Pearls of CPO Wisdom from Global Business Intelligence Event – Part 2

Our chief marketing officer, Carina Khul, continues her roundup of ‘little gems’  learnt from the Global Business Intelligence CPO event in New York. Part 1 is here.

Gems from Treasury Department

Did you know in 2018, the U.S. government spent $4.11 trillion, according to USAspending.gov? The Department of Treasury spends up to $7 billion annually across some 24,000 transactions, according to the Treasury’s acting CPO, Harrison Smith. “Typically, half of the spend comes from the Mint where we buy paper and metals. Especially metal prices can vary wildly year-on-year. Another $2 billion in spend stems from the IRS, where half goes into buying IT.”

Unlike most companies, Harrison needs to spend the budget by the end of the fiscal year or the money “goes away” come October. Previously, they did not have enough transparency and visibility to manage transactions throughout the year, but they invested in spend management tools a few years ago and now know that 25% of all spend is in September…

Harrison shares that the federal government has $90 billion on IT spend annually. Throughout his career, Harrison aims to elevate procurement as a strategic and long-term function. “We often get the complaint that procurement doesn’t have enough contract writers. Through data, we try to show that for each dollar spent on procurement personnel, we generate $1.63 in savings. I’ve found this KPI to be very forceful for internal stakeholders. We bill internally for providing procurement services. I need to balance driving value and support but also offer a reality check on what’s sensible. I partner with my stakeholders rather than straight up buying what’s requested. Tell me what you need, rather than tell me what to do.”

Harrison points to the importance of being a business adviser rather than “back-office support.” He tells the attendees that we all have to be in sales and sell our value every day. He adds that in all this, he’s found technology to be an enhancer by deploying automation and robotic process automation (RPA) to enable a shift from low-value to high-value work.

He then moves onto the importance of being willing to fail (fast or at all). “You can’t be completely risk averse if you want to achieve innovation and meet your stakeholders’ needs. You have to strike a balance and embrace taking ‘informed risks.’ If we don’t say ‘yes,’ the stakeholder will go elsewhere and do it anyway.” Harrison says it’s important to understand how to manage, approve and resource innovations and manage risk throughout the process. He’d rather have his team fail in six days or six months versus failing in six years’ time.

His final gem of wisdom: “I am very wary of experts as they often haven’t done what they’re experts in for a very long time.”

Contract-Centric Sourcing

The contract-centric sourcing roundtable hosted by Icertis offered up some good thoughts as well. For instance, Doug Brooke, VP of Sales, mentioned how increasingly clients such as Boeing and Airbus work to match back-end supplier contracts to front-end customer needs before signing the deal. He asked attendees how hard it is to get contracting alignment across the organization.

One participant offers up how they have a contract expert residing within the procurement organization to offer legal support on-demand. “You can’t expect the packages within each procurement officer. This has been a best practice for us to speed up the contract cycle.” Another mentions that in their organization, sourcing and sales contracts are connected if it contains a transportation commitment. For a real estate developer, sales and sourcing contracts are always connected, with the former capturing tenant needs with immediate engagement of procurement to work toward the delivery deadlines.

However, for most of the 20 roundtable attendees, enterprise-wide contracting is the future. Most simply aim for establishing a central repository so the digitized contract can be used as a corporate asset. It took one attendee seven years to centralize their contracts but now it supports a lot of associate processes, offers real-time access to NDAs, etc.

Overall, attendees agreed that too often, companies use the same (legal) base agreements for direct and indirect/services spend where terms can differ greatly. It can take a lot of effort to edit these base contracts with one person remarking that it can be easier at times to start from scratch. Technology contracts also throw up legal barriers by requiring intensive security reviews.

Alex Saric, CMO at Ivalua, believes procurement often buys a solution for today’s issues, not taking future needs sufficiently into account. With a “spot the difference” illustration in his slide deck, he emphasized how details in technology are really important as it’s where the differentiators lie. “Does the user interface look the same across the suite? At the data level do you have a single database for a 360 view of suppliers? Those details really matter down the road to meet future needs — a switch is costly.”

If you have no procurement technology, Alex advises to start with procure-to-pay (P2P) or source-to-pay (S2P) rather than taking a “big bang” approach to get some incremental wins and avoid overwhelming your organization and risking low adoption.

By the way, out of all procurement software comparison tools in the market, only Spend Matters’ SolutionMap digs into tech differentiators at the feature/function level.

‘Beyond Digitization’ and Measuring Procurement’s Impact

On the “beyond digitization” panel, Alesandro Marangon, head of procurement for the Americas at Novartis, shares that: “Digital is now officially a category for us. It’s not to save cost but to look for innovation — the eyes of the business outside. Tech is evolving so quickly, you need to be in the market to catch up with the speed of technology.”

The final panel, on measuring and reporting procurement’s true impact, is hosted by Richard Stack, SAP’s director of value and success planning in procurement and supply chain. Lisa Becker from GfK finally takes a seat versus moderating and says: “Procurement is closely tied to direct and indirect revenue generation by bringing in innovative suppliers. Doing due diligence quickly enables our BUs to swiftly develop new products/services. Getting the right performance metrics in with the supplier is key and has a direct bearing on their delivery and the associated value stream.”

Matt Anders, executive director and global head of technology sourcing at Warner Media, says: “We increasingly do work digitally and that prescribes the suppliers we choose. Identifying suppliers in the marketplace and building the right relationships for the business is now more important than activities such as reducing the supply base.”

Sabrina Traskos, SVP of procurement at Dentsu Aegis Network, says: “It’s hard for our teams to balance the basic cost reduction requirements versus delivery on speed while managing supply chain risk and delivering the highest value solution for the internal customer. That’s the hardest — to balance the value.”

Thomas Donatelli, SVP of indirect at Teva Pharma, says: “The true measurement is having your stakeholders reaching out to you for advice. Also, outside of projects, true engagement with procurement.”

Bruce Starr, MD, global head of technology procurement at BNY Mellon: “Rather than delivering savings, it is key to get a seat at the CIO’s table and be seen as a shepherd and leader through the process — when they bring us in early to deliver on a project.”

Michael Arpino, chair of ISM NYC, comments on the importance of both procurement and the business having aligned goals, skin in the game, with procurement having revenue objectives and the business, instead of ‘having money to burn’ as they need to develop growth paths for the business, also having savings goals so we all speak the same language. Panel views on this are mixed but agree that we all take an optimization approach.

Thomas Donatelli adds: “At Teva, we had a restructure and the new CEO has made everyone’s bonus dependent on the earnings across Teva Inc., not by individual performance or BUs. That’s really helped align business goals across the organization.”

With that, it’s time to go across the street for final networking and mingling at a Union Square locale. GBI runs several CPO events annually, in North America and in Europe. The next one is coming up June 27 in Amsterdam. CPOs can apply to attend with a free pass, and Spend Matters Europe GM, Jenny Draper, will be in attendance.

 

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