While conducting an Internet search, I came across a course offered by The Quest Team to sales people in the semiconductor industry. The course is called “Combating Aggressive Supply Chain Management: Strategies and Tactics for Leveling the Playing Field”. Here is part of the course description: “The SEM industry has been hit with increasingly aggressive customer supply chain management programs, initially introduced as PICOS, which have become more sophisticated and divisive. Their ultimate purpose is to demoralize supplier sales teams and reduce the supplier’s high-tech products to commodity status, thereby transferring as much of the supplier’s profits to the customer as possible.”
Not being a procurement guy, I was not familiar with the PICOS acronym, so I did a search and came across a book called “Comeback: The Fall and Rise Again of the American Automobile Industry” by Paul Ingrassia and published in 1995 (which today seems so ironic). This book explains the genesis of PICOS. In 1987, a top executive at GM put together a program called “Purchased Input Concept Optimization with Suppliers” (PICOS) for the procurement function. The idea was to combine teamwork, super aggressive procurement tactics, and lean programs. In one early procurement engagement, GM found an English supplier that produced a stabilizer bar for Opel cars that was 30 percent cheaper than the incumbent supplier in Germany. When GM engineers tested it, however, the part’s quality was not good enough. Instead of calling it quits there, however, GM sent in a crack team of lean manufacturing engineers to help this English supplier improve its quality. “The fix worked and [GM] got its 30 percent cost reduction.”
As a supply chain guy, I have to say that the whole concept of PICOS makes me uncomfortable. A core concept of supply chain management is that companies shouldn’t fall into the trap of trying to optimize every function in isolation, thus sub-optimizing the supply chain as a whole. In other words, procurement, manufacturing, and logistics need to consider how their actions (driven by their core metrics) might adversely impact other supply chain functions, either now or in the future. Driving your supply base to the brink of bankruptcy, or sometimes actually into bankruptcy, is poor risk management. A well-run supply chain, which includes your core suppliers, should have a certain degree of “win-win” and team orientation associated with it.
For many procurement guys, this philosophy is derided as simplistic and fundamentally un-businesslike. I can imagine a procurement guy hearing this and saying “Peace, Love, Woodstock – let’s all sit around the campfire and sing Cumbaya.”
It may be that despite the use of Balanced Scorecards, cross training, and cross functional deployments, this difference in how supply chain and procurement people think is just too difficult to bridge. Many procurement and supply chain guys just exist in different universes.
Am I exaggerating the mindset and approach of procurement executives? What has your experience been? I’d love to hear from you.