative metrics could not take away from other metrics. We couldn’t present the value of supply chain as “look at what we did, relative to other divisions.” We had to present the value as an integrated view for the company. We may be the supply chain organization, but we are often a conduit for achieving value – there is a mutual dependence on other groups within the company, and those other groups also had to lead some efforts. We looked for metrics that represented something that cuts across the company and represents the company’s success overall.
At times, we may have multiple projects, and it was difficult to know which one was decisive in terms of margin effect. What we could hear from customers, and see relative to our competition, were the real performance factors. What’s leading you to get a better price in the market? Why does the customer say ours is better than the other guys’? These were generally well accepted.
Which did you find more challenging — dealing with suppliers or managing alignment with and across internal stakeholders?
Both of course have their challenges, but indeed managing across internal stakeholders often proved the greater challenge. In the end, both suppliers and customers each have a number of internal constituents with at times different interests. However, and this is interesting psychology, people tend to realize the need to collaboratively negotiate amongst different interests when dealing externally, but become more positional when dealing internally. Internally, they assume their interests simply represent the company interests.
How did you balance the benefits of close collaboration with suppliers, with the risks of becoming vulnerable to supplier and/or opportunism and/or complacency?
Before even beginning a collaboration, it is important to assess and establish strategic alignment across the two (or more) organizations. Equally important is to mutually establish expectations for both parties. Finally, even before starting, it is important to ensure each has the people not only skilled in their disciplines but also skilled in dealing collaboratively externally and committed to mutual success.
As you then get started, it is critical to establish a management system that maintains alignment, holding each other accountable, handling disagreements/disputes, and adapting to changing circumstances. This means that even while you are collaborating, you are still examining or discovering changing interests, identifying creative options, establishing standards of legitimacy for those options, spending time to work the relationship, focusing on communication across many channels, establishing, ensuring, and delivering on commitments, and looking at alternatives. Yes, let me repeat...looking at alternatives.
Many feel that looking at alternatives to working together with a supplier to solve a problem harms a collaboration. My experience is it only causes harm when you do so outside the relationship structure you have established. If there is mutual understanding on how alternatives will be examined and those alternatives are shared with both parties to enable improvement, then it can be an effective tool to improve the relationship including trust and performance. And, it helps avoid complacency, opportunism, etc.
What do you wish suppliers had understood about how to be successful working with KLA-Tencor as a customer that they did not seem to understand?
With many products and services competing in different segments of the markets we participate in, our interests and needs were diverse. What was important in one circumstance might not be so important in another circumstance, and any underlying assumption that their growth in business with us would have a consistency in requirements didn’t often hold. Those requirements, while different across business segments, also were changing in time, both technologically and competitively, and thus the supplier needed to be preparing for that future well in advance. We had mechanisms with our suppliers to look at these future roadmaps to enable such action, but the payback for those investments would be well in the future. This can be hard for some to stomach.
What is your vision for the supply management organization of the future?
The future supply management organization might possibly not be a specific organization at all, although I suspect that level of integration is quite far in the future. In the end, it is about developing and leveraging the multi-tiered ecosystem that creates inputs or supports outputs for one’s business. That is a pretty massive task and even today involves more than the supply management organization. But that future organization, if it exists as such, will be facilitative and collaborative to enable strategic leveraging across all the functions and segments of a business. It, of course, will need to handle the transactional components, but will lead the vision and strategy of integration of the chain into and out of the business.
As for skills for the sourcing/supply management professional, and leader, of the future, there are many attributes — passion, drive and energy, creativity, intelligence (intellectual and emotional), vision, resourcefulness, ethics. If I had to pick a narrow set, I would pick business acumen, strategic vision/ integration, and negotiation/collaboration/influence. The supply management professional needs to develop and leverage an ecosystem to support and grow their business, and thus they need to know how a business works, how it becomes unique and differentiated and be able to contribute to that, facilitate both internal and external constituencies to achieve and execute it.
What do you plan to do next?
I am doing some consulting and teaching, helping others with tricky or complex problems. If I find a company that needs to transform to grow and help change the world a bit, where my diverse background and skills have played, I might join such a company if there is a fit.
A spin-off of the Harvard Negotiation Project, Vantage Partners helps organizations negotiate and manage their most important business relationships, with key customers, suppliers, and business partners. The company is based in Boston, Mass. For more information, go to: http://vantagepartners.com/
George E. Krauter
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