Executive Interview: ISM CEO Derry says Next Gen SCM more strategic & CFO-connected

When we learned that 25-year veteran CEO Paul Novak would be retiring from ISM we were curious about the direction in which his successor Thomas W. Derry would take the 38,000 member professional organization. It’s a great time for supply management professionals – finally - for many reasons. Sometimes events that draw what seems to be unfortunate publicity, like the Toyota supply disruptions and the German plastics problem, among others, backlight the strategic value of a profession that has often whined about its undervalued position. Well, it’s time to stop with the whining because supply management – accompanied by logistics and more of the manufacturing it currently owns - is on the verge of its third generation. Looking back on his tenure, Mr. Novak saw that “Our world got bigger three ways,” and he predicted big changes ahead. First, “supply management will own manufacturing, “a welcome shocker for those of us raised with grit and machine oil under our nails. It’s about time for such good news, considering that the procurement folks own contract manufacturing anyway. It’s all part of supply chain taking over “more and more jobs - travel and legal, for instance.” The reason goes beyond the exigencies of end-to-end production control – it’s about the money, and there are huge savings and more opportunities in all the untouched spend areas like indirect.

The second way Novak saw changes in the profession was in sheer geography, the move from complete central planning and control, including buying, to a distributed model that places buyers in the regions that they serve. As simple and reasonable as this sounds, given the global growth companies found themselves handling CPOs inevitably found themselves managing operations scattered in different time zones, different languages and currencies, and despite reshoring or inshoring initiatives, they will continue to lead these complex global operations. “So,” he said, “the second big change was to empower people at the local level.”

And the third way our world got bigger leads us neatly into the next generation of ISM leaders, headed by Thomas W. Derry, due to assume his role July 30. Novak happily noted the rise of the CPO’s strategic value – a seat at the table, contributing to profitability strategies, innovation, and sheer growth. He also recognized that many CPO’s now additionally hold the title of Senior VP, a life-changing and career altering upkick from VP.

The organization structure in which all these leaders and responsibilities lie has flattened since the 50s, and likewise, opined Novak, “the operating model for the new ISM MUST show a more global, empowered, and outward-facing focus. “

We welcome Mr. Derry to this next generation of challenges for US industry, and we asked him, coming from a strong CFO focus, just what it he thinks ISM hopes for with his selection. And we wondered if he could give us a preview of the key issues supply management pros need to remember relative to dealing with CFO’s.

His answers enlarged our view of the changing role of supply management. “First,” he said, “I think the organization was looking for a strong vision of the strategic value of procurement and supply chain management, especially as to how companies must compete in a global economy. We’ve got some great examples – Apple, of course, where the procurement guy Tim Cook got the top job because supply management is so central to the strategy of Apple. Sure, Apple competes on great design and delivering a product the consumer needs but clearly the company’s strategy focuses on competing with technology. And that is central to success in so many different industries now – from automotive to pharmaceuticals and electronics. Toyota, for example, while it may be the dominant auto producer globally, has taught us many lessons about the simple problem of getting parts, the strategic importance of supply chain.”

What Mr. Derry is describing are more visible, tougher jobs for supply management pros. “A part of what I see for procurement is a much more strategic role, with countries competing for raw materials – China locking up raw materials like oil, for instance, and questions of tech transfer. There are questions about which technologies have national security implications, for instance. It’s all very much what supply chain management is about these days. So I think the board appreciated my perception of the function as having great strategic importance. “

The gap between supply management pros and the CFO may be narrowing. “There are a couple of key hot buttons among the CFOs today - risk management is one of them. Clearly this is a place where supply chain management is very important, whether we’re managing risk related to components in a manufacturing setting, their prices, or supply disruption. They have seen a lot of volatility around price in key commodities. I can say that all those risk management components rank very high in the mind of CFO, and that renders supply chain managers very important partners in managing risk.”

The second big factor Mr. Derry sees in the financial and supply management partnership is what happens when fears of global slowdown sharpen industry focus on the basics that contribute to solid profit margins. “This is certainly true for many countries including us, because executives need to focus on core business. For the CFO it’s working capital management – looking at a tangled series of plants that are out of synch and burning through cash “we can see,” observes Mr. Derry, that “we have clearly have not optimized capital – we see excess inventory, handling and carrying charges – it’s all less than optimal to have capital tied up in inventory. And from the CFO perspective it is very important to streamline, to reduce material requirements because nowadays margins are very thin , and it’s hard to protect those margins. ”

As to Mr. Derry’s take on the role of technology in global supply networks, he sees the job population shifting. “From a general knowledge basis, it’s very clear to everyone the role automation will have in the number and kind of workers needed. Look at re-shoring, for instance. As we bring manufacturing jobs back on shore and we add more automation to the mix that will mean fewer jobs than we had before manufacturing left. And that’s the world everyone competes in. Clearly there are advantages on an economic level to the greater role of automation - as consumers we all benefit – but the job mix is shifting and the number of jobs will drop. That’s clearly a technology trend to watch.”

What do you see ahead for ISM?

“My vision for the future of ISM begins where they are today. The organization has an excellent history stretching over 97 years, leading thinking in the profession with the Report On Business® and the establishment of ethical standards, and now pioneering development around sustainability. I see an organization that has a long history around idea development, so my number one goal would be to continue that, to work with the thought leaders, to see what the horizon is, to prod, lead and serve the profession. They’ve got that great platform.

“I believe,” he adds, “that we need to be more active globally. We’re all effectively working in the global economy, all impacted and doing business globally, so we have to be able to speak to that. There is more work to be done within ISM to address its global membership.

“Finally part of the vision going forward that I have for ISM is to raise its profile - internationally and nationally, especially on issues that impact trade policy and national security issues. I see opportunity there. Now there are multiple ways to achieve that. One is with the CEO being active and visible – there are speaking opportunities, and with interviews like this there are opportunities to comment on developments in the profession. The CEO will need to be visible because our overall goal is to raise the stature and visibility of the profession. Typically and frequently members are not able to take on that role when they are also wearing a hat as a company employee. It’s important for the CEO to lead the profession that way, leading by understanding and representing the consensus of the profession, understanding what the membership thinks, to synthesize views.

“In any business, if you are not growing then you are dying, and so it is important for us to grow. One way of growing is membership – as industry continues to develop an appreciation of our contribution, they will understand the value of participating in the world’s leading profession. Membership sells itself when ISM raises its stature.

Finally, we asked Mr. Derry to share his perspective on the difference in ease of adoption of new technology among supply chain managers compared with manufacturing. We wondered what he sees ahead for IT in the scm/mfg domain. His answer intrigued us. “It seems that manufacturing is so unique and specific to each individual industry or company that that may explain why the adoption of new tech is slower in the manufacturing sector compared to supply chain management. For manufacturing technology is often customized - there’s a lot of cash invested in it, and because of that CFOs naturally want to leverage the investment and extract full value, so they are not incented to turn over technologies quickly.

“An analogy from world banking illustrates. Consumers have been very quick to adopt every means of electronic funds transactions, like debt cards and electronic funds transfers to pay bills, but that hasn’t been the case for some companies. And one of the major reasons is that all the systems are engineered around processing of the paper check. The system was designed on the assumption that payment would be made by check with fraud controls and other security protocols, so they are reluctant to change – the system is cheap, it works well, and it minimizes exposure to fraud.

Fortunately for ISM, the next generation of leadership brings the unique perspective of a CFO, engaged in fiercely competitive global business, armed with the kind of research and statistics that ISM has come to be famous for. What’s next can only be good news for the well-prepared supply management professional.

Patricia E. Moody