GBI gems: 60 CPOs share procurement insights, war stories

Last Thursday, I had the pleasure of attending my first CPO event run by Global Business Intelligence. Some 60 chief procurement officers, many locals, gathered for the daylong GBI event at the W Union Square in New York to exchange thoughts on supplier collaboration, value engineering and procurement digitization — among other topics.

Here’s what I saw and was of interest to me, as Spend Matters’ chief marketing officer.

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 almost know his products 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.

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 year’s 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 buy’s 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.