In this second article from the 2022 SIG Procurement Technology Summit Keynote Series, we will tap into the expertise of an esteemed panel of industry leaders who will share their experiences with mobilizing their respective organizations' ESG initiatives to achieve progressive outcomes. Make particular note of the words progressive outcomes because implementing and maintaining an ESG strategy is not a destination but an ongoing journey that requires commitment and the agility to respond to ever-changing marketplace realities.
Rather than just a generalized or conceptual discussion on ESG, these individuals delivered personal and detailed accounts regarding the successful transformation of their supply chains to align with social imperatives and financial objectives. In other words, during the discussion, they effectively "blazed" a trail of understanding that can serve as a helpful roadmap for the successful implementation of your organization's ESG strategy.
No Longer An Option
In the recent Oliver Wyman article, Powering Your Sustainability Strategy Through Procurement, it is clear that the proactive implementation of a successful ESG strategy is not an option for organizations – not that it ever was.
The authors specifically talk about how "For many years, calls have been getting louder for business leaders to pay more attention to their organization's environmental, societal, and governance (ESG) strategy."
Fueled by "intensifying pressure" from all directions, including customers, employees, investors, and governments, good intentions must now materialize into tangible outcomes sooner rather than later.
In what will be the first of several articles on the 2022 SIG Procurement Technology Summit Keynote Series, I will share with you the insights from each session, starting with today's post on my discussion with Shashank Saxena, General Manager for VNDLY - A Workday Company.
In the session - aptly titled "Closing The Digital Acceleration Gap In Procurement," Shashank and I talk about the disruptive approaches and new innovations that will reshape how procurement leaders can satisfy their most pressing strategic imperatives.
A little background information is in order before getting into the above specifics.
The New Digital Imperative
"Everyone wants to do digital transformation – think of all the board level priorities you have this is probably the most and biggest."
The above words by Shashank resonated with me on many levels.
They are a reminder of how far we have come over the past few years and how we still have a way to go before we achieve or realize the full potential of the digital promise.
What do I mean when I say "the full potential" of the digital promise?
A December 2019 Forbes article reported that "70% of companies either have a digital transformation strategy in place or are working on one." However, recognizing the importance of having a digital strategy is not the same as realizing the anticipated return as "only 7% of companies have fully implemented their digital transformations." As you can see, there is a notable difference between having a strategy and the ability to implement it successfully, and it is quite a gap to bridge.
Let's start with a bit of a history lesson. Have you heard of Robert Rudzki?
As the co-author of the 2005 book Straight to the Bottom Line®: An Executive's Roadmap to World Class Supply Management, Rudzki knows a thing or two about the subject matter about which he confidently writes. Between 1977 and 2005 – 28 years, he was SVP and CPO for notable brands Bayer Corp. and Bethlehem Steel Corp. Be sure to note his dual finance and procurement role.
Based on his expertise – which includes an MBA in Finance from the world’s oldest and most prestigious business school, Rudzki identified the five critical finance terms every purchaser should know. In short, his bridge between finance and procurement was to have the latter refocus on areas such as ROIC, Cost of Capital, and P/E Ratio.
His reasoning was supported by a 2006 article that asserted, “Too often, finance executives in Corporate America simply don’t believe that purchasing departments are really bringing in the savings they claim" because “financing and purchasing don’t speak the same language.”
This linguistic disconnect was further emphasized in a 2007 news report indicating the following:
Less than 20% of CFOs consider the work of CPOs and their staffs as having a very positive impact on competitiveness.
Additional insights from an excerpt of the research paper referenced in the same news report also indicate that:
Mary Zampino, Vice President – Content, Research & Analytics
One of the significant advantages of the Sourcing Industry Group (SIG) is that members have unparalleled access to industry insights and expertise through our vast and diverse community of practitioners and thought leaders.
Recently we conducted interviews with two senior procurement executives regarding their innovatively practical approach to dealing with inflation and its impact on supply chains.
In the first instance, we talked with Tony Abate - Senior Vice President & Global Chief Procurement Officer at Cigna Express Scripts.
When Cigna closed its $67 billion acquisition of Express Scripts in December 2018 to become what the media called a “$140 billion revenue healthcare colossus,” Tony’s responsibilities expanded considerably.
Responsible for “transforming and integrating two procurement departments into a global, world-class international team, he is accountable for the CIGNA taxonomy research, analysis, and development, including identifying 8000 suppliers with an annual spend of $4.5 billion.
Our second executive is Michael Koontz. Michael is the VP Strategic Sourcing & Business Leader for ATD Sourcing Solutions, whose unique approach to battling inflation we will discuss in a follow-up post.
Creeping Into Supply Chains
Shortly before his interview with SIG, Tony gave a speech to 1500 employees at Cigna on inflation and its impact on supply chains.
Organizations spend tens of trillions of dollars a year globally on services. It’s not surprising why: The world is shifting from a goods and manufacturing-based economy to one where outcomes are delivered “as a service” — whether that’s traditional labor, complex services (e.g., BPO, professional services) or even the outsourcing of goods production through contract manufacturers. On average, services account for around 50% of spending on third-party suppliers, ranging from 20% to 80%, depending on industry and specific organizations.
Because of this vast overall expenditure and the distributed nature of services spending throughout the enterprise, there are potentially significant opportunities to reduce the cost of services. What’s more, in many organizations, services spend ownership is, in practice, distributed across the organizations’ functional units (e.g., legal, marketing, IT), and procurement involvement can be limited or even resisted. This creates opportunities to obtain savings and improve services outcomes by increasing visibility into and rationalizing and automating related sourcing and performance management processes.
Yet the question then becomes how to obtain these improved results. Over the past several years, procurement practitioners have told us repeatedly that processes and technology for the management of services are not as robust as those for goods and materials, meaning there is much more to do to gain better visibility, influence and control over services spend. Despite the tens of trillions of dollars, organizations spend on services each year, how organizations use technology to support their sourcing and management of services has not been analyzed to any meaningful extent.
State of Services Procurement Technology Survey
Morgan Zombolas, Marketing Engagement Manager, Spend Matters
Thrust into the spotlight due to the pandemic and now the war in Ukraine, the demand for sourcing professionals to deliver maximum value has never been greater.
To start, "maximum value" is no longer about getting something at the best price – if it ever was. I base the "ever was" on the words of a 20-plus-year industry veteran who has held senior executive positions with a major global brand and stressed that it has never really been about cost savings alone. If it were, they added, they would have left the industry a year and a half after they started.
So, if it isn't about cost savings, what is it about?
It is about agility, resilience, and being strategic. It is also about breaking through existing barriers to achieve optimal outcomes through digital transformation. In other words, the merger of people skills with emerging digital tools such as Life Cycle Contract Management (CLM) solutions.
The Seven Steps to Success in Sourcing paper was written with the above objectives in mind.
Beyond providing an outline of the challenges with which sourcing professionals are now contending, in this article, I will review the paper's "seven steps" within the context of a CLM framework. Included will be a deeper dive into one of the steps – Improving transparency.
Barriers To Agility
The paper talks about the challenges of "cumbersome siloed data" and points out that sourcing professionals are weighed down (and slowed down) by "outdated traditional systems" and "complex, often manual" processes.
While these have been significant issues, they take on new meaning in a post-pandemic world, a new meaning in which supply chain resiliency is being stretched to the breaking point.
As a result, the risk of "slow, inflexible sourcing processes" reduces agility and, with it, the ability to adapt to the at times, unpredictable changes in the marketplace.
Mary Zampino, Vice President – Content, Research & Analytics
Our deepest belief is that the procurement functions, by connecting with stakeholders and creating coalitions along the entire supply chain, are uniquely positioned to accelerate transformations and deliver the impact promised by most corporations on environmental, social, and corporate governance (ESG).
SIG and Oliver Wyman have developed a survey to assess the current maturity level of Procurement organizations globally, across various industries and geographies, to highlight the best practices and identify the upcoming challenges for CPOs.
Specifically, this survey examines the following criteria to determine your maturity in sustainable procurement:
Convert ESG-related company ambitions into strategic procurement objectives
Build a robust baseline on each ESG dimension
Embed ESG in category strategy
Explicitly state your goals and pledge to suppliers
Embark, engage, and challenge suppliers
Team up with partners to share ESG-related best practices
Champion change internally
Accelerate change externally
Reinvent procurement performance monitoring towards ESG
Embed sustainability in the core procurement processes
Upskill teams to better engage suppliers on sustainability
Embed ESG in procurement data and digital asset strategy
Share your insights with SIG and Oliver Wyman on our new Sustainable Procurement Maturity Survey!
2022 is already shaping up to further depend on procurement's expertise in transforming sustainable supply chains. We have a host of resources, insights and events to prepare you for procurement's transformation!
Procurement Technology Summit
Prepare yourself and your team for the future of business at the SIG Procurement Technology Summit April 4-6, 2022! Are you registered?
Get ready for amazing keynote sessions, a chance to engage and learn from the brightest industry experts, speed networking, and experience live solution deep-dives from best-in-class providers.
Do you hear that? That's the sound of the SIG Future of Sourcing Awards making a return! The FOS awards are held to honor and celebrate individuals and organizations that show innovation, leadership and transformation in critical areas to the sourcing industry. The next Awards will take place in Rancho Mirage, California, on October 19, 2022, the capstone evening at the SIG Global Executive Summit. Attendees will enjoy dinner, networking, entertainment and an awards ceremony delivered in the most innovative ways imaginable. This event will bring together some of the brightest minds, the best insights and the most relevant topics to create a truly remarkable experience.
A timeless saying is that "life is 10 percent what happens to you, and 90 percent how you react to it."
I was reminded of these words when I recently read the PBS News Hour articleHow the supply chain caused current inflation, and why it might be here to stay.
According to reports, the 6.2 percent increase in prices over last year was unexpected and, therefore, a shocking turn of events to many experts. Even more troubling is that there is a growing belief that higher consumer prices will become the "new normal." In short, while the rate of inflation may nominally fluctuate over the coming months, its fastest rate of increase in "more than three decades" is a trend that will likely continue in the coming years.
I intend to understand the "why" of what is happening and highlight the consequences of the current crisis - including the means and tools at your disposal to deal with it.
Supply Chain Mess
While there is no single reason for the inflation we are experiencing today, it seems that the catch-all reason given by experts is that our supply chains are a mess.
Starting with the "severe shortages of goods and labor in supply chains," pundits point to a dramatic increase in people buying online due to the pandemic as an exacerbating factor.
For example, industry projections that orders would hit 4.7 million packages a day during this recent holiday go well "beyond what the system can possibly absorb or deliver." However, that is just one part of the story, which brings us back to my opening comments about our reaction.
When The Chips Are Down
The strained relationships between buyers and sellers due to inflation are making headlines around the globe.
In what was traditionally a siloed function, separate from overall executive and organizational strategy, procurement professionals have more recently become integral to company operations and resilience. This prominence grew during the COVID pandemic, which broke down barriers between departments and raised attention to the importance of Chief Procurement Officers (CPOs) and other procurement personnel, and the work they do.
The Power of Procurement
The procurement team is at the interface between the enterprise and the extended enterprise: the organization and its suppliers. Procurement professionals are in the position to understand the risks and the wider ecosystems their suppliers operate in. They, like no other function, can make predictive connections and be able to quickly identify risks specific to one supplier or those endemic to the wider ecosystem, and quickly pivot alongside the business accordingly. And it’s not just risk, but opportunity and innovation for the enterprise, such as identifying new products, materials, capabilities and offerings.
With this greater inclusion of procurement professionals into organizational strategy, CPOs and similar roles need to begin to reframe how the function can best serve the organization, and how other departments can serve them. One key to this new way of thinking is framing procurement around holistic risk management, particularly when it comes to managing third parties, suppliers and the supply chain.
Best Practices for Taking a Holistic Approach to Procurement
While not everything in this shift can be implemented immediately, there are general aspects of agility that should be on procurement’s agenda, including: