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Logistics Quarterly Magazine - Volume 16, Issue 2, 2010


A Conversation with Reuben Slone, Executive Vice President, OfficeMax

Interview by LQ Executive Editor, Nicholas Seiersen

LQ: The recession has been a really tough time. Tell us how you’re working to become the customer of choice for your suppliers.

Reuben Slone: OfficeMax has been in a turn-around mode since April 2006. We completed our turnaround in March 2010. We have been very reliant on our suppliers to help us fix our business. The recession allowed us to put that cooperation on “steroids.” The economic pressures became all that greater — our suppliers felt those pressures, as did we. There was a mutual understanding that if we worked together we would both survive the storm; if we worked in a confrontational way, we would both suffer, or perhaps one of us could disappear.

LQ: This sounds like common sense. Why isn’t everybody like that?

Reuben Slone: I think it’s a problem of perspective. You have to have a view of the longer term, and you have to have trust. If the trust hasn’t developed or doesn’t have reason to exist between the customer and supplier, then it is impossible to collaborate. When that trust is gone, the parties have to dissolve the relationship. Or, if it’s been attacked, but not completely gone, then you have to figure out how to rehabilitate it.

LQ: Could you give us an example of what might have been a home run?

Reuben Slone: Let me give you a customer example with Boeing. We are one of approximately 14,000 suppliers to Boeing. We won their Supplier of the Year Award in 2009 in in-direct. They spend billions on in-direct procurement and a tiny fraction of that they spend with OfficeMax. OfficeMax and our predecessor company, Boise Office Solutions, has been a supplier to Boeing for over 45 years. We won this award because we collaborated with Boeing using lean tools to both reduce costs and improve the sustainability profile of Boeing. We implemented a returnable totes program as well as a managed delivery program that reduces the number of truck deliveries to Boeing, thereby reducing their carbon footprint without deteriorating product availability.

LQ: It sounds like you are putting a lot more into those relationships. How are you finding the resources to do that?

Reuben Slone: From a business perspective, you need to find out who are your best and less desirable customers. Basically, the customers where the supplier creates the greatest value for both parties are the supplier’s best customer. A good way to determine this is to calculate the economic profit of each of your largest customers. Once you know this, it is simple to determine where to invest the people into which customer relationships.
 
LQ: You mentioned a number of times the financial sustainability risk — it could also be commodity price risk, or supply risk on commodities in short supply. How does your firm mitigate risk in the supply chain?

Supply volatility is a risk that we must manage as a customer. We usually manage this through a form of redundancy. For example, we have identified critical SKUs to our business. A plausible event that might occur is a typhoon that paralyzes the Pearl River Basin. We have identified key SKUs where we have dual sourcing that spans different continents where those SKUs are primarily imported from China out of the Pearl River Basin. In the case of a tornado or a hurricane in the U.S., we have redundancy between our customer fulfillment centers. With regard to Katrina and New Orleans, we were able to leverage our fulfillment centers in Atlanta and Orlando to support Louisianna. We have some of the largest property insurance companies in the United States as customers. We were able to very effectively support them in the hurricane-ravaged areas so they could quickly set up claims locations for their customers.

LQ: We have talked about work with the best customers, making room for innovation in the relationship, managing risk and who owns what risk and how to deal with this. What are your final thoughts to share on value of the relationship in businesses?

Reuben Slone: I would say the most important thing to build a truly collaborative relationship is how you build trust and establish a system for managing the relationship. It goes back to understanding that relationships between companies are relationships between people. The rules about how you build or destroy a relationship between one person and another are often similar to the relationships between companies.

 

(This interview is an abridged and edited edition of LQ’s Executive Insight Interview Series, held on June 10, 2010, at the Toronto Board of Trade’s Country Club.)

 


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