John Paterson, IBM CPO, talks about the CPO Survey, transformation and prospects for procurement

In this world where we tend to assume people move jobs and firms with some regularity, it is rare to find someone who has worked for one firm for over 40 years. John Paterson has done just that with IBM, including as their CPO since 2000 - an amazing achievement in itself in these days of the two to three year tenure procurement leader. So it is not surprising that the Scotsman (albeit one who has lived and worked all over the world) is a bit of a legend in the procurement world.

And as well as presiding over IBM’s internal procurement, with a third party spend of some $50B a year, he is responsible for the delivery of the procurement outsourcing activities that IBM carry out for dozens of clients globally. With our recent coverage of the IBM CPO Survey (see here and here – and you can download the report, free on registration, here) we took the opportunity to speak to Paterson the other day and ask him a few questions.

We started with the survey itself. One of the interesting findings there is that firms rated as “top performers” in procurement terms make on average significantly higher profit margins than the average firm in the sample. So I asked him whether he believes there is a real causality there – does better procurement really lead to better profits?

“I think it is a causal link – I don’t have any problem believing that. If you are spending millions of dollars with your supply base, how well you do this must have a positive or negative effect on the overall company performance. And we know if we can save $100 million through better procurement, that has the same effect on the bottom line as another $500 million or so revenue. And we are also delivering substantial cost savings for our outsourced procurement clients. If they didn't believe in it, they wouldn't pay the fees”!

So another interesting finding is that CPOs see their priorities switching over the next 3 years from transactional systems, compliance and sourcing processes to supplier collaboration and more use of “dashboards” with 360 degree visibility. Does that feel right to you?

I think many firms are still in the phase where there is a short-term focus on getting the procurement foundations in place. In many firms, too much effort is still spent on transactional processes and efficiencies - so we need to free up some critical resources to interact and collaborate with suppliers. And the idea of the dashboard is a logical evolution. Better procurement organisations want stronger collaboration with suppliers and the days when the procurement role was to sit and wait for work have long disappeared.

The dashboard idea enables us to display what is happening and the value that is being added – it helps procurement and the organisation understand the capability that the supply chain can bring into our organisations. It gives us the ability to communicate better – for example the 360 degree view of the supplier, including their view of us.

IBM acquired Emptoris last year. How has that affected your procurement technology strategy?

Before IBM bought Emptoris we had made a strategic decision to move our own software suite to industry standards. We had already decided that Emptoris would play a big role in that, and whilst we don't have the whole suite deployed everywhere yet, we are moving that way.

We have seen value in both directions - we have access to Emptoris developers to help make sure it meets our needs, but we can also bring our value and knowledge to developing the product, and indeed other parts of the existing internal IBM procurement software suite may make their way into Emptoris. And overall I’m sure it was right for us to move away from our own products. This is the essence of what we do with all of our acquisitions - we take the best solutions and build upon them.

Is there any conflict of priorities for Emptoris, serving you as a huge internal customer and the external market?

We haven't seen any problems – but if there was any conflict then clients would clearly come first!

Stay tuned for part 2 when we will get into procurement transformation, and Paterson’s views on the changes he has seen in procurement – and the future outlook.

First Voice

  1. Dave Orr:

    What a shame IBM didn’t bring this procurement expertise into South West One in Somerset; they decided to recruit an ex- Post Office procurement manager to head up South West One procurement.

    IBM bringing in “World Class” expertise into Somerset and Taunton Deane was one of the many pre-contract promises that failed to materialise.

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