By Susan Avery
When Jose Varela spoke with My Purchasing Center recently, he had been Vice President, Sourcing Operations at 3M for just about six months. Talking to him about his vision for the sourcing group, it was easy to see why the $30 billion global maker of abrasives, tapes and adhesives, films and other products selected the 27-year 3M veteran with sales, finance, and global operations experience for the role.
He clearly understands the other side of the negotiation table and believes sourcing can contribute “a lot” to the success of the business, as the company anticipates a more challenging sourcing environment in the coming year. For example, commodity prices, which had been low for the past five years or so, now are starting to turn around.
Looking at the bimodal supply chain, a topic near to Varela, he said that for 3M sourcing, the term can be applied to the operation’s efficiency and how it supports business growth.
How is sourcing efficient? By providing the business with the right raw materials it needs at the right quality, the right price and the right time, while streamlining transaction processes. To do this, 3M sourcing has honed its negotiation skills helping the business to manage costs of the products it manufactures.
“We are really good at this and have been for the past 100 years,” Varela said, adding that lower commodity prices over the past five years or so has further helped sourcing to demonstrate its efficiency. What’s more, moving transactions processes to lower-cost regions of the world “has been all very positive,” he said.
“But this is not enough. Now, we also want to support growth."
Varela points to the $1.8 billion 3M invests each year internally in research and development. “We have amazing, smart, people in our labs doing R&D, but our suppliers also have excellent, smart, R&D people in their labs,” he said. “Let’s leverage the technological capabilities of our suppliers, ask them to share what they are developing and how that will help our products, and, ultimately, our customers. With satisfied customers, you get faster growth.” It’s sourcing’s role to engage these external people, he added.
Taking that a step further, Varela said that while 3M has mastered 46 technology platforms, such as adhesives, abrasives, films, and optical, there are others where it has room to grow, such as disruptive product technology and embedded technology in manufacturing operations. “We have a disruptive technology initiative, so it is our obligation in sourcing to find together with operations the best disruptive technology suppliers,” he said. “Then, our factories become more efficient and the business grows.”
The same holds true for its products. For example, 3M is a leader in personal safety, respirators, hard hats, eye protection. “We have mastered these technologies for many years,” Varela said. “Now, we are putting sensors in our respirators that track hazards that surround workers. This is not because we developed these technologies, but because we have suppliers that have developed them.”
Along with this, sourcing is collaborating with suppliers to meet 3M’s corporate sustainability targets, which Varela explained helps contribute to business growth. For example, sourcing is partnering with two wind farms in Texas. By the end of 2017, more than 75% of the energy the company consumes in the U.S. will come from renewable sources. “It’s a good story to share with our customers,” he said.
Varela said 3M has been approaching its sourcing operation as well as its supply chain with this bimodal view of efficiency and growth for about 15 years, with “a clear initiative in the past three or four years to go deeper, not just sourcing, but the entire supply chain organization.”
Where Bimodal Sourcing Fits
When it comes to product development, sourcing at 3M is engaged at the very earliest stages of a new project and, Varela said, “helps from day one to make the right decisions on such things as quality, price and product security for the company.”
As for existing products, sourcing has “a seat at the table,” serving on business operating committees. Sourcing’s contribution, in addition to helping manage costs of the goods and services that go into the products 3M makes, is to help ensure availability of these goods and services. Always looking for ways to improve 3M products, sourcing also shares best practices among 3M’s divisions.
“Sourcing is the external face of the company to suppliers,” he said. “We are a very important part of the team."
Sourcing leaders in new bimodal roles require new capabilities, skills that are very different from those of even as recently as 10 or 15 years ago. “Now, we want to have a win/win relationship with the supplier,” Varela said. “We have to have a holistic view of the business and understand how the relationship with the supplier will differentiate our products and give us a competitive advantage.” Sourcing has to have a global mindset and an understanding of the economy as well as the supplier marketplace. Lean Six Sigma and project management skills are also necessary.
“It’s more important to have a strategic relationship with the supplier, than to have lower costs for one day,” Varela said. “When I was on the other side of the table, I saw it so many times. When a customer wanted a strategic relationship, it was durable and lasting. Relationships built on price are not as strong.”
As he sees it, sourcing thinking and acting beyond efficiency and having a customer mindset can only be beneficial for the company and its future. “In the past, sourcing was all about low cost and assuring supply,” he said. “Now, we speak the same language of the business and the business enjoys the ideas we bring. We are part of the whole commercial equation,” even joining the sales teams in meetings with some big customers.
Going forward, Varela suggests sourcing leaders take time to gain an understanding of the business and its needs as well as suppliers and their technical capabilities. As important is communicating these technical capabilities back to the business. Varela also says sourcing leaders “need to get out of their offices. Visit customers and suppliers. Attend trade shows. Talk to people. Benchmark with peers. Read trade publications. And be global.”
Susan Avery is Editor-in-Chief at My Purchasing Center. She writes articles, blogs and white papers and manages and creates other content for the online procurement and supply management publication. She produces and moderates roundtable discussions, podcasts, webcasts and video interviews. Susan has 30 years experience covering procurement and supply management for Purchasing magazine and Purchasing.com.
George E. Krauter
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