Ken Kanara, ECA President and CEO works with clients to fill permanent and project based roles for strategic initiatives across growth, transformation and organizational strategy formulation. Ken has extensive experience in management consulting, having spent more than a decade working with clients on various strategic and operational initiatives at Booz & Company prior to joining ECA and rising to his current position.
Eric Pritchett, Terzo President and COO, leads corporate strategy development and operations for Terzo, the world’s first VRM. Terzo’s mission is to help businesses transform their vendors into strategic partners, to accelerate innovation and transform business performance. Prior to Terzo, Eric led corporate investing and M&A for Asurion. Eric has been a part of three founding startup leadership teams and started his career as a management consultant.
Eric: Ken, thank you for taking some time to have a conversation with Terzo about vendor and supplier relationship management. When our CEO and founder Brandon Card, released his first blog about Terzo’s mission in August, he referenced your March 2020 Harvard Business Review article, titled, “Rethink Your Relationship With Your Vendors.” On seeing the post, our mutual friend, Atta Tarki DMed me over LinkedIn saying, “Hey, this author is my guy Ken and we love the mission of your company. More leaders should be focusing on transforming their vendors into real strategic partners.” Ken, our team is thrilled with the broad and positive reception we’re getting in the market as we’ve introduced Terzo’s VRM, the world’s first Vendor Relationship Management platform. We believe in transforming transactional business relationships into real partnerships and we’re passionate about it. I’m excited to have a chance to dig a little deepering into your thinking about the power of companies partnering together to improve business performance and how this thinking is consistent with Terzo’s mission. Can you start out by introducing yourself and ECA?
Ken: Eric, thank you for reaching out and the kind words about my prior work published in HBR. I spent my early career in management consulting in the US primarily serving private equity clients. In general, there is a tight partnership between the private equity and management consulting ecosystems because both professions focus on delivering value through operational alpha playbooks. This often gets a ‘bad wrap’ as being overly focused on cost-cutting and financial engineering. The reality is more subtle, and the truth is that most mature businesses can cut 8-12% of their operating cost and use that activity as a catalyst to become more agile and more focused on priorities like growth and innovation. I kind of think of private equity as management consultants with big checkbooks.
At ECA, we’re a boutique management consulting firm focused on helping private equity firms execute operational alpha playbooks within their portfolio companies. We do this through traditional temporary staffing of strategy teams who partner with company leadership to identify, plan and execute strategic initiatives. This might be thought of as the traditional management consulting strategy engagement. We also partner with private equity firms for permanent placement of key executives to help drive performance at their portfolio companies. So, in this way we operate like a management consulting firm focused on operational strategy, but combined with a specialty recruitment firm capability.
Eric: Take us back to your thinking when you were writing the article for HBR. The article was prepared for March 2020 publication and you had your finger on the pulse of cooperation between companies. It’s as if you knew the global pandemic shutdown was coming that same month! In any event, you had this idea to “treat your vendors more more like you treat your employees”. To me, a statement like that must speak to some experience you've had in the field. Do you coach your clients to operate this way? Can you share examples of success from implementing strategy around that type of behavior?
Ken: Absolutely. Historically, if I look back at the clients I've served, across my earlier consulting career and here at ECA I’ve definitely seen the best transformational results when we succeed at getting clients to think about what’s in their direct sphere of control and to also consider how to have more influence on important indirect spheres of control. It creates a bigger space from which to discover and deliver results.
Eric: When you say “direct sphere of influence”, you are referring to operations within the organization and when you refer to “indirect sphere of influence” you are referring to the B2B ecosystem or tier 1 supplier ecosystem, correct?
Ken: That’s correct. When a leadership team is embarking on a multi-year journey meant to deliver transformative financial results that require efficiencies and also new growth… that’s a big journey to take. To make it work, we coach teams to think about opportunities internal to their own operations and the customers they are serving, but also to consider the value chain and particularly how they can transform performance by leveraging their top strategic suppliers in new ways. In general, we use frameworks that examine talent, technology and process for both internal and tier 1 supplier opportunities.
Eric: I love this framework, because companies are no longer highly vertically integrated. In the past 20 years, in pursuit of increased specialization, most companies have become very dependent on suppliers and operating partners to deliver their final value-add to their customers. So it stands to reason that transformational initiatives might be about equal parts implementation of great ideas within your organization and improvements in how you operate with your top suppliers. This is conceptually appealing, can you share an example?
Ken: Sure. A mature manufacturing company wanted to reduce non-essential assets to improve core financial performance and increase their capacity to invest in more marketing and selling activities for some newer products. The company couldn’t dispose of manufacturing capacity, in fact, there was pressure to increase production capacity. The company did have a dated warehousing operation that was asset heavy. When leaders evaluated the warehousing, their initial thought was that new investments in technology could revamp the warehousing and make it more efficient. The problem with the plan was the payback period, which was outside the planning period. Additionally, the revamp was going to require capital outlays whereas the goal was to reduce the asset base, not expand it. Also, the team didn’t have experience with the new technologies being considered, which made this look like a bet that could lead to miscalculation in execution.
Eric: That’s a challenging situation. How did the company leverage suppliers to attack the warehouse opportunity?
Ken: Forgive me for simplifying and summarizing a bit here. Generally, the warehousing operation was a bad mix of two different categories of inventories - there was big stuff that wasn’t very perishable and small expensive stuff that required sensitive handling and was more perishable. For the big stuff that wasn’t perishable, the answer was to increase inventories and distribute them at storage space that was made available at the production sites instead of using warehousing. The load balancing of these materials was not valuable enough to bother with warehousing and shipping to perfect deliveries to multiple sites. It was smarter to just have more stuff at each site. For the smaller, expensive, perishable stuff, the company had a supplier that demonstrated a really strong track record of delivering similar parts with high quality deliveries even during times of fluctuating demand. It became obvious to the leadership that this supplier already invested in a much more flexible supply chain than what they had for inventory management and fulfillment for these types of parts. The supplier represented an opportunity.
Eric: So the company goes to the supplier and does a logistics service deal for their own parts?
Ken: Essentially, yes. It was a bit more complicated, because the supplier liked the idea, but wanted to see another supplier that provided a competing part pushed out to increase the primary relationship for their part. This was the chip that incentivized them to bundle fulfillment of the company’s own parts inventory with their parts. It took months of negotiation, some give and take, close cooperation and a pilot of the new model, but it got done. In the end, our subject company was able to get on a glide path to completely eliminate a level of its warehousing, contributing to the goal of reducing assets. The company also ended up expanding a relationship with a supplier that had some great capabilities that were not being utilized to full effect. It was a win-win because my client reduced assets, on plan and the supplier won significant new business volumes by increasing share of its own part and through picking up a supply chain revenue stream. The two companies are currently exploring other ways to collaborate more closely and the subject company launched a border review of all it’s top strategic suppliers to try to uncover more opportunities.
Eric: I imagine the hardest thing about that project was figuring out exactly who at the company knew the supply chain and the tier 1 suppliers well enough to evaluate these types of possibilities and then execute. I imagine these ideas are more likely to come from middle managers who really know their way around the suppliers, as opposed to the C-suite?
Ken: Supply chain visibility and yes, particularly having a strong organizational map of how a company fits together with its tier 1 suppliers is a much bigger challenge than it should be. You are right, great ideas of this operational nature tend to come more from the middle than the top. It takes real experience with what’s happening “on the ground” to come up with great ideas like this, which can work. This is a big gap in the market today and this sort of discovery usually gets missed or is provided by expensive outside consultants. Ultimately, the big opportunities that exist in the space between companies are often locked up in the heads of people who don’t naturally collaborate if they aren’t mapped together explicitly.
Eric: This is a strong example of the benefit of having a comprehensive “people mapping” of how your teams fit together with your tier 1 suppliers and their teams. We believe there is game-changing innovation lurking between B2B ecosystem participants. Leaders need a visible organizational graph, as one tool to unlock that innovation.
Ken: Precisely. First you have to have visibility. Then you have to empower your people. Lastly, it does no good if you go to launch a great idea and your relationship with the supplier in question is a real stinker. You’re much better positioned to have a receptive audience when you want to explore a new opportunity if you’ve been treating your strategic suppliers like partners, like employees even. While there is HR IS technology in the market to map organization charts internally, I haven’t seen tools like Terzo, which allow management teams to map their people to their tier 1 supplier network directly in the way Terzo does. This is almost more like something you see a sales team do with a CRM, to really map out their target relationships. It really is overdue for operating and procurement teams to take the same approach with their strategic suppliers. It should be a powerful tool to surface and execute opportunities.