In this Expert’s Corner, the Institute for Supply Management’s newly announced CEO, Thomas Derry, weighs in on raw materials and supply chain volatility.
The Institute for Supply Management™ (ISM) recently announced the appointment of Thomas W. Derry as the association’s new CEO, effective July 30, 2012. Derry, currently the vice president and chief operating officer at the Association for Financial Professionals (AFP), will succeed Paul Novak, who has served as ISM’s leader since 1997. Novak announced his plans to retire early last year.
At AFP, Derry is responsible for strategic planning and development, including U.S. and Canadian membership organizations and two wholly owned, for-profit U.K. subsidiaries. His experience spans across all organizational functions, including advocacy, finance, human resources, sales, product development, certification, education and training. Prior to joining AFP in 2003, Derry was with LexisNexis Group.
Derry recently took time to answer a few burning questions for IMT. Here he weighs in on managing raw materials costs and supply chain volatility, and discusses the experience he’ll bring to his new position at the leading supply management association.
IMT: Raw materials continue to be among the top cost pressures for small and midsized manufacturers, and the ability to manage these costs remains a top sourcing concern. To that end, do you see the purchasing professionals’ value growing in the coming year? What role does the procurement team have in addressing this critical supply concern?
TD: Businesses thrive in stable conditions. But if we’ve learned anything in the last few years, it’s that the new normal means volatility. So, to the extent that procurement professionals can deliver stable sourcing at stable prices, they will create significant competitive advantage for their firms against their competitors. More stability and predictability in the supply chain translates into better product margins, better and more predictable earnings for companies, and thus higher confidence in the capital markets and better long-term returns for investors.
So, yes, I think supply professionals have an incredible opportunity to demonstrate the strategic value of their contribution to their companies’ success. I’m not saying it’s easy, but I am saying it’s strategic and very valuable.
IMT: Looking ahead, many buyers are concerned about price increases for various commodities. While ISM is not in the business of long-term forecasting, do you think purchasers should expect inflation, in the form of rising raw materials prices and energy costs, to affect them significantly over the coming years?
TD: My expectation is that inflation should not be a core concern for most procurement professionals in the short term and probably even the medium term. Worldwide demand is softening; growth is slowing in China; the Eurozone, with the exception of Germany is in recession. Of course a lack of bidding up of prices will not be true for all markets at all times, but I think it is likely as a general macroeconomic proposition. I would think that volatility will be a more important concern for many procurement professionals in the next few years than persistent inflation.
IMT: You mentioned that volatility seems to be the new normal. As supply chains become more complex and exposed to global risks, how can procurement professionals best approach changing global conditions to reduce the vulnerability of this operating environment?
TD: What Ray Ozzie [a pioneer in computer-supported cooperative work] famously said about the software business I think applies to managing the supply chain: “Complexity kills.”
Prices are a critical factor, of course, but lower materials prices offset by higher transportation costs, for instance, may not be moving the company ahead strategically. We’re seeing this play out in the increasing number of companies deciding that moving production closer to demand – i.e., the customer – may make sense for many reasons, including pricing, responsiveness to changes in consumer tastes and speed-to-market.
The one thing we know for certain is that conditions will change. This means business will have to be adaptable and flexible, and those attributes are aided tremendously by simplicity – or suffocated by complexity.
IMT: At AFP, a similarly sized organization, you’re currently responsible for strategic planning and development. What lessons learned in your current position do you hope to bring to ISM?
TD: One of the lessons I will take with me to ISM is the critical importance of a clear vision for where the organization is headed and what it is working to become. This would apply equally to my role at ISM and to any successful business.
Internally, a vision of where the organization is headed which is clearly and consistently communicated creates the conditions for alignment of activities at all levels in an organization – from business units to departments to individual contributors – which reduces opportunities for working at cross-purposes, focuses investment decisions on truly strategic opportunities, etc.
Externally, a clear vision increases confidence among suppliers, partners, investors – the whole ecosystem that any firm operates in. My highest priority in my new role at ISM will be to work with the management team to craft that vision of ISM’s future, and then to focus in a very disciplined way on realizing that vision. I can’t tell you yet how that will play out in specific business outcomes for ISM, but I can predict that it will be oriented to continuing to create conditions that raise the stature and visibility of the supply management profession worldwide.