‘I Have Plenty of Stories’ — Roy Anderson Details Procurement’s Digital Roots and Its Future

Procurement veteran Roy Anderson understands the current digital revolution that holds so much promise, and some pain, for businesses because he’s been a leader of it for over 30 years.

From Raytheon in the 1980s to building procurement software from scratch to today’s AI buzz, he has a story for every step of the way:

“Moving to a printed requisition was what [stakeholders] thought was automation.”

“Simplify the process. Do you understand what’s required? Eliminate the excess and then automate the mundane. Simplify, eliminate, automate. … It’s still valid today, on how to do business.”

“As I did strategic sourcing, I found problems. I have plenty of stories around problems you find. … Your current suppliers know bad things have occurred, but they always want to stay quiet.”

“Of all of the things I’ve done in my career, this last six weeks have been the most exciting, most revolutionary, most transformative CPO opportunity in my career.”

Anderson, who became Tradeshift’s CPO and digital transformation officer in September, sat down with another procurement veteran, Pierre Mitchell of Spend Matters, to share some laughs and lessons about how the industry adapted to digital changes over the last 40 years.

The following is the first of a three-part series of their conversation, which has been edited for clarity. Part 2 ran Wednesday, and Part 3 will run Friday.

Pierre Mitchell: Roy. I am very pleased to have you speak with me on this interview.

For the readers out there, Roy Anderson is a veritable luminary in the procurement industry. He’s been in it a long time. We’ll talk a little bit about his journey, but I am just very pleased to be able to welcome him as someone who has been a long-time practitioner in procurement and supply chain and has also been on the provider side, over on the managed services side of the equation, but more now into the pure software side of the market.

With that, I’d like to welcome you, Roy.

Roy Anderson:  Thanks, Pierre. Thank you very much. Glad to be here.

Pierre Mitchell: You’ve got a lot of experience with regards to complex industries, complex procurements, capital equipment. You have worked in defense. You’ve gone into really complicated professional services.

How did a nice guy like you end up in procurement? And would you take me through how you went from the A&D environment into financial services and some of the interesting observations as you moved across two very different industries, both complex.

Roy Anderson:  It’s interesting when I do guest lecturing at Northeastern in their supply chain program, the first questions they ask is how did you get into this in the first place. I can’t say that it was a miraculous event.

Prior to my graduation, I went around to visit 20 different companies in the northeast corner of the country, so that means everywhere from Boston, New York, Chicago, St. Louis, Philadelphia area, and said what are they looking for in terms of talent.

I found during that stint, back in the 1970s, they were all saying this whole idea of supply chain is becoming a big issue. It is something that you should look into.

Interestingly enough, the first person I met back at Babson College for an interview schedule was Arnold Lovering from Raytheon, who was an engineer and a lawyer and was running the procurement operations for Raytheon. When I was introduced to him, he said, “I’d like to have you in procurement.” My first question is, “Well, what is procurement?”

[laughter]

Roy Anderson:  He went through the whole activity of rationalization and negotiation, and I said this could be really exciting. What he used to close the deal was we’re going to send you to Santa Barbara, California, for your first assignment. I was in.

One of the key elements that I got at Raytheon, as I went through five different Raytheons over the nine-year period, early in the 1980s, they gave me the opportunity to streamline the entire procurement function.

I had worked with Jordan Marsh, which was a clothing retail store, and asked one of their procurement people there, “How do you get all this data back and forth, back in that timeframe?” They said, “Oh, electronic data interchange. We send out data back and forth.”

I took that, went together with GEIS, which was GE Information Services, which became GSX, which is now Opentext, and asked them about that process. I went to the mainframe guy at Raytheon and said, “Hey, could you help me implement an EDI program?”

On the procurement side, I used Lotus 1-2-3 to collect and analyze the data, worked with all the suppliers to obtain their pricing, based on a three-year deal. This was the first time Raytheon had ever done that. I added diverse suppliers into the mix and was able to get pricing for annualized spend with those suppliers, and we even bought them PCs. As you can imagine, back then, the PCs were relatively expensive, but we bought PCs and then sent the orders directly from the mainframe to the supplier.

Now, note, the big technology change of the day was that they were going from the mainframe to a printed requisition versus a mainframe to a list that was then handwritten. Moving to a printed requisition was what they thought was automation.

I then went from that mainframe, right to the suppliers. What we didn’t realize and that became obvious, is that when you take that requirement and skip over production control, procurement and send it directly to the supplier, you eliminate an enormous number of transactions.

We had highly competitive orders, sent directly to the suppliers. Not only did it eliminate 80 percent of the procurement function, we realized that we had more accurate data in receiving and more accurate data in accounts payable. Therefore, the effort and time there was massively reduced.

The next big thing, we went from having 20 programs behind in the production schedule, to having all the material there in advance of the production schedule, which changed the entire Raytheon structure.

When students ask me can procurement make a difference in how manufacturing is done, I said here’s a story, where we made an enormous difference, in not only the cost structure, because we reduced the cost by well over 50 percent on the unit price side, auditable cost savings. We also eliminated, unfortunately, a significant number of jobs, but that was the normal part of the process of “simplify, eliminate and automate” and put that in place.

When I left Raytheon, I made a short stop in Textron and saw the impact of a significant military revenue decline.  I then went to a company called Fidelity Investments. Now this was a significant change from big, big, manufacturing and R&D activity at Raytheon to Fidelity, which was literally growing at an enormous clip, hiring up to 1000 people at a time.

They didn’t have much of a procurement department at all. We actually built a home-grown P2P system at Fidelity. Ned Johnson was really good at saying, “Hey, you got an idea? Here’s a couple of programmers. Go build it.” So, we built a procurement system, P2P, catalogs, requisitions, workflow approval, cost centers, GL codes and then EDI 850 purchase orders out, which was from my learnings from Raytheon.

The fun story here, Pierre, was the fact that my AP person wanted to buy a million dollars’ worth of scanning equipment to get all these paper invoices and make them digital. I told him, don’t do that because I’m going to put in EDI 810 on all these electronic purchase orders, so that eliminated the invoice entirely.

He goes, “Roy, I don’t know what you’re talking about. Don’t understand it.” When he put all this equipment in and then we turned on the 810-invoice portion, of course I targeted all the high transaction suppliers, it eliminated 80 percent of all his paper invoices. Now he had a million dollars’ worth of doorstops. [laughs]

Pierre Mitchell: You destroyed his ROI, the poor guy, but, you know what? He didn’t listen to you.

Roy Anderson:  The reason why it was so wrong is because you have to go by the concept of simplify the process. Do you understand what’s required? Eliminate the excess and then automate the mundane. Simplify, eliminate, automate. Do that process. Unfortunately, he tried to automate before he eliminated.

Pierre Mitchell: You’re taking me back in time because I remember the Arthur Anderson methodology of “simplify, eliminate, automate.”  There was a whole binder on that and armies of consultants trained up on that.

Roy Anderson:  Yeah, and it’s still valid today, on how to do business.

Pierre Mitchell: Yep, still valid today. The other thing that you did at Fidelity, which was interesting, is you started really getting exposed to the “wonders” of ERP. Actually, I implemented Oracle ERP Version 8, before they had even gotten GUI. Remember the character-based interface?  You could navigate the menus pretty quickly with the ‘backslash’ keystroke navigation!  [laughs]

You really got exposed to how do we integrate e-procurement with an ERP, but it looks like you also started tying into, “Hey, how do we tie in email and trying to make this thing more usable for the end users as well?”

That was a good transition as you moved into the real e-procurement stages based on what you started doing at Hancock. Maybe take me through that transition toward more of the indirect procurement setup.

Roy Anderson:  Hancock saw what I had done at Fidelity and they said we need a chief procurement officer who’s going to tie all this together, the spending analytics, the strategic sourcing and the technology in that structure. They were thinking of, basically, going public, which now they’re going to be looked at for cost structure. Ultimately, they went and sold the whole company off to Manulife, at the end of that process.

I’ll tell you. My entire career path has been at companies looking at their cost structure and they bring in a consultant where consultant says, “Well, show me what you’re doing on the procurement side.” If they don’t have anything to show, they bring in new talent.  So, I get a call from a headhunter that says, “Hey, they need a person in procurement to actually revolutionize this approach.” That’s how I got into Fidelity.

Interestingly enough, when I went to Hancock, they were saying, “Give me cash savings, Roy.” Anything we can do to lower our cost structure, because we are going public. We need to have a profitable point to be able to make that happen. They realized their biggest opportunity was actually in the supply chain because no one had actually looked at that before.

It was a fun environment. Now, on the sourcing side, I said I didn’t have the talent. I’m a very big believer in virtualization. I said I think there’s an opportunity so I went out to third parties to bring in experts that knew how to source effectively and drive the savings. That program was going on as one swim lane.

Pierre Mitchell: So, you wisely didn’t just have the IT department throw programmers at you to develop this internally did you?

Roy Anderson:  Nope. At the time, Ariba was brand-new. They were a Java app. Back then, they were a two- to three-megabyte download or more. It would shut our system down so that wasn’t an option.

I went out to this company that was having difficulties with Microsoft called Netscape. I said, “Guys, you seem to have a lot of programmers hanging around because you’re not selling your browser anymore. Would you be interested?” And I laid out for them the P2P model that I did at Fidelity.

They said, “We can build that in HTML,” so cost center, GL code, dynamic workflow approval, parallel approvers, catalogs. The output of it was either an HTML email or an EDI package. We built that through Netscape back in those early days (20 years ago!).

At the same time, the MIT Media Lab had this thing that they were doing, e-sourcing, and I worked with the Media Lab people. They built it to buy nuclear power plants. I said, “Listen, I don’t buy many of those, but [laughs] I do hundreds of sourcing events a year much smaller, faster, easier. Can we build something that is lightweight?”

The company was called Frictionless Commerce. I literally worked with them for months to build up an e-sourcing platform, to be able to tie the requisitioning tool from Netscape to the e-sourcing platform. If you remember, that’s when Netscape got bought by Sun and Sun offered the first portal.

On my channel or my portlets, I had my internal customers’ personalized requisitions, purchase orders, shipping (because we tied in with UPS), contracts that were being done on the Frictionless Sourcing and Contracts on the Frictionless campaign [editor note: Frictionless Commerce was acquired by SAP back in 2006]. We implemented a company called Extensity for travel and expense reporting. I was driving the first MSP-like solution within temp labor and put it all on the portal. People would personally see all their work.

That was fun. That was revolutionary. Because the company was smaller, you could make all these things happen and roll it out across the entire company. We had 100% online, digital activity for all activity back in 1999 as we headed to Y2K.

Pierre Mitchell: You were really tapping the supply market from wherever you could find the best solution. Combining Netscape for P2P and Extensity for T&E and Frictionless, which was the real first integrated suite for source-to-pay with a strong upstream capability.

Still, while the technology piece was great, your tenure at MetLife was even a better story in terms radical digital transformation wasn’t it?

Roy Anderson:  My story goes like this, Pierre. You know I tell stories. When MetLife first contacted me and said, “Hey, we heard you were able to help John Hancock through their IPO and digitizing their entire supply chain.  We’d like to have you do that here at MetLife.”

Now, MetLife is 10 times the size of John Hancock at the time. They have 60,000 employees. When they brought me in to MetLife at 1 Madison Avenue in New York City, they kept taking me up to the 30th, 35th floor overlooking lower Manhattan, and it was a beautiful site.

I went back two or three times and finally said, “Sure. I’ll take this job.” I met with my HR coordinator, who was an absolutely wonderful person I stay in touch with today. I pushed the up button, figuring on my first day of work I was going to go up onto that 30th floor and start working. She said, “You’re not going up.”

I said, “What are you talking about? They told me I’ll be up there on the 30th floor.” They said, no, procurement is down. I said “We’re on the first floor? The procurement office is in the basement?” She replies “No. The cafeteria is in the basement. You’re below the basement.” [laughter]

Pierre Mitchell: That’s hilarious.  I can’t tell you how many procurement organizations that I’ve visited who were in the basement, or the “older building out back”, or the annex near the manufacturing plant or warehouse.  Sales and Marketing always gets the best corporate office space.

Roy Anderson:  Yep, I was in the sub-basement. So, I went into the sub-basement with 100 people there.        They were ex-admins of various people that retired from the company and they ended up in the sub-basement. Literally, there was limited procurement function at that time.

We wanted to re-make that structure I wanted to be in the forefront. I want to be able to sit at the CEO’s table within the next 24 months and be able to provide data-driven decisions, what I call “D3”, so that the CEO can make better decisions on whether to make or buy activity across the entire spectrum of spend.

But, getting there wasn’t going to be easy.  Do I hire more HR people or is there a third party that can do this work? Do I need an IT group or do I do more on the outside with a BPO model? Real estate, legal services, and specifically, print activity where MetLife went from 100 suppliers down to 6. All of those were opportunities for supply chain to make a difference at the CEO level because of the opportunity for savings and internal transformation.

Now, note, this was 60,000 employees that we rolled this out to. At this point in time, Ariba [Editor’s note: Now part of SAP and called SAP Ariba.] had turned into an HTML solution. Taking into consideration our cost center, GL codes, split accounting, dynamic routing, all those things that I told them they had to do, they put into their toolset. I brought Ariba back in 2002, that timeframe, and started to go out.

Now, we built, before we went live, 50 catalogs on day one and ended up with close to 250 catalogs of data that were in the system. We also simplified and minimized the approval structure.

They were able to speed the processing on the orders, which made it easier for users to go through the system, than go outside the system. We took out the buyer because the supplier and the pricing model was all set and eliminated the transactional contractual activity because that was already done in advance.

Therefore, the user said, “Hey, this is actually easier than anything we’ve ever done before.” We had 15,000 unique users on the P2P system.

Now, interestingly enough, there was only one other app in the entire company that was used more than that. That was email!

It was similar with John Hancock, except that we were the third largest app at John Hancock. The first was email and the second one was the menu for the cafeteria. [laughter]

You know where people stood!

Pierre Mitchell: What was interesting about that transformation, just from you describing it and from the story that you told before about this transformation, one is it was strategic in the way in which you discussed it with your senior stakeholdersThis is ultimately about making optimal sourcing decisions and using data to do that because, ultimately, it’s their spend. It’s their supply chain, but you’re going to give them the best tools to make those best choices.

But you also had this mass e-procurement aspect of really making life easier for the employees.