The next BriefingsDirect business innovation thought leadership discussion focuses on how companies are exploiting technology advances in procurement and finance services to produce new types of productivity benefits.
We'll now hear from a procurement expert on how companies can better manage their finances and have tighter control over procurement processes and their supply chain networks. This business process innovation exchange comes to you in conjunction with the Tradeshift Innovation Day held in New York on June 22, 2016.
To learn more about how technology trends are driving innovation into invoicing and spend management, please welcome Joanna Martinez, Founder at Supply Chain Advisors and former Chief Procurement Officer at both Cushman and Wakefield and AllianceBernstein. She's based in New York. The discussion is moderated by me, Dana Gardner, Principal Analyst at Interarbor Solutions.
Here are some excerpts:
Gardner: What's behind the need to redesign business procurement for agility?
Martinez: I speak to a lot of chief procurement officers and procurement execs, and people are caught up in this idea of, we’ve got to save money, we’ve got to save money. We have to deliver five times the cost of our group, 10 times, whatever their metric is. They've been focused on this, and their businesses have been focused on this, for a long time.
The reality is that the world really is changing. It's been a 25-year run of professional procurement and strategic sourcing focused on cost out, and even the most brilliant of sourcing executives, at some point, is going to encounter a well that's run dry.
Sometimes you work in a manufacturing company, where there is a constant influx of new products. You can move from one to another, but those of us who have worked in the services industries -- in real estate, in other kinds of businesses where a tangible good isn't made and where it's really a service -- don't always have that influx. It's a real conundrum, a real problem out there.
I believe, though, that events and these changes are forcing the good, the smart procurement people to think about ways they can be more agile, accept the disruption, and figure out a way to continue to add value despite of it.
Gardner: So perhaps cost-out is still important, but innovation-in is even more important?
Martinez: That's it, exactly. In fact, I have seen some things written lately. Accenture did a piece on procurement, "The Future Procurement Organization of One," I think it was called. They talked about the metrics changing, and that procurement is evolving into an organization that's measured on the value it adds to the company's strategy.
People talk a lot about changing the conversation. I don't think it's necessarily changing the conversation; it's adjusting the conversation. After you've been reviewing your cost savings for the last five years for your CFO, you don't walk in one day and say, "Now we're going to talk about something else." No, you get smart about it, you start to think about the other ways you're adding value, and you enhance the conversation with those.
So, you don't go from a hundred to zero on the cost savings part of it. There's always going to be some expectation, a value added in that piece, but you can show relatively quickly that there are a whole lot of other places. [See related post, How new modes of buying and evaluating goods and services disrupts business procurement — for the better.]
Gardner: While it might be intimidating to some, it seems to me that there are many more tools and technologies that have come to bear that the procurement professional can use. They have many more arrows in their quiver, if they're interested in shooting them. What do you think are some of the more important technological changes that benefit procurement?
Martinez: Well, there are all these services in the cloud. It's become a lot cheaper and a lot faster to move to something new. For years, you’ve had a large IT community managing the disruption of trying to put in a product that's integrated with every piece of data and servers.
It's not over, because lot of those legacy systems are there and have to be dealt with as they age. But as new services are developed, people can learn about them and will figure out ways to bring it to the company. They require a different kind of agility: It’s OPEX, not capital expense. There is more transparency when service is being provided in the cloud. So some new procurement skill sets are required.
I'm going to speak later tonight, and I have a picture of an automobile assembly line. It says, "This is yesterday's robot." When you talk about robotics, people think of Ford Motor Company. The reality is that robotics are being used in the insurance industry and in other industries that are processing a lot of repetitive information. It is the robotics of technology. The procurement organization knows these suppliers and sees what the rest of the world is doing. It's incumbent upon procurement to start to bring that new knowledge to companies.
Gardner: Joanna, we also hear a lot of these days about business networks whereby moving services and data to a cloud model, you can assimilate data that perhaps couldn't have been brought to bear before. You can create partner relationships that are automated and then create wholes greater than the sum of the parts. How do you come down on business networks as a powerful tool for procurement? [See related post, ChainLink analyst on how cloud-enabled supply chain networks drive companies to better manage finances, procurement.]
Martinez: Procurement has to get over the not invented here syndrome. By the way, over the years I have been as guilty of this is anyone else. You want to be in the center of things. You want to be the one at the meeting with the suppliers coming in and the new product development people at your company.
The procurement organization has to understand and make friends with the product development and the revenue-generating side of the business. Then They have to turn 180 degrees and look to the outside world, and understand how the supplier community can help to create those networks, then move onto the next one, and then, be smart enough in the contracting, and in things like the termination clauses to make sure that those networks can be decoupled when they need to be.
Gardner: Do you have any examples of organizations that have really jumped on the bandwagon around redesigning procurement for agility? What was it like for them, and what did they get out of it? It's always important to be able to go and show some metrics of success when you're trying to reinvent something.
Martinez: If you're looking for an example, you’ve got Zara, the global retailing chain. Zara changes their product constantly. They're known for their efficient supply chains. They have some in-house manufacturing, and that in-house manufacturing gets done by them, but it's for the basic product, the high volume, where lean manufacturing is important, because the variability is low and the volume is high.
When you get to things like the trend of the minute, be it gold buttons, asymmetrical hemlines, or something like that, they're using a network of third parties to do that. In those cases, the volume is low, the variability is high, and so they create and disassemble these networks.
Whether financial services companies realize it or not, there's a lot of agility built into that. There are some firms, some third parties, that a financial services firm will use to get those shareholder reports out. They send them the monthly reports, and the companies have very high volume, very excellent quality controls. Post offices are on-site. They don't even truck it to the post office; the post office is sitting right there, and the mailings go out.
When you need to do something, for example a special mailing on a particular fund or shareholder meetings that might only be held once every couple of years, you find yourself in a situation where those kinds of networks don't serve you very well, and you have to kind of assemble and disassemble temporary networks.
Gardner: We hear a lot these days, with services organizations in particular, that finding labor and skills is a big issue for them. It seems to me that when we look at some of the tools that procurement is using, and the role that procurement is playing, that perhaps there is some more synergy between procurement and human resources management than we have seen in the past.
Do you see that as a potential benefit when you're looking for agility and procurement, that they should be working hand-in-hand, perhaps using some of the same platforms and methods of procurement and human capital management (HCM)?
Martinez: HCM is an important organization for procurement to bond with. Often, in a company, there's a lot of technology and human resources (HR) spend, and not a lot of professional third parties on the use of that spend.
There consultants who can advise you on insurance policies, but they're not always using the best tools to go out and find those providers. Sometimes, there are relationships, payments, rebates, and that sort of thing that are in play that the HR community might not be aware of or asking about.
In HR, legal, and some of the other parts of a company that often use services, there are technology solutions that are coming in place. So, if you’ve got a procurement specialist working with HR who knows a lot about recruiters and doing deals with recruiters, they had better be learning how to do a deal with LinkedIn. They had better be able to understand that those traditional service providers are not going to be needed any longer.
Gardner: What advice would you give procurement professionals who are interested in redesigning their procurement for agility? Maybe they haven’t begun that journey fully. What would you advise them as important opening position steps or thinking?
Martinez: Two things. Number one, there's no reason for your organization to call you up one day and say, "You can do this differently." You have to be self-motivated and you have to recognize that the change has to occur, do-it-yourself. I was going to say to ask forgiveness not permission, but you're not going to have to ask forgiveness, because you're going to find lots of good things.
The other thing is that there are supply chains embedded all through organizations, even when no one in the organization has heard the term supply chain.
Procurement organizations have to think about making sure that someone in their group understands supply chain or understands that mentality of owning something from start to finish, because as long as you're looking at discrete little pieces, you're not going to extract the maximum value.