We continue our coverage of the Procurement Leaders Forum event in Singapore, which I attended at the end of October. In Part 1, I shared information on the awards given out at the event and other tidbits like how growth optimism is strong in Asia. Here in Part 2, I summarize some of what the speakers shared during the event.
Informative and Pragmatic Insight
It was especially refreshing to hear from the non-US public firms at the forum – those under the thumb of the SEC know what I mean, when you hear a publicly-trade firm in the US talk about in public, the contents have been vetted by so many attorneys and other handlers that there's not much punch left. Despite this restriction, Brian Bancroft, CPO APAC at Kellogg, still managed to give a surprisingly candid presentation of his journey from Kellogg in the USA to his first overseas assignment – as I mentioned in Part 1, Brian's success earned him Procurement Leader's individual award for the region.
Brian stressed that it is all about people - where 51% is having the will versus the skills. His approach boiled down to: "Have a plan, share it, get buy-in, it's all opt-in." Brian wasn't all about sharing though, he stressed that you shouldn't share ambiguity, that this creates panic. Interestingly, from Kellogg's perspective, there is almost nothing that can be sourced globally, so many restrictions on the commodities they use: wheat, corn, rice, etc.
Owing to regulations and politics, there are also conversion agencies that must be worked with. Another challenge is that they can't take receipt of goods, as food safety is their primary concern. There is opportunity to standardize ingredients though – Brian mentioned food additives – he points out that they are costly, while wondering if they really are needed. He stressed that in his experience, there are almost no true global suppliers, and even among the few there are, if you could negotiate a global deal, it wouldn't make sense on the regional level.
Brian’s counterpart at competitor Mondelez asked what he would do differently were he to do it again, and Brian said that the personal toll was something he could have been better prepared for. A full 9 months after being appointment to his role he still had no office, no phone, no computer, no desk. That was a rough point. Additionally, despite having the headcount approval, local hiring took a surprisingly long time. Brian suggested taking a step back, clear your head, recharge. Brian might have to take his own advice here when he embarks on P2P – Kellogg is not using this in the region, there is no real process for this yet.
Some other specifics from the presenters that I found interesting:
Overnight Delivery: Does The Client Really Need it That Early? Dr. Reddy's Laboratories
This Indian pharmaceutical provider, a leading manufacturer of generic drugs, took a look at their customer needs and satisfaction and restructured their delivery considerably. This included specifically switching to less speedy overnight delivery – at substantial savings. To illustrate, next day delivery (by 8 a.m.) runs $5.40 per pound. Delaying promised delivery until 10:30 a.m. drops the price to $1.70/lb.! Further delays (by 3 p.m.) only reduce the price by another 10 cents ($1.60) per pound. Hence Dr. Reddy’s found the value point between early and final overnight delivery.
Work with your suppliers
This is what Dubai-based Atlantis The Palm is doing. As a hospitalities firm (which is broader than a mere casino), their concern was that suppliers would manage quality downward if/when price pressure was applied. To them, a continued premium experience is critical. As a way around this dilemma they chose to take a holistic approach - engage with suppliers - through a vendor relationship management solution (currently 180-degree reviews, soon to become 360-degree), combined with onsite audits, eRFX.
Call me biased perhaps, but my impression of buyer-seller relationships in the ME suggested more of a confrontational "old school" procurement approach so it's good to see that this region is adopting modern collaborative approaches. Atlantis The Palm only formed their procurement team in 2009, and by 2015 they expect to have not only a full S2P suite, but also 360-degree reviews – that's an indicator of how quickly a company can catch up once the vision and leadership is there.
Scariest Company Award Goes to LG
This is said half-jokingly as LG's presentation was the day before Halloween. Seriously though, LG's CPO equivalent Chae-Ung Um is no joke, and neither is LG. Maybe the advantage with having a workforce (in Korea) where practically everyone (males anyway) has gone through military service (conscription is the rule for males), and Chae-Ung referenced his own military experience on stage.
He went to some length pointing out the cultural differences in a Korean company, and how junior staff who doesn't shut up and put up (my interpretation, not his words) will have a hard time at LG. You wonder how long this can be sustained as LG grows – it reminds me of the Japanese MNCs and how they used to have "shadow" managers, a habit that they have largely grown out of, even the most stalwart of Japanese industry giants are now promoting non-Japanese all the way up to the board level.
Regardless of your perspective on this command and control structure, Chae-Ung's results are impressive – from zero procurement staffers in 2009 to 240 (2 Army companies, if you’re doing the math) one year later! Recognized savings that year (2010) were $505 million. How's that for standing an initiative up?
The three phases were:
- Operationalize General Procurement (2009-2010)
- Reinforcing the Advantage (2011-2014) or transformation and change management with business stakeholders.
- Enter World Class Position (2015 onwards) to drive stakeholder satisfaction, and (interestingly) provide professional procurement services to LG and non-LG companies.
The last bullet – combined with the prominent mention of IBM and GE in the slides Chae-Ung used – will be interesting to see. A Korean procurement consulting company – by LG nonetheless? Accenture, AT Kearney, KPMG and others should be concerned.
Chae-Ung mentioned that LG still lacks spend visibility and that he also wants to automate reverse auctions – “no touch RAs” as he calls it – fire those off to a preapproved subset on a regular basis. A logical, albeit tactical, extension of automated RFXs that AECsoft USA (now SciQuest) had in operation for the major casinos in Las Vegas years ago. A tactical industry where opportunistic spot buys were important.
Mahindra & Mahindra: “We Can't Get Rid of People!”
This statement was said in a tongue-in-cheek manner by the company’s CPO Hemant Sikka. Mahindra is India's largest vehicle manufacturer with almost 1 million vehicles made (including tractors, scooters, cars etc.) But Hemant offered a note of seriousness when he said that at the head of department level on up, Mahindra had nearly 0% attrition, which is spectacular for any company.
This has become a little bit of a problem for Mahindra – and this despite having an exceedingly generous continuing education program through its Mahindra University Program (in collaboration with Harvard Business School) where staff gets 50% salary (and the spouse gets send along with the employee). So far, the generosity is on paper only – not a single employee has taken Mahindra up on the offer. Hemant speculates that employees are afraid that even with more education, they won't have a job to go back to, or they will have been bypassed for promotion. He sees this as a problem, but doesn't know what to do. Mahindra otherwise has an exceeding efficient (on paper anyway) HR department, with a spectacular 88% succession path coverage for critical positions.
Otherwise Hemant focused on talking about "high-pots" or high potential employees and how to retain them and groom them for future success. Significant resources spent on selectively and secretively identifying these individuals early on. The high-pots are told how the company views them, if nothing else to ensure that these employees don't think that their grooming efforts (extensive business trips, etc.) aren't a punishment.
It’s an interesting approach to HR, which probably would work out less well in the USA with our statistical outcome based legal environment. Maybe this is more compatible with the Indian "psyche" – although other APAC individuals chimed in stating that they have similar initiatives. The potential for abuse seems substantial, but given a clear (at least to superiors) governance process, could be applicable more broadly. Mahindra's PowerPoint stack raised comments from one of the German's in the audience that the near total absence of females in the program was troubling. Hemant agreed, but quickly countered by citing statistics from top Indian universities where the female enrollment in the types of engineering degrees sought by Mahindra was/is dismally low. Mahindra then has to compete with all the big Indian (Tata, Infosys, etc.) and western firms for these precious few females – and as a result (just as for US Silicon Valley tech firms), the pool of resources just isn't there.
This event compares favorably with PL (and other procurement) events I have attended in the US, and I'd add that the vibe is both more dynamic and more open to information sharing than normally seen in the US. Perhaps this is due to the SEC enforcement fear in the US – and rightfully so – but the level of information I gained in a short period of time was fantastic.
The many new personal contacts actually made the event worthwhile all by itself. And this holds whether you are an Asian procurement pro, a consultant or focused on selling into the region (or in the process of setting up shop in the East).