The ABCs of New Procurement Tech

AI: On AI, I gave some backstory on the term, and sought to clarify what AI is and what it isn’t, including some popular definitions and distinctions – like how there’s Narrow AI (like machine learning, natural language processing, and robotic process automation), and Artificial General Intelligence (like deep learning, neural networks, and fully-autonomous, self-learning systems). I then gave some examples of procurement use cases for AI – like guided buying and predictive purchasing.

Blockchain: On Blockchain, I again gave some historical context (it was invented only a decade ago), and really tried to explain what Blockchain is – a distributed, decentralized database that acts as a ledger for all transactions, changes, and movement. Everything you do on a blockchain is permanent, cannot be changed, and is open to others to see (especially on “open” blockchains). So it drives great transparency into transactions – especially those across extended supply chains. On that note I shared a couple of use cases for Blockchain, such as supply chain track and trace, and smart contracts that are written into the Blocchain’s code that automatically execute and fulfill.

Connected Devices: On Connected Devices, or what we also call the Internet of Things, I talked about how advances in sensors, processors, and transmitters enable them to be embedded within everyday items, machines, and products – like thermostats, utility poles, gas/electric meters, commercial equipment, and so on. This enables the automatic transmission of critical business intelligence point-to-point, or machine-to-machine. They’ve long-been used by manufacturing, and use cases for procurement have started to emerge, like helping procurement teams get ahead of managing maintenance, repair, and operational services (MRO) spend, and syncing with Blockchain digital ledgers to link the physical and digital supply chains to enhance track-and-trace.

Summary

Artificial intelligence for procurement has already started to become a reality, even if for now we’re still applying “narrow” AI to the discipline. Blockchain use cases for procurement, such as supply chain track and trace, smart contracts, and now supply chain financing and payment reconciliation, continue to be modeled, explored, and piloted, although the technology has some issues of scale to work out, like high energy consumption and effective aggregation of disaggregated commodities (like bulk coffee).

For their part, connected devices / IoT continue to collect and transmit vital operational intelligence to procurement, manufacturing, and services, allowing these departments to get ahead of MRO and budget accordingly. If industry can iron out some integration and deployment issues, IoT-integrated Blockchain can be the missing link for linking the physical and digital supply chains and enhancing track-and-trace.

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How Far Can We Apply Industry 4.0 to Procurement?

BOSTON, October 29 — Today, more than 140 Chief Procurement Officers (CPOs) and other procurement executives convene at Boston’s elegant Harvard Club to discuss best practices, learn about emerging market trends, and collaborate with like-minded peers. The fourth annual “CPO Rising” Summit and executive symposium, hosted by prominent research and advisory firm Ardent Partners, will feature an unrivaled lineup of speakers and presentations, all of which will serve to push the procurement function into a new era.

This week’s event, which will feature nearly two dozen procurement luminaries from large corporations around the globe (and across many industries), will tackle a vast array of exciting topics within the world of supply management. These executives, from Johnson & Johnson, DuPont, Rio Tinto, and many more, will speak about:

• Expanding Procurement’s Value (this year’s event theme)
• Data-driven procurement strategies
• The role of innovation in today’s procurement function
• Designing and building the optimal procurement operation (and procurement transformation)
• The Future of Work
• And much more!

“The procurement function of 2019 sits on the edge of an incredible transformation in its ultimate quest for business agility and enterprise-wide value,” says Andrew Bartolini, founder and chief research officer at Ardent Partners. “Today’s procurement executives have the power to leverage innovation, intelligence, and transformational thinking to become a truly agile business function. The CPO Rising 2019 Summit is the ideal forum for procurement professionals from around the world to learn how to achieve these goals.”

This exclusive summit is sponsored by Tradeshift, Concord Contracts, Jaggaer, Scout RFP, Guidant Global, SAP Ariba, scoutbee, Sievo, and SpendHQ. For more information on the CPO Rising 2019 Summit, please visit events.cporising.com.

About Ardent Partners:

Ardent Partners is a research and advisory firm focused on defining and advancing the supply management strategies, processes, and technologies that drive business value and accelerate organizational transformation within the enterprise. The Ardent team has decades of experience publishing primary research that help business leaders in procurement, supply management, and financial operations make smarter decisions and improve their performance. To learn more about the company, visit www.ardentpartners.com.

At the dinner reception, Ardent Partners will present awards for outstanding performance and execution in the last year – “The CPO Honors” – to a variety of high achievers including Chief Procurement Officers and other procurement leaders, procurement teams, and new this year: procurement solution providers and/or other experts. A new class of CPOs (two names will be announced next week) will also be inducted into the CPO Rising Hall of Fame based upon career achievements.

With a record number of nominations this year, the competition for the CPO Honors 2019 awards was extremely competitive. Making it to this far should be considered a huge achievement, in and of itself.

So, without further ado…

The CPO HONORS 2019 Finalists are:

The Innovation Award Finalists: This award is presented to the CPO and team that have used new and innovative strategies and approaches to overcome significant hurdles.

• Anu Saxena, Senior Vice President and Global Head for Hilton Supply Management (HSM) and the HSM Team
• Sprint’s Procurement Team

The Technology Excellence Award Finalists: This award is presented to the CPO and team that have leveraged technology solutions to impact procurement operations and performance.

• Andrea Greco, Chief Procurement Officer, CBRE
• Jorge Martín Torres Pérez, Strategic Procurement Director, Coca-Cola FEMSA

Best Team Performance Award Finalists: This award is presented to the procurement department that has excelled across the full scope of procurement operations to make a significant impact on overall enterprise results.

• Highmark Health Global Procurement & Payables Team
• Endurance’s Procurement Operations and Business Intelligence Team

The Leadership Award (CPO of the Year) Finalists: This award is presented to the CPO who has driven new performance heights as a result of their direct involvement and leadership and overall exceptional executive management.

• Kai Nowosel, Chief Procurement Officer, Accenture
• Greg Tennyson, Head of Global Corporate Services,  VSP Global
• Mike Morsch, Vice President Global Procurement & Supply Chain, CDK Global

Innovative Solution of the Year Finalists: Presented to the solution provider who most significantly impacted the market with innovative solutions.

• BuyerQuest
• Fairmarkit

Best Technology Partnership Finalists: Presented to the best partnership between a solution provider and their procurement team customer on to a technology deployment.

• ScoutRFP and Biogen
• Ivalua and Whirlpool

Our congratulations to all of the finalists!  We will see you soon!

Dan Warn

Andrew Bartolini: How did you become the CPO of athena? What was your track, or path to the role?

Dan Warn: The short synopsis is that I fell into procurement and procurement consulting. I discovered that I love two main things about it: it’s one of the only functions that views the entirety of the enterprise’s spend with third-party vendors; and from that, it provides an opportunity to collaborate with every area of the business and to deliver really tangible results. I’m a results guy; I really enjoy being able to point to a set of metrics and tangible results at the end of the day. It’s a lot more than just savings, too – it’s total cost of ownership and total value which includes a whole host of “softer” metrics including customer and stakeholder satisfaction. Basically, it’s a fun function where you get to work with the whole company and at the end of the day you get to point to a very clear set of results that you delivered.

At athena, and at least a couple of times in my career, I’ve gravitated towards greenfield opportunities that are ripe for transformation because that’s where you get to see the most progress. And by definition, you need to meet all the stakeholders, starting on Day 1, to get a handle on where those opportunities exist.

AB: With those, how do you find greenfield opportunities? Is there a general approach?

DW: It’s a great question. I think it is situationally dependent, but I believe the concept of “quick win” applies to any opportunity, not just procurement. What I’ve done with every greenfield opportunity I’ve had is to take a very quick spend snapshot, make an opportunity assessment, and layer on a matrix of risk, criticality, and ease of implementation. I then target a few things that fit with willing stakeholders that are going to be less sensitive, or on commodity-based categories that haven’t been competitively bid or managed very well. In greenfield opportunities it’s been fairly easy to identify a handful of those areas. Before you even start improving “people, process, technology” (building a team, fixing process, implementing or buying technology), go deliver on four or five of those quick wins. You will gain some instant credibility allowing you to then kick off a more in-depth assessment across people, process, and technologies. I feel like it’s a pretty simple answer, but if other folks aren’t doing that, they should be (laughs).

After the quick wins, I generally start with people first, process second, and technology third. Cleary, I’ve spent a lot of time in the technology space – I’m very pro- technology, but it’s tough to lead with technology until you have a good handle on people and process. For me, hiring the right talent means hiring really analytically-savvy people that are also really good communicators. We can then leverage our quick wins to gain easier entry with our stakeholders and build their trust. Then process is something that can follow, right? Because if you have quick wins and the right people that have built trust, it’s easier to introduce more stringent process frameworks – things that people have to adhere to – because they now trust that you can deliver, and they trust that you have assigned the right person to care-take their spend category. Then once you’ve done those things, you’ve got the right people, you’re focused on the right things, and you’ve got processes that people are starting to follow, then enable that with the best technology.

AB: As you think about the talent management piece, it’s a competitive environment – particularly in the urban centers in the US. Talk more about what you look for, more broadly, in your people. For example, do you look for rich process experience, as well as analytic skills?

DW: It’s a great question. To be totally honest, I try to bring along 1-2 folks from my network that I have worked with or otherwise know to be accomplished practitioners and already possess a highly analytical skillset and the ability to communicate, or I have to go hire those people, because I need a couple of experienced people to allow me to rapidly toggle towards the raw talent. I really try to get folks that are newer to the function, but are super eager to learn, great people skills, and that have raw competencies around analytics. I sometimes look for non-traditional backgrounds – at least non-traditional for procurement – people that have been in sales and marketing, that are really good communicators, that can sell a message, and that are data savvy. Not having a ton of procurement experience is OK, because it’s important that we have the ability to teach new hires how to run a sourcing process, how to read a contract, how to negotiate price, calculate price benchmarks, and all the things we know to be important to the function. I think those things are relatively easy to teach to the right people that have the raw competencies.

AB: Do you ever consider tapping into newer talent pools, like independent contractors, or the so-called “gig economy”?

DW: I haven’t…. I think, as much as I like to consider myself an innovator, I’m a dinosaur in that I’m an ex-Army guy. I really like having a team that’s here, that’s engaged, that wants mentorship and coaching, and career goals that go beyond the job at hand. I probably have a bit of an inherent bias against the “gig economy” – somebody plugging in and out, here and there. I think it can totally work – it’s clearly working in lots of areas in the world today, just look at Uber. I just prefer to have a team. But having said that, I’m increasingly looking towards outsourced specialty service providers for more complex or unique categories, like telecom expense management. I think the GPO model for transactional tail-spend categories can deliver a lot of value without having to add a FTE. So, I don’t know why I’m not thinking about contract, temp, or gig-labor type for things that might lend itself well to that model. I just haven’t traditionally gone there.

AB: What are some of the things that get you excited about procurement from an emerging-opportunity standpoint?

DW: I think this really gets at the theme of my presentation – the value that procurement can deliver. The longer I’m in this function, the more I get excited about all of the ways we can deliver value and define how we do that, compared to ten-fifteen years ago when it was largely contract and cost-related. I see procurement continuing to move up in visibility. I see most of us now reporting to the CFO; some are reporting to the COO. I think we’re going to continue see a progression to report directly to the CEO. The entire end-to-end lifecycle of a vendor relationship (intake, pipeline, sourcing, savings, contract, better due diligence, ongoing performance management, and payables) is under the CPO’s charge, in addition to price/cost, in terms of how we determine whether relationships with the vendor are going well (or not).

I got into this because I really like the tangible nature of conducting a project, pointing to cost savings, and having a happy stakeholder. Increasingly, measuring ourselves, not in cost savings, but, “are we making our stakeholders wildly happy with their engagement with us”? which can create all kinds of definitions of value beyond pure cost savings. The longer I’m in this function, the more I see what we can and should touch and own, and that continues to broaden the definition of the value we can deliver. You mentioned [in this year’s CPO Rising research study] that momentum may be slowing. Personally, at least in the organizations that I’ve been in, I’ve seen the opposite. I see real opportunities for leadership across all aspects of third-party spend relationships. So to me that’s exciting – there are multiple ways we continue to add value as we grow our influence and visibility across any organization.

AB: Yeah – that’s awesome.

DW: Thanks, Andrew.  

Be sure to catch Dan’s keynote presentation, “How to Influence Friends and Manage Spend,” on Day 2 of CPO Rising 2019!

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Procurement’s Innovative Ideas

Innovation is a process, not an idea. Peter Drucker, the prolific management theory expert, defined innovation as “change that creates a new dimension of performance;” a positive change, something that creates new value or increases current value. Drucker’s definition is useful in explaining the real truth about innovations – that most are incremental in nature and build upon earlier work – most do not happen overnight. For example, despite popular belief, Thomas Edison did not invent the first light bulb in 1879; he built upon the work of Humphry Davy, the English scientist who invented the first electric light seventy years earlier. This context is important when analyzing the most popular innovative ideas of CPOs since that list looks more like a series of recommendations than a list of truly “game changing” strategies. Procurement-led innovation generally starts at the edge of current operations and strategies and builds upon it.

Innovation in a procurement context is also relative. For some CPOs, innovation is taking a TCO (“total cost of ownership”) approach with a new category like marketing and developing sophisticated models that add rigor to the sourcing and management of a very complex and high-dollar category. For other CPOs, innovation is impacting revenue by identifying suppliers for several cross-promotional marketing initiatives. For one procurement executive in higher education, innovation is helping students get internships with strategic suppliers. And, for some CPOs, innovation may mean running their first successful reverse auction or automatically classifying 98% of their spend for the first time and being able to slice and dice it. One VP of Procurement describes innovation as his company’s “lifeblood” and says that his company has a goal “to drive 50% of its innovation from external sources” including suppliers, customers, and other third-parties. Innovation may be relative, but for each enterprise, innovation is important and for most, serves as a critical path to improvement.

Collaboration is King

As noted above, CPOs understand that collaboration is a powerful strategy that can enhance savings opportunities and increase their level of influence within the enterprise and across the supply base. When it comes to innovation, collaboration is king once again. Collaboration is the bedrock of innovation because it helps accelerate the proliferation of ideas. Innovative academics and investors[1] believe that the speed in which interdisciplinary ideas can cross-pollinate is a powerful determinant to the pace of innovation within an enterprise and across a supply chain.

One director of procurement we know recently led a project designed to improve the level of collaboration between the procurement and engineering teams in the sourcing of certain parts. The thrust of the effort was to get the two groups working more closely together on projects and to start collaborating on sourcing much earlier. The project has paid off with the groups moving from a standard “three bids and a buy” approach to a more robust strategic sourcing process. The new process has helped establish a better understanding of market pricing and the best suppliers while protecting the engineering team’s budget and mitigating supply risk.

Final Thoughts

In order for procurement to take the lead on innovation, CPOs need to make procurement a collaboration and innovation hub. Collaboration is not simply the reason to call a meeting; it can become an operating principle. While innovative ideas need time to incubate but they also benefit from a collision of perspectives and expertise. With an ability to support and impact the lines of business and most business functions, procurement is uniquely positioned to bring interdisciplinary groups together on collaborative projects.

Interested in topics like this that matter to the CPO? Consider attending our CPO Rising 2016 event in Boston on March 29 & 30, 2016 where “procurement-led innovation” will be a main theme. Registration is now open.