In the first part of this Spend Matters Conversation, Founder and Head of Strategy Jason Busch talks with SAP Ariba President Alex Atzberger about how to understand the digital supply chain. This second installment explores how this relates to procurement and what strategies organizations can implement.
Jason Busch: How do you get down to a practical level with how the supply chain is radically changing, and how does this tie back to procurement? How do we make procurement truly relevant in the digital age today?
Alex Atzberger: I’m very passionate on this topic. Over the last 10 or 15 years, there were obviously a lot of expectations set over the idea of procurement transformation with the help of technology and other bits, and the discussion centered around what was the value, what was the potential?
My view is, I believe we are entering a new golden age of procurement. And when I think about a new golden age of procurement, I truly believe that procurement has an enormous potential. With the way digital is affecting the supply chain, it gives procurement not just a seat at the table but it actually gives them an opportunity to become an actor and a value creator inside of the business. What that means, for one, is that we need to help make procurement truly awesome for everyone for who is involved with either the procurement organization or touched by procurement processes inside the company. Because if we are perfectly honest, in many companies, procurement doesn’t have the best reputation. Procurement is seen as sometimes slow to respond to market changes.
But I truly believe with the advent of cloud services, with the advent of the knowledge from organizations like Spend Matters, I think that if we can bring these two things together within companies, we can make procurement truly awesome inside of the business. Part of this is how we actually think about taking high-touch interactions and things that are less valuable today and making them no-touch. It’s things like bringing risk and supplier management to the next level, and how we look at not just the compliance function but also how we help the business innovate. If we do those things well, each and every user inside a business is actually reaching every person that has a role inside the company, as well as interacting with the innovation functions more closely, with the compliance functions, and really looking at new platforms for growth.
This gives me a lot of confidence that we really are entering a golden age for procurement, because it is data-driven, it is cross-company, it touches every single process and it can, with the capabilities in the marketplace, be a connector between finance and the supply chain. If CPOs take the advantage of this, it creates an enormous value creation opportunity for the business.
JB: What I would add to that is the question, ‘How do we get there?’ One element that I believe truly must be at the top of any priority list is talent and what kind of talent are we trying to recruit, as well as at what levels. We’ve done a lot of research around looking at talent, both at the junior level all the way to the CPO level, and the changing job description of the CPO, for example. But a few things rise to the surface in terms of what’s critical to look for.
For one, analytical and quantitative skills are absolutely key. And someone who comes from an engineering background is not necessarily analytical. You can’t just take somebody who’s been at a plant for 20 years, stick them in procurement and expect them to thrive in a world in which one needs to be truly data driven in decision-making. This person could be an ideal candidate, but you just don’t know. So talent is one, and talent at the senior level as well. It’s very hard to get at what makes someone tick, but I think there are some lessons in the evolution of the CFO in the past decade for the CPO today.
The CFO used to be a senior controller, someone who kept the books, closed the books and signed off on the books — and for public companies, put their free life on the line doing so (given regulatory reporting).
What’s happened to the CFO in the last decade is that the role has evolved to become the head of strategy for a company overall. The CFO is in this kind of neutral role that sits in between the board shareholders, the CEO and almost as a counter to the CEO as well because of the neutrality. But they want to progress in their career. Most CFOs don’t want to just stay CFOs and move to a larger organization. A lot of them want to run firms. So finding somebody who has that DNA on the CPO side, not only who might have the accounting and financial skills but who can be that intermediary, can be empathetic to different parties, but might have different aspirations ultimately as well, who can look at procurement as a function in which there can be topline elements associated with it in terms of what you do and how you bring products to market -- this type of person is the right fit today.
And my next point, which goes into my next question, is about technology in this world. I think that if we’re truly going to make procurement relevant in the age of digital, we need to digitize the function — and that’s not just slapping on an e-procurement system or an e-sourcing system. Yes, there is value in those, and we can prove the ROI on those, as we do. But there’s much more to it than that. How do we take the paradigm where I wake in the morning and I literally see what my friends are reading — I don’t just go to the New York Times or the Washington Post or the Economist, but I see what my friends are reading on Twitter, and it could be an esoteric blog, but it changes my orientation toward the day. I look at Brexit in a different way, for example, because at 6:30 in the morning I’m informed of this piece of knowledge by my network. So how do we think do we think about digitizing the function through technology, and how do we think about our business networks and social networks in doing this?
AA: When I look at our most successful customers, the conversations are always integrated conversations between a CPO, a CFO, a CEO and a CIO or a CTO. These conversation have to come together, and it goes back to the beginning of our conversation around the impact of technology today, the impact of digital. Of course, the digital conversation is not a conversation a CPO has in a room with the procurement organization, or that the CIO has with the IT organization. It needs to really come together.
The same is, by the way, also true in the supply chain. I was just with a large tech company where we had a meeting and we had a room full of people that, when I looked at the people, they were all from different functions. It was supply chain, it was procurement, sitting at the same table. Because if you do direct materials sourcing, for instance, and you think about your sourcing strategy for your core components, it needs to be immediately integrated into how you digitize your supply chain. Otherwise, you’re creating new silos. And obviously, the concept of having a system of record that actually spans the multiple different departments inside the company to give you real-time data is one element of that technology strategy. There’s also the system of engagement, where it’s actually about how users drive and then get to full adoption. Then there’s really a system of differentiation, which is all about then how you conduct business across companies, which is suppliers taking advantage of the network.
When I look at technology today, it’s there, it works. It’s about change management, it’s about the talent that we bring in, and it’s obviously about how you actually get there quickest, leveraging networks that exist, where you can already take advantage of buyers and suppliers being part of the digital marketplace. But for me, the conversation I have with most customers is, “The technology is there, you need to manage the change, you need to bring the right talent in, you need to bring the right stakeholders in, and then you need to adopt a digital strategy that takes advantage of existing capabilities that exist, like existing networks, for when you bring buyer and suppliers together to get actually started. Experiment fast, and truly run like you live in a type of startup. If you do that, you’re going to reap tremendous rewards.”
JB: As I think about this some more, what keeps coming up to me is that it brings up the role of suppliers plugging into this in the future — and even what is a supplier? Traditionally in manufacturing we can think of an OEM and three tiers down to raw material providers after that, but now we have all of these different intermediaries that can provide all of these different value-added services. So the role of suppliers gets, in many ways, blown up. We’re not just dealing with OEMs and Tier 1s and Tier 2s, but we have all of these different intermediaries who affect us as we buy and as we think about what it means to operate in the digital economy. So I’m curious about your thoughts on this. How can suppliers, without necessarily radically changing their models, adapt in this environment?
AA: As you know, at SAP Ariba, we focus a lot on the supplier side of the equation. We run a two-sided model, so we have an organization dedicated completely to just to the supplier account and the supplier management. What we hear from suppliers is fairly logical and straightforward, but primarily the suppliers want to grow their business — the want to find new business — and they want to reduce their costs and efficiencies and increase the simplicity of doing business with companies they already have relationships with. When I look at suppliers today, they need to also differentiate themselves in terms of how they serve their end customers. I try to talk about how digital is actually an opportunity to find new business, and I think one part of this is that there is an omnichannel strategy that a supplier needs to follow, because customers are going to want to be in different places. There are, in my point of view, channels to market that suppliers should absolutely be tapping into, networks being one of them, but not the only one. And once you start participating in digital, how do you start to differentiate yourself? What’s the role of the physical supply chain? What’s the role of your website? How do you start to become part of the innovation process? There’s a Japanese supplier we’re working with that works with some of our Chinese customers, and it’s fascinating to see how they actually operate the inventory, operate the warehouse, on behalf of their customers. Now that is another level of integration that they provide. And then our digital networks and platforms provide of all of the transactional capability that we discussed earlier, in order to manage the supply chain efficiently.
It’s about asking, Do you think about differentiating yourself as a supplier in digital? How do you think through multiple channels to do so, and how do you also work with companies like SAP Ariba to build those capabilities to help your business to actually be a differentiated enterprise around your service and your value creation in the world of digital? So far, the roadmap for the supplier is not all that different to the buyer inside this equation, because both have to figure out how to take advantage of digital to grow and expand their businesses. See digital as an opportunity. Build the windmill, not the wall just because there are winds of change.
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