“It’s not just about cost savings--which was the traditional mindset of the Procurement function. It's about continually improving and re-evaluating how we’re buying to make sure we’re getting the best business outcomes.” - Neil Aronson, Head of Global Strategic Sourcing for Uber
Across all industries, margin and growth pressures are heating up. By 2021, 55 percent of technology procurement staff will require additional digital and analytical skills to enable their desired business outcomes (Gartner 2017). To succeed in this environment, CPOs must focus on closely aligning their team’s strategy and objectives with broader company goals. That requires changing the way their procurement and sourcing teams operate.
Changes of this nature call for a clear blueprint for transformation. And it starts with taking a closer look into current Procurement processes--and determining how success is being measured. A key insight: when organizations evolve alongside new technologies and market trends, so must the metrics needed to track performance.
Evolving Beyond Cost Savings to Accelerate Change
Historically, Procurement and Sourcing teams have been accountable for cost savings as the ultimate measure of success.
But as teams look to transform, they need to reshape their success metrics to chart a path forward. While anecdotal and periodic measurements are helpful, they are forgotten without a consistent stream of key performance indicators (KPIs) to indicate the overall direction of progress.
In fact, without clear, effective KPIs to back up these plans, securing executive support for transformation becomes unlikely. When executives understand how metrics and ongoing improvements directly align with the business, they’ll confidently support an initiative that delivers real value to the company.
Stan Garber, President and Co-Founder at Scout RFP
Shopping, buyers, shopping carts, savings, back office, JUST STOP DUMBING US DOWN!
As many of you know, my passion is to help elevate the sourcing industry to receive the attention, seat, respect (and yes, pay) that it deserves. So why do sourcing professionals keep self-sabotaging by using the term BUYER to describe ourselves? The only time this is a sexy title is perhaps if you are the buyer of fashion who attends runway shows and hobnobs with designers. Buying is what I do when I “shop,” like for groceries. We as sourcing professionals are NOT shopping.
So onto my next pet peeve, why do we have cute little icons that look like grocery carts to check out within our tools? Yes, it makes it seem like an easy process when pushing it out to our internal customers, but it connotes “shopping,” which, as we have just discussed, we are not doing. We are selecting items from a carefully sourced category after a lot of thoughtful processes have taken place. Why can’t we use an icon that better showcases the importance of this role?
Despite the disruptive winds of change brought by MoviePass, unexpected flops, and shifting release dates, the action in cinemas looked pretty familiar this summer.
Critics and audiences alike complain about Hollywood’s predictability, but studio heads and directors continue to rely on the same old tricks. Compare this to an inert talent manager in Procurement. Every day, these ‘directors’ are confronted with signs that their shopworn strategies need shaking up. The supply chain talent they manage to bring in-house is restless before the previews have ended. Soon, they’re making a break for the exits.
A simple reboot won’t cut it. Even in the era of digital transformation, people are still Procurement’s most valuable resource. To build the right team and reach Procurement’s potential, the function needs to fully remake its approach to casting and directing talent.
Ironically enough, this summer’s slate of retreads offers some valuable lessons in talent management. Grab a seat and check out what Hollywood’s biggest franchises can teach Procurement.
Look for Talent in Unexpected Places
One of this summer’s biggest disappointments, Ron Howard’s Solo is a case study in the law of diminishing returns. Even the promise of beloved Star Wars characters, it seems, can’t guarantee a hit. That doesn’t mean the film has nothing to offer talent managers.
Rosemarie Subasic is a Vice President with Hines, a privately owned, international real estate firm. She is a Procurement Executive with more than 30 years of experience in corporate and government facilities, real estate and operations management. For the past 12 years, she has been responsible for facilities operations for Morgan Stanley, with an annual operating budget of over $150 million dollars. She manages over 70 sourcing activities annually.
Rosemarie will be a featured presenter at the New York City CPO Meet and Eat event on September 12 from 8 a.m. to 11 a.m. This event is a three-hour breakfast meeting with CPO-only level delegates. The event topics are focused on current events locally, nationally and globally, and allow CPOs to seek input from the group on their own top-of-mind issues. By keeping this meeting very high level, CPOs are better able to share and network with each other.
Can you talk about your background and education--how did you get involved in facilities management?
I graduated as a marketing major with a business degree in 1985. My first job after college, as an Operations Analyst for the City of New York, involved collecting, reporting and using data related to real estate and facilities operations. From there I went on to manage real estate and support services for the Department of Transportation (NYCDOT) and decided to pursue facilities management as a career.
Ever heard of a thing called inertia? Inertia is the resistance of any physical object to a change in its state of motion, or the tendency to do nothing. In business speak, this phenomenon is often characterized as analysis paralysis. In a corporate world of business cases, business plans, strategic roadmaps and the push to constantly sell, align and achieve, it’s no wonder procurement leaders are drowning in what needs to be done, but struggle to scratch the surface. How can it be that a top procurement leader whose very career path has been the result of their outstanding productivity and accolades suddenly faces a precipice of declining performance and the disastrous stagnation of innovation? Simple. Because their knowledge impedes creativity, causing inertia.
Procurement leaders who have spent the entirety of their career in one industry, one company, or one function, namely procurement, subconsciously experience limiting beliefs—and by limiting I mean success-hindering, momentum-killing beliefs—about themselves and the procurement function. Without ever intending it, procurement leaders often poison their potential by allowing their knowledge and experience to cloud their creativity and vision of what they can imagine going forward. They often resist any change to the current state of operations because they are so focused on delivering in the here and now. Even if they manage to recall their vision for a world-class procurement organization, the age-old question emerges: where do I even begin? The path of least resistance is to simply do nothing, to change nothing; the alternative could lead to failure. To these skeptics wary of innovative change, I’d like to pose the question: isn’t the very act of doing still far more productive than the act of thinking or talking about doing something, regardless of the outcome?
A CFO-CPO relationship, like any other, is not perfect and is often rooted in a lack of trust and miscommunication, which, at times, makes it seem beyond repair. The CPO promises savings and talks about adding value, but the CFO only sees costs and finds the P&L showing increased spending. This obvious gap between what procurement claims and what finance sees deepens further because the language and terminology used are not aligned. As a result, misunderstanding and communication breakdowns happen.
Before exploring how to make the relationship between procurement and finance work, it is crucial to note how procurement has evolved from having the penny pincher reputation to becoming the heart of supply chain management. Organizations are now starting to see it as a key driver for competitive advantage. With various value-adding superhero functions, it has emerged from being just a cost-cutting function to having its own voice with a newfound organizational influence and corporate visibility. Mastering its potential and knowing its strategic and critical contribution will ensure a competitive advantage in today’s dynamic global business landscape.
Procurement has evolved to become more strategic and collaborative and has moved from an isolated, back-office function to a boardroom partner. While the procurement function must continue to drive hard savings, manage suppliers and mitigate risk, it must also pivot to look for opportunities to deliver future savings and innovation.
“Procurement is at an inflection point,” said Dr. Marcell Vollmer in a recent interview with SIG CEO Dawn Tiura. “Procurement needs to transform into a value-added function focusing on strategic tasks.” How can procurement teams do this?
For all the great advancements that technology brings, it requires people to manage the technology. Oxford Economics’ survey among procurement executives and practitioners found that the top three investment priorities include new talent recruitment, training/upskilling programs and procurement/supply-chain technology.
Ryan A. Murray is the First Deputy Director in the Mayor's Office of Contract Services for the City of New York. He manages an oversight and service agency that was responsible for $21 billion in procurement in FY17. New York City operates a federated model with an estimated 2,000 staff and evolving technology landscape. Mr. Murray leads the people and change practice, serves as the chief strategy officer and guides the legislative/policy agenda for the Mayor's Office of Contract Services.
What kind of transformation did you help the Mayor’s Office achieve and how was success measured?
Doing business with the City should be easy and internal city procurement operations should be efficient. Disparate practices across industries, a federated model, rigid bureaucratic rules and heavy reliance on paper processes impede the realization of quality experience by vendors and agencies. That’s why we are implementing a multi-year project to overhaul operations. In 2017 we reached the first critical milestone by launching the Procurement and Sourcing Solutions Portal (PASSPort). Together with our technology and implementation partners, we introduced centralized supplier management, moving a cumbersome vendor disclosures process online, establishing a shared platform for data sharing across agencies and allowing vendors to access contract performance data in the same portal. This success enables us to develop and launch requisitioning, sourcing and payment modules in the next two years.
Traditionally, one of the inherently daunting challenges in Procurement and Sourcing is to quantify and report on cost savings, cost avoidance and/or cost reductions, which can be collectively referred to as "added value." One very effective way that I have been able to successfully communicate added value and metrics to many C-suite members is by positioning it in a different way. I have found that by using the terminology and calculation for “Equivalent Revenue,” it is generally better received. Since it is a much more common business term and quantification, the C-suite can relate to it and it can be directly measured against the company’s overall revenue. As such, it is more widely accepted than trying to describe such value as only cost reductions or savings.
Perhaps most importantly, it is really as simple as taking the actual quantified “added value” and dividing that figure by the company’s overall net profit. A quick example: If the total aggregate added value amount is agreed to be $10 million, and the company’s overall net profit margin is 8%, the Equivalent Revenue needed to generate the same amount of that net profit would be $10 million divided by 8%, which equals $125M. By representing the figures in this light, C-suite members can readily identify and appreciate how much time, effort and expense would be needed to generate the same amount of sales revenue, and therefore clearly recognize the importance of an efficient and effective Procurement and Sourcing organization.
Guest Blogger, Dave Gallaer, Head of Procurement and Sourcing, NatWest Markets/Royal Bank of Scotland Securities, Inc.
Of the many laws that affect the international outsourcing space, one of the most important must be that of diminishing returns. At its heart outsourcing is about efficiency – a provider can only offer a decent value proposition, and turn a profit, if it can achieve a desired output more efficiently than can a would-be buyer of its services – and yet there’s only so much money in the hypothetical pot to invest in driving efficiencies: as a very basic example, if one can spend $x to achieve 10% savings, by the fifth investment of $x the savings made are only around 60% of what was achieved with the first tranche. The returns diminish. After a while, it becomes less and less worthwhile to invest $x in that project, when the same amount put into another deal can yield significantly more.
Finding the right balance between investment and returns (and knowing where is the line beyond which further investment will yield returns too paltry to justify) is vital in any business, but especially one as efficiency-based as outsourcing, where relationships have historically often featured buyers demanding constant and consistent efficiency gains and savings – and, moreover, where the necessary investments in technology and people can be gigantic. Hence the desire on the part of providers to share the value gained by any given investment across as many clients as possible – and the complications resulting from buy-side demands for bespoke work and customisation without a simultaneous understanding of why this of necessity means higher costs, which need to be passed on somewhere, somehow…