Get in the game—Jan/Feb print issue

Procurement's evolving role on the corporate team highlighted at Chief Procurement Officer Summit

March 13, 2013
by By Michael Power

Procurement is a little like baseball, says Chris Dwyer. The research director at Aberdeen Group told attendees at the 8th-Annual Chief Procurement Officer Summit they shared a thing or two with the 2012 World Series champs, the San Francisco Giants.

While the Giants won the series in the 10th inning of the fourth game of the series last October, Dwyer noted the team faced major challenges along the way. Procurement organizations have their own challenges: tough economies; poor spend visibility; lack of perceived strategic value; and corporate pressure to save money.

“But things change when your back is against the wall,” Dwyer told attendees. “The Giants blew the (Detroit) Tigers away.”

The Chief Procurement Officer summit, held last November 13-14 at Boston’s Seaport Hotel, is an annual symposium for global procurement executives to learn, network and develop their role within their organizations. The summit features company vice-presidents and C-level executives who discuss trends and best practices as well as share insights into procurement topics.

To meet challenges, Dwyer said, procurement must remain strategic, produce value and earn a seat at their organization’s largest tables. That means becoming a hero by performing their functions so well that their companies can’t help but notice.

“Don’t think of what’s good for procurement,” he advised. “Think of what’s good for the entire organization.”

The summit’s opening keynote address also stressed procurement’s value. Patrice Knight, vice-president, procurement, shared services, chief strategist GIE/GMU, IBM Corporation, spoke of the transformation that IBM’s procurement department underwent to realize that value. The company began revamping its procurement department (along with the rest of the organization) in the 1990s, Knight noted, as it adopted an integrated supply chain with functionally specific roles and responsibilities. As well, purchase orders at the company must now go through a specific, highly automated process. Through this shift—and by working to communicate the department’s goals throughout the organization—procurement went from almost zero compliance to 99 percent.
Previously, Knight said, the company had a dysfunctional contracting process featuring 60-page contracts. Getting those contracts signed was also a challenge due to duelling legal departments. The process was restructured to focus on relationships rather than legalities while IBM worked to shorten the contract cycle to 30 days, she said.

Procurement moved towards a service role by developing relationships with other groups within the company, Knight noted. They also reached out to decision makers in other departments that previously viewed procurement as overly complex. Procurement has also learned the importance of risk management, Knight said. Handling risk involves strong processes and visibility, she said, and IBM now uses an integrated risk management plan.

“Risk management is one area that procurement can be the heroes of an organization,” Knight noted.

Supplier relationship management
Meanwhile, Kevin Turner, director of global e-commerce integrations at Dell, stressed the competitive advantage of supplier relationship management. The company has branched into areas like servers, systems management and data centre servers, Turner told the audience. With that growth, customers say they need help managing infrastructure.

Dell needed to tailor services to suit a broad customer base, he noted, and therefore had to understand clients better. Each customer is like a different company, Turner noted. What makes a good supplier relationship? Turner noted that agreeing with suppliers on goals, objectives and schedule is useful. As well, executive commitment to the relationship on the customer side ensures projects get done if a main contact suddenly leaves a project.

Turner also recommended ensuring an organization can send electronic purchase orders, as well as taking full advantage of ERP investments like e-invoicing and e-payments. While Dell doesn’t dictate which systems its customers use, it has to adapt to them, he said. Dell’s own system, PremierConnect, helps increase compliance, reduce off-contract spending, boost category spend visibility and volume negotiating power. Users can increase order accuracy, reduce error-related costs, save error-related time and reduce cycle time.

Supply chain finance
Eric Jones, director of corporate payables at home improvement retail chain Lowe’s Companies, discussed advantages of supply chain finance, along with giving advice on implementing it. While many people think only of physical supply chains such as the movement of goods, money also moves globally, Jones said, and if money doesn’t move then the movement of goods can’t happen. The point of supply chain finance was not to transfer costs but to reduce them, he said.

When it comes to extended payment terms, Jones told the audience, suppliers have typically responded with lines of credit, letters of credit or factoring. But each of these options can have adverse effects for an organization, he noted, such as increasing debt on balance sheets, raising costs, increasing accounting labour and promoting risks on missed time-based cash flows.

“None of these things is doing a really good job of taking costs out of the supply chain,” Jones said.
Technology provides more cost-effective and balanced solutions, he noted, with visibility into transactions allowing for options such as approved payables financing or dynamic discounting.

Lowe’s uses approved payables finance, Jones said. The company uploads approved payables data to a secure, web-based trading portal that buyers and suppliers can access from anywhere. Buyers nominate eligible suppliers and select approved payables. The platform handles invoice credits, trades and reporting across multiple suppliers and funding sources in several jurisdictions and currencies. The platform provides web-based payment visibility and little IT investment, Jones told the audience.

But there are hurdles. Organizations must first have efficient payment processes; if a company can’t get an invoice posted to accounts payable in under 30 days and there’s a 30-day term, there’s no value to suppliers. As well, procurement can struggle to learn the concept.

But the advantages to the seller include savings in the costs of funds through a more favourable rate; improved cash flow; control over A/R; diversified sources of financing; and cash-flow flexibility and certainty. Buyers can see better working capital by extracting value from the supply chain for cost reductions, program support and improved terms of purchase; strengthened relationships with suppliers; supplier stability and improve awareness of risks. The key to making the process work is automation, he said.

“The implementation isn’t complex—the challenge is in having efficient voucher processing before you implement,” he said. “You have to fix the use of paper invoices first. You have to go automated. This will not work if you’re paper intensive.”

Tailor-made supply chain
On the conference’s second day, Karl Braitberg, vice-president of supply chain operations at Cisco, spoke on evolving supplier management and the use of supplier segmentation techniques. Segmentation, Braitberg noted, is about catering the supply chain to the needs of each business. The definition, he said, involves 
designing and operating different end-to-end value chains and business value considerations.

“Don’t give me a one-size-fits-all,” he said. “We need different things for different businesses.”

Plotting Cisco’s suppliers is complicated, said Braitberg. This is due to several factors, including the evolving businesses of suppliers and the fact they’re spread out geographically. The company ran the risk of displaying multiple faces to suppliers, as well as the risk of lacking a common understanding of the environmental landscape.

To handle this, Cisco looks at individual landscapes for each product or category, Braitberg noted. The company’s environmental landscape analysis differs depending on what the product is, he said. For example, if you’re selling premium goods, you’re going to have a different procurement process than for other products.
Cisco also looks at customer requirements and delivery, such as lead-time expectations, service level of volume flexibility and the level of configurability.

“These are just examples, but it’s basically about the end user,” he said. “Is it easier or harder to deliver?”

External factors such as supply and demand also influence the landscape analysis, Braitberg noted. Each product has its own supply chain path or segment and gets moved through a unique path depending on several factors. For example, a phone can be a premium product that’s simple in terms of customer requirements and delivery but has high uncertainty in terms of external factors. Based on unique requirements there are different tasks that must be completed from a supply chain and procurement perspective.

“Knowing what matters most is important because I’m then going to do different things,” he said.
Braitberg noted procurement must take a broader view to truly be effective in today’s supply chain and avoid operating in a silo. Segmentation begins with the end in mind—it’s more complex, he noted, but ultimately more effective.

Soft drink sustainability
Ron Lewis, Coca-Cola’s chief procurement officer, wrapped up the summit with a discussion of that company’s sustainability efforts. The world is changing rapidly, Lewis said. The middle class is 
rising, the population in developed countries is aging and consumers want balance and to feel connected—all while maintaining 

“We live in a world of finite resources but we want and need to grow,” he said. “Sustainability is good for the planet but also good for business. Growth and sustainability can go together.”

Sustainability helps organizations deal with finite resources, he said. Coca-Cola takes steps to ensure they’re not surprised by trends. Lewis espoused the value of disruptive innovations, lauding Apple Inc as a company that disrupts its own innovation with new products such as the iPad. Coca-Cola, he noted, must keep its main products but think like a start-up.

“Innovation can’t just come from within the four walls of our system,” he said. “It’ll come from across a number of spaces. Innovation focused on sustainability is the game-changer.”

Those opportunities begin with the consumer, he said. People 
consider sustainability when buying a product and the company 
has long practiced sustainability. In 1975 Coca-Cola started light-weighting its products and was an early pioneer of purchasing 
commercial hybrid electric trucks. The company now has roughly 1,000 hybrid electric trucks in its fleet. Coca-Cola’s bottled water line, Dasani, boasts bottles that are 30-percent plant based, and is pushing for 100 percent.

With its suppliers, the company is trying to eliminate purchasing HFC refrigerators, a move Lewis said will reduce its carbon footprint. To do so, Coca-Cola is engaging suppliers, bottlers and other external stakeholders. It has also begun using a “disruptive technology” called PlantBottle—a bottle made from sugar cane and molasses. The bottles, Lewis said, reduce dependence on petroleum-based plastics and the company is aiming to use nothing but PlantBottle by 2020.

“For us, packaging can give huge results,” he said.

Overall, the summit offered a diverse range of topics and seminars for procurement professionals to choose from, as well as myriad networking opportunities. Speakers illustrated that the issues surrounding procurement remain varied and fascinating, and that procurement is truly a winning profession.