Pearls of CPO Wisdom from Global Business Intelligence Event – Part 1

We don’t usually like to duplicate articles on Spend Matters, but our US-based chief marketing officer, Carina Khul, recently attended the Global Business Intelligence CPO event in New York, and came away with some little ‘gems’ of CPO knowledge and experience that we thought were relevant enough to share with all, regardless of location – here’s Carina:

Dashing into the room while balancing a cup of tea, “hotel bagel” (you know the kind) laptop and attendee bag, the opening panel has already kicked off. I find an open chair all the way in front as the room is well-filled with attendees who better planned their morning commute. Lisa Becker, North American head of procurement at GfK, is moderating a panel on supplier collaboration with David Zullo, NCR Corporation’s CPO, just saying how his suppliers know his products almost better than NCR does. So, to drive value engineering they bring in key suppliers right at the beginning of a redesign project to tackle part count and multi-tier and (sub-)assembly analysis for supply chain optimization.

Patty Torres, who heads up HR services procurement at Bacardi Martini, relays putting out a global bid for relocation services. The winning supplier was willing to collaborate and offer a cost breakdown by region. They won the business, representing $1.3 million in spend at the time, which doubled in 2018 and is increasing to $4 million this year. For Patty, it was key to find a supplier who can provide services globally and ability to grow since all the due diligence had already been completed.

Jeff Ball, CPO at Media News Group, emphasizes the importance of including an escalation channel into all contract to ensure a C-level executive is available to help broker between functions as needed, including a quarterly active engagement. David Freschi, director of supplier management at Regeneron Pharmaceuticals, believes it mostly comes down to one or two people on each side of the relationship to make “flow” happen. (For more on how flow works, read one of my previous posts.) “You have to ensure it’s a bilateral relationship, aim to become a customer of choice to get higher preference treatment or access to a different set of resources.”

Nikesh Parekh, CEO at Suplari, shares how Nordstrom really helped define Suplari. Nordstrom had to compete with Amazon and manage their tail spend more effectively. They deliberately selected Suplari, a start-up at the time, to create true collaboration. “We ended up delivering a very customized solution. So many companies shy away from working with new companies, but it can aid your strategic partnership.”

David Zullo emphasizes that to create supplier collaboration: “Everyone needs to know the contracts, sequencing of negotiations and communications, not just with the key suppliers but also locally and globally. We have two design centers feeding our factories and we need to collaborate to understand the requirements coming down the pike. You can train people in contracting and negotiation but they need a native ability to communicate well.”

Jack Miraval, VP procurement and strategic sourcing at Covia, works closely with Caterpillar. They developed telematics KPIs to monitor when equipment is idle and its cost impact and an action plan to reduce such.

“At Xerox, we reached 95% of automated invoicing,” says CPO Stan Brown. “We didn’t expect to reach that. We initially put a requirement of e-invoicing in our contracts. Then we found suppliers didn’t want to work with us due to the fees associated to invoice payment. We then worked with them to solve that issue, e.g. by adjusting pay terms, which made the cost of joining the network affordable. Also, anything under five transactions a year is free.”

Nikesh adds: “In terms of working with suppliers, a lot of procurement teams are very analytical and process-driven. The great ones align with the bigger company objectives and prioritize ruthlessly on where to spend their time. They are able to automate tactical activities and focus on working with their strategic suppliers. It’s about alignment of strategic goals and objectives and focus on what moves the needle.”

Both David Zullo and Patty mention the use of pre-defined contract templates created by legal to use in the contracting process. Procurement negotiates the business side at both organizations, including pay-for-performance goals and KPIs as needed to ensure both parties have skin in the game. Nikesh adds an observation: “As a supplier, if you rely on a contract for a partnership, you’re in trouble. The upfront terms are never considered once you have a healthy partnership underway. Through alignment, you build out growth and innovation, to make each other successful.”

In my experience, we all know that’s the truth, until something goes wrong and companies fall back on the original terms of the agreement. Therefore, David Freschi’s team proactively looks at the impact of a variation to the agreement and manages contract change.

Next, Pete Tantillo, CFO and COO at RapidRatings, outlines the consequences of passive supplier risk in his session on building resilient supply chains. We’re all too familiar with the current volatility factors (e.g., Brexit, capital markets, mounting debt, U.S.-China trade war, political turmoil around the globe). Pete argues that we all have a lot of suppliers who cannot easily pivot when disaster strikes, possibly placing your organization at great supply risk, financial risk and reputational risk — and the problems may lie closer to home than you think.

Pete recounts a multi-generational supplier that had been in business for over 100 years. Two brothers took over the family business, pulled too much money out and the company eventually went belly up, creating a major supply shortage for a large company. “There are many small, family-run businesses globally but also in NA that are not as well-run as they may seem.”

Pete continues: “We think financial health is a key KPI across the whole procurement cycle.” RapidRatings works with companies to do a financial risk assessment of their supply base using financial statements only. This results in a financial health rating score for your suppliers, from which they give their clients actionable analytics so they can ask their at-risk suppliers informed questions and work on risk mitigation.

Read Part 2 tomorrow, and remember that GBI will be running its European CPO event in Amsterdam on June 27. CPOs can apply for a free pass, and if you do, look out for our GM Jenny Draper, and please say hello.

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