Thank you for joining us for today’s AOP Live session – “Business Resilience for Short-Term Agility and Long-Term Growth.” My name is Kelly Barner. I’m the Head of Content and Operations at Art of Procurement. I’m joined today by my partner, Philip Ideson.
Philip, how are you today?
I’m good. Thank you very much!
How are you?
I am doing well. I’m actually looking forward to this.
This is a little bit of a role reversal. Usually, I’m voice of the audience, and you’re leading the discussion, but I’ll be the one sitting in that chair today which is something that we always like to bring up at the beginning of these sessions.
AOP Live formats – if you’ve never attended one before – this is not your typical webinar. What you will not see are slides. What you will not hear is one person talking for the next 45 or 50 minutes. Instead, this is an opportunity for you to participate in the discussion.
What we’re going to do is we have a series of questions that came in during the registration process. Thank you to everyone who has already submitted questions! We’ll be soliciting thoughts, comments, and questions from you as we go through the live session.
Now, that’s what Phil is going to focus on today. Phil will be watching. There is a chat box – if you happen to be with us live – right down below this broadcast screen. At any point, you are more than welcome to type in your questions and comments for today’s guests, so we look forward to the active role you’re going to play in today’s session.
One interesting thing with this role reversal is knowing my cue and my prompt.
I wanted to say, if you’ll see me, I may be typing, I may be looking away, it’s because I’m really interacting with everybody in the audience. Please do keep those questions coming in.
I’m going to jump into the conversation a couple of times as appropriate, but I look forward to seeing everyone’s comments and questions throughout the session.
Before we bring our guests onstage – and we do actually have two excellent guests with us today – I wanted to share a little bit about the topic and about them before you get a chance to hear from them directly.
Certainly, discussions of resilience and agility in procurement and supply chain are not new, but what we’re going to be exploring today is how to look at short-term resilience and agility when you put it against the goal of long-term growth. It creates a much bigger picture challenge.
When a company’s long-term vision is put up against the actions that all of us need to be carrying out in order to succeed in the short term, procurement’s role actually starts to change. To discuss that with us, we have two guests.
We’re going to be joined in a moment by Yatin Anand who is a Principal and Procurement Leader at KPMG, and also MVK – Chief Procurement Officer at Coupa who happened to make a little bit of news of their own today. Didn’t they, Phil?
Yes, Coupa closed their acquisition by Thoma Bravo this morning. I want to congratulate all at Coupa on that occasion. I wanted to give a little bit of a shoutout before we get started.
Hi, MVK and Yatin! Thank you both so much for being with us for today’s AOP Live session!
Thank you! Thanks for having me
To get started, a long time ago, Phil developed a question that we’ve had the opportunity to ask hundreds of procurement practitioners and executives. I want to warm up today by actually putting that question to both of you.
MVK, I’ll start with you. Did you find procurement? Or did procurement find you?
I’m a recovering finance person, if you will. I started off in accounting. At Footlocker, when I was the European controller, I got excited about the power of data and how to make better business decisions, drive competitive pressure and fact-based decisions and stuff like that, and implementing e-sourcing. That’s when I learned procurement is a really big deal. I think I found procurement.
It actually sounds as though we might be having some issues with your audio, MVK. Check the settings for us. If you need to, pop out of the stream and pop right back in with that link.
While he does that, Yatin, why don’t I put the same question to you? Did you find procurement? Or did procurement find you?
I’m an engineer by trade. Being an electrical engineer and going through that background, one of the first cases was I knew that I did not want to be an electrical engineer for the rest of my life.
As I maneuvered my way through my career, I started out very broad. I was a broad supply chain professional focused on all facets of the supply chain. I stumbled upon procurement and loved it. This was in the early stages of my career when I was in industry in retail at Winn Dixie stores.
That’s where I stumbled upon procurement. I loved it as a career and have practiced it for the last 20 years. I would say we found each other, and I’m loving every minute of it.
We’ve got recovering – as MVK said – professionals from two different backgrounds – finance and engineering. We’ll have to see if there are some opportunities to maybe bring those touchpoints into the discussion today.
Yes, thank you. Sorry, I actually said I found procurement at my time at Footlocker.
The good news is – like you are a recovering finance professional – Yatin shared that he is a recovering electrical engineer. Potentially, after today, he can look at your electrical setup there. Everything we do these days is digital which puts an element of surprise into everything.
To kick off today’s discussion, one of the things that we’re going to bring in, we like to run pulse polls and snap polls on LinkedIn right before we open these discussions. We talk about bringing in the voice of the audience and asking people questions during these sessions, but we get input in advance as well.
Here is a question that we had posed. What I’ll do is I’ll actually read all of this into the conversation because I do know that – later on or potentially even today – we’ll have some people that are listening more than watching.
We asked, “Which of the following short-term issues do you find most disruptive?” Here are the results. At 40 percent, we have supply availability – no surprise after the last few years; 26 percent, we have supplier price increases; at 20 percent, in third place, we have sudden changes in business strategy; and, finally, with 14 percent, we have talent shortages.
Phil, I know that you’re watching the discussion going on among the attendees, but I also want to give you an opportunity to comment on this. Any thoughts or observations based on these results and how they align with today’s conversation? it’s definitely interesting how talent shortages is at the bottom of that list, given the fact that we were talking about talent shortages an awful lot the last year – in fact, the last couple of years.
That’s not to say that they’re not important, but I think it’s important to frame and contextualize this around short-term issues rather than long-term issues. I know we’re going to talk about both short and long term later in the conversation.
The supplier availability being top is maybe not a surprise, but I think that that’s probably lessening for most organizations. We’ll go into the conversations to hear MVK and Yatin’s view of that – whether a year ago that would have been a far higher number and if that supplier availability issue is moderating or whether we’re still seeing that across a lot of organizations being an issue.
Let me actually pull you in then, Yatin. When you take a look at these results, what completely confirms your perspective? What surprises you? Any initial thoughts that come to mind?
Yes, I’m with Phil. I’m a bit surprised at how low that 14 percent on talent shortage is. That likely has something to do with the current upheaval that we’re in. All this news about hiring freezes and layoffs – that’s probably what’s driving this perception that we have enough talent.
I think the reality here is, as we climb our way out of the current market uncertainty, companies will still be challenged to find the right talent to enable their long-term vision. If you were to do this over again and do this poll survey in a year, I think that talent story will come back to what I would call more “normal” levels. I guess that’s my initial gut reaction to that.
The second one I’d focus on is the price increases. While the market is starting to stabilize, the last two years have had a fairly direct impact to the bottom line. Supply chain professionals and procurement professionals have been challenged.
We’re trying to take that cost back up. Where those costs crept up, we’re now focused on looking at supplier price increases and costs. I’m not surprised that that’s in the mix and that confirms a lot of what we’re seeing in terms of demand from organizations today as well. MVK, as I bring you in to get your general thoughts about these results, let me also tack on and ask you an additional follow-up question.
How risk-averse do you think procurement is today versus where we were – three years ago or five years ago – looking at it as a trend? What are your thoughts around these short-term disruptions and how they’re affecting the procurement psyche?
I agree with what was said. Let’s not echo that, but I think the one that I’m missing is the cost of capital. Obviously, interest rates are continuously going up, especially as inflation doesn’t seem to come down – even with demand starting to soften globally.
To me, I think supply availability is going to straighten itself out very quickly, very soon. You can already see it with earnings releases from big retailers. I have always said that shipping costs and container costs are an early gauge of economic reality. All of that has come down dramatically. I think that’s all going to balance itself out.
For me, I’d say cost of capital would be a big one, especially if you’ve been financing your strategy by external capital. That’s a big one for me.
If you think about risk, I think we’ve all learned a lot over the past 24 months, but I think we’ve also learned that we can come through whatever is ahead – as long as we break down the silos between supply chain, procurement, finance, the business. We really collaborate together.
I think we’ve developed a muscle that I didn’t necessarily think we had. I think we’re only starting to really flex that. From a risk perspective, I think we realize we need much more agility in our supply chain. I think that’s what a lot of companies have built. I think we look at supply chain very differently today as we did 24 months ago.
I’m actually quite optimistic knowing that we are either in the recession but we are not admitting it or we are about to enter it. But I feel pretty strong and confident about what’s coming next. I think procurement is right at the center of it.
MVK, let’s stay there. Clearly, you’re leaning on your finance background which is fascinating given the role that procurement is playing in organizations today. You mentioned the R word – recession.
I read an article the other day that said it’s been put on hold or it’s been delayed or something like that. I think everybody’s cautiously optimistic that it will either not be as bad as initially feared or maybe it actually will never be officially declared, but how do you feel like that lingering possibility of an official recession is coming into executive-level thinking and impacting procurement’s priorities?
Yes, I think we always say we hope for the best and brace and plan for the worst. That’s what a finance person does. I still have that in my brain.
I think that a recession is inevitable. I think governments have free money and the cost of capital, et cetera, over the past 24 months wasn’t where it should have been. It’s easy to say that in hindsight, but I think we have to go through some pain. I think we’re going to experience that over the next 12 to 18 months.
What we can do as procurement is focus on what you can control which is your own four walls – your relationship with your suppliers, understand what goes on with your suppliers, understand their finance structure. Are they reliant on external capital? If they are, let’s talk about that.
Optionality and building optionality in your supply chain – I highly encourage every practitioner out there to think about “what if” scenarios. Run a digital twin of your supply chain – whether you do that digitally or in an Excel spreadsheet as I used to before the technology was there.
Brace yourself. Hope for the best. We’re all positive thinkers – at least I know I am – but I think we should plan for some painful times where topline growth is not as easy as it maybe was in the years past. That’s fine. We still need to run the business. Let’s step up and lead from the front. That’s what I would say.
It’s interesting because, as you said, we plan for the worst, we hope for the best. This is constantly changing. It’s like the tides.
I was actually talking to somebody the other day that talked about the perspective of CEOs as being like a weathervane. It’s not necessarily fixated at one point. To some extent, it’s affected by all of those external pressures – the competitive landscape, board-set priorities.
Yatin, if we think about not only procurement wanting to be agile but also remaining aligned with the objectives of the overall business as they shift even if they are in small ways, how can procurement teams ensure – whether through testing or conversations or listening – that their priorities and their actions do in fact stay aligned in as real time as possible with what the business as a whole is trying to achieve?
Agility is important in today’s environment. There’s no question about it. That said, what we are seeing is employees today get frustrated with this (16:31 unclear) messaging.
If you are just putting out fires, and if you are constantly just reacting to the next fire and don’t have the longer-term vision, that’s where this becomes immensely challenging to keep your workforce focused on those goals and be ready for what’s next.
It is crucial to have a clear long-term vision and to ensure that the shorter-term milestones along the way are in support of that vision. I’ll take a company that we’re consulting with today.
They have clearly laid out their five- to ten-year roadmap. They have got a vision. Now, along the way, it’s going to take different paths based on what the market dictates and what some of the shorter-term hurdles are that they’re going to cross.
As those short-term priorities pop up, what they’re doing really well is assessing it against that roadmap. They’re assessing it and saying, “How does this fit within the longer-term vision?” They have put in place a transformation governance model.
Essentially, for every short-term initiative that pops up, they are looking at “where does this fit in the broader picture?” and “what’s the ROI associated with it?” That’s how they are determining priority and sequence and being very deliberate about where to invest their money.
Additionally, there is consistent communication feedback. People like to be in the know. Having that feedback loop through all the stakeholders, making sure everyone is on the same page is what then takes away the frustration that comes with that (18:03 unclear).
That’s a little bit of what I’ve seen with one of my clients that seems to be doing well in reacting to – as MVK said – the parameters that we can control in the sense of environment.
You mentioned governance. It seems like a good opportunity to bring up maybe the elephant in the room from procurement’s standpoint. We’ve talked about all of these different short-term challenges.
Are you seeing any evidence that dealing with these short-term challenges effectively is altering the way that companies are approaching their longer-term ESG visions? Are you seeing any indication that there’s an impact there?
Yes, what I see – in our community at least – is it’s still critical. It’s still in the top ten, but if you look at what was a priority for 2021 or 2022 versus today, it has dropped from maybe being in the top four to the top eight.
It’s still a critical element. Your investors still expect it. Your customers expect it. Our customers at Coupa are asking for Coupa’s own environmental and social governance stands and our diversity spend and our code of conduct.
It’s still a critical element of doing business. I just do believe that there are a couple of things that we’re a little bit more worried about – such as business continuity, raw material shortages, inflationary pressure, and some other things like digitization. I think they have moved up to maybe the top four or five. It’s still in the top ten, but it’s not in the top four.
Yatin, I don’t know if that’s what you’ve seen.
I think that’s very consistent, MVK.
Much like the digital transformation agenda – and that train hasn’t slowed down – we have not seen clients completely deprioritize or ditch their ESG strategy. In fact, the two are quite interconnected.
If you think about digital transformation and ESG, we’ve got a client who’s currently assessing the replacement of three or four of their legacy procurement and supply chain technologies. As we’re going through that evaluation, ESG is fairly front and center in that criterion.
They are taking the opportunity as they are going through their digital transformation journey to build in the ESG use cases and the ESG requirements. They want to make sure that, when they come out of this on the other side, and when they transform digitally, they are meeting those ESG reporting requirements.
I completely concur with MVK. It may have been a top three or top four issue. It may have fallen down. Somewhat industry-oriented in that sense, but certainly not something that clients have deprioritized.
I want to add a little bit really quick. Going through, there’s always three things that you can do during a time of high uncertainty. I have said this before in another session, but you can freeze, you can wait, you can flight, you can run for the hills, or you can fight.
What fighting means to me is making the right investments in the right areas that ultimately either give you competitive edge or drive the highest amount of ROI. It sounds pretty straightforward. It’s not always easy.
But in a situation like this – and there are lots of great studies out there from the last big disruption in 2007 and 2008, if you will – that the companies that during that time made the right investments – in the right people, the right process, and the right technology – those are the ones that ultimately outperform the ones that haven’t.
I just wanted to make that point. The same applies for ESG as it applies to investments. This is not the time to stop investing in your business. This is the time to maybe recalibrate and look at the investments that are going to drive competitive edge.
To your point, we may think of ourselves as making short-term decisions and choices today, but in the big picture, all of those things do add up to become the long-term trajectory that we’re on.
Before we switch paths and start actually focusing on some of these longer-term strategies, Phil, let me bring you in and get both your personal perspective on what we’ve discussed so far as well as any interesting questions that you’ve seen come in from the audience.
I’ve written a bunch of notes as well as we’ve been having this conversation.
I do want to give a shoutout to Tim who asked a very similar question on ESG and the importance of ESG as you asked him that question. I wanted to quickly reference that.
Now, the conversation that we were having around investment priorities, sometimes in procurement, we’re post that. The stakeholder has made a case for investment to buy something and has gotten the OK to buy it then comes to us to help them go and acquire ultimately the services related to that business case.
I’m going to ask this to both of you. MVK, I’ll start with you first. Does this actually give procurement another value lever to pull to position themselves to help in that business case development before any investment decisions being made by the CEO?
Yes, I would say the first advice I can always give anyone that is thinking about any kind of journey is that we should own this conversation. In other words, don’t make the mistake that IT – and I hope there are IT people on this phone call – or finance people should start to determine what solution procurement needs. We should lead this.
It’s like the mechanic buying their own car or the neighbor. I would say, “I decide the car.” It should be me driving this change. I have done this in my past. I was the one accountable. I want to be responsible.
But I also want to have the decision – of course, collaboratively with your cross-functional partners. That’s one thing I always want to emphasize – how important that is because, otherwise, you’ll end up with something that you don’t want. That’s one.
Then, for us, it’s to clearly articulate why it matters. Why is it important that you make investments in procurement? Forget about technology. I recognize the company I work for, but let’s talk about investment in procurement and why is it important. If we are unable to talk about this in a very elevator pitch kind of way – 30 seconds with your CEO in the elevator down – why he or she should invest in procurement, then you are never going to get it – whether it’s more people, whether it’s operationalization, or whether it’s about getting the right technology that ultimately is going to allow you to drive real measurable value. I think we often do ourselves a disservice by letting others determine our own destiny.
I’ll build on that. MVK, I completely agree with you.
What’s happened recently in the disruption, in fact, I think procurement leaders have a wonder
ful opportunity – if they don’t have that seat at the table – to establish that position.
With the inflationary pressures, what’s happening with the regulatory requirements, where pricing is, and all of the costs and pricing pressures that we have – what’s happening from an industry landscape, from an M&A standpoint, these are all key forces compelling procurement leaders to reevaluate their strategies.
It is time for procurement leaders to be the disruptors, bring the function to life, all of the silos, and essentially shift that reputation of “all I’m looking at are transactions or cost cutting” to something that’s a little bit more customer-centric and business-enabling.
To MVK’s point, presenting this to your CEOs and your CFOs, presenting that procurement value proposition, and explaining our role in navigating this change and navigating all of this disruption – that’s how we establish our place at the table, influence the strategy for the company.
Yes, and those are the ones in our community. We have a lot of great companies.
We’ve got more than 3,000 companies – great companies – but those are the ones that are also able to articulate that it’s not just about taking out costs. It’s about better quality, lead time, de-risk your supply chain, innovation, business continuity – all of those things that you can’t really quantify as to pennies, cents, and dollars. Those are the companies that get that investment in people, process, and technology.
I couldn’t agree more, Yatin. Well said.
There’s a question that I’m going to bring up onscreen here which is actually really interesting based on what you said, MVK, around cost of capital and that being a driver.
The question is “how much pressure would cost of capital – or do we believe cost of capital – would actually have on pricing?” and perhaps expand that to say if there are any specific areas where it might have a bigger impact than others.
I think the answer is quite self-explanatory, but if whatever you’re buying relies on investment – in other words, machinery, things that are locked in, your cash is locked into something for a longer period of time – then, absolutely, it will have an impact on price. If it’s not, then I don’t think so. If all you’re buying is finished goods and it’s in an inventory and you’re able to really churn your inventory very quickly, then I think you might actually have a competitive edge.
I think what’s more important is maybe not so much cost of capital. It’s more your working capital. It’s how much money do you need, where does that money come from, and what is the price of that money – of course, with interest. I think that’s going to determine the pricing of your company and ultimately your competitive edge.
Here’s what we’re seeing with companies when it comes to capital spending in particular. I think companies have gotten a lot more deliberate about where that money is going and what is the net outcome. Going back to MVK’s point, it depends on what you’re buying. It certainly depends on how capital-intensive the purchase is.
But what I’m seeing a lot of CFOs and CPOs partake in now when it comes to capital spending is “let’s be a lot more deliberate about our decision-making and where we are putting our money,” and how does that line up with our longer-term goal.
In some cases, it might be capital-intensive, but it will still make sense because you’re going to come out on top and you’re going to come out ahead of your competition. So long as everybody is aligned with that message, clients and companies are (29:23 unclear) with that.
We’re certainly never short of questions. I have other questions to pose, but I’m also cognizant of the time. If time allows towards the end, I’ll come back with a couple of other things that I was going to ask based on the first conversation, but that may be a good segue into talking about the long term.
Yatin, if I start with you, is there more that we can be doing today to leverage the data that we have and then even to strengthen that data so that it advises us better as we try to provide recommendations to the organization as they make longer-term plans?
Yes, no questions asked – there’s always more we could be doing in the data domain. I see clients and companies have a continued focus and emphasis on this. If I put the procurement hat on, from a procurement lens, most companies have the basic foundational data in place around spend and classification by suppliers’ categories.
When companies are faced with fires or deal with some of the disruption that we’ve dealt with, the key is to have that data available at your fingertips and for there to be a high degree of reliability on the accuracy of that data. The organization has to believe that the data is accurate.
A lot of what we see is “well, we’re not sure if this is the right data, so let’s go to our suppliers to get that data.” In a time like this, that issue gets magnified, and that issue gets amplified. Some of the data domains that we’re seeing a lot more emphasis on over the last couple of years, I would say, contracts.
Again, in the procurement world, contracts are rich with information. With technology where it is today, almost every facet of a contract is mineable and should be available at the tips of a procurement and finance professional.
Reliance on external market data – how do you enrich your data with all of the external market data – whether it be ESG or all of the other streams that exist? That has become a very powerful avenue to plan for and to predict to some degree some of the disruption that may come in your supply chain.
The third domain for me is supply performance. How do you wholistically measure supply performance, including risk? What does that story look like? That goes a long way in building those strategic supplier relationships and moving from that transactional “let’s negotiate price” relationship to “let’s innovate together and let’s drive cost out in that fashion” type conversation.
I have always said that spend analytics in itself is meaningless because it is spend that has incurred, and it is in the rear-view mirror.
What I like is what Yatin was talking about – predictive analytics. How can I – ideally, in a larger data set such as a community – leverage the power of a community and how can that community help me make better business decisions? I think that’s where it’s going.
It’s no different than how you do this in your own private life when you go to a restaurant, or you get in a car and you from A to B to C to D and back to A. I want the technology to tell me the path of least resistance – what is the best restaurant, how reliable is that rating – Yelp or whatever you use.
My point is I want the business world to operate exactly the same as my private life which is I will let the technology help me where it makes sense. Obviously, I still have human interaction. AI is interesting. RPMA is very interesting. But we still need human brains and I still believe we need human capital, but that’s where I think the data should be.
If you don’t have data at your fingertips today, you are going to die – not literally, but figuratively. I really want data to be part of a much bigger pool and let that be predictive and tell me what I should be focusing on and give me alerts. That’s really what I think data should be doing.
To pick up on your point about the human element, the other thing that’s incredibly important – both in the short term and the long – are the strength of our supplier relationships because, in both cases, if we find ourselves in a bad short-term situation, it’s most likely our suppliers that we’re turning to and saying, “Can you help us through this?” but we don’t want to do that so many times that we burn a bridge and can’t maintain a longer-term partnership with them.
MVK, any thoughts about how we can lean on our suppliers as we need them in the short term without damaging the potential value orientation of those relationships in the longer term?
Yes, we can only look at the car industry and how important it is to have excellent partnerships with your suppliers. That’s exactly what happened with the chips. That’s an easy hindsight.
I think you need to open up your books to your suppliers. It’s no different than you should ask your suppliers to do the same with you. I’ve always believed – years ago when I started in procurement – that its not just about getting a great price and beating a supplier on the head until they cave. That’s really the 90’s and maybe even before.
It’s opening up to your suppliers. It’s explaining to them where you struggle. Be really transparent about what it is that you’re after. What are my objectives? Where am I going three years out? Five years out? What matters to me? Is it cost of capital? Is it pricing? Is it quality? Is it the lead time? Is it reliability? Is it competitive edge? Whatever are the value drivers for my company. In exchange, you also should almost demand from your suppliers to do the same.
The relationships I’ve had in my life with suppliers that I still have today that have been the most meaningful are the ones that have been the most transparent and not transactional – getting an RFP done. I’m not a big fan of RFPs to begin with, to be honest, but that’s a different conversation.
I say open up the books. Be clear and transparent about what your goals are. Ask for something in return from your suppliers.
Yatin, this actually comes back to what you were saying in some ways around contracts and being able to mine them for information, but also maybe changing how we think about them.
MVK is talking about working with suppliers and the difference between a shorter-term, more transactional supplier relationship and something that truly does rise to the level of partnership.
For me, it even calls to mind something as simple as dating. Very few people are in the dating world and are at a romantic dinner and say, “Tell me, how are you with plumbing and basic home electrical?” But over the longer term, those things that you don’t tend to make decisions about in the short term are important.
If we’re running a sourcing project, even if it’s initially for two or three years – a relatively contained frame of time – how do we need to change both the way we think about which suppliers to choose and also what we build into the contracts to reinforce that?
As MVK was talking, the term that kept going through my head is “customer of choice.” Now, it has a whole new meaning. Procurement professionals should be – if they are not – focused on establishing that status – at least with their key tier-one suppliers.
As much as the days of a procurement bidding up a supplier, et cetera, I think what this disruption has taught us is you need to be on the top of the list for your suppliers.
Again, case in point, what happened in the logistics space for a number of clients that we have consulted with in the last couple of years Folks that were more transactionally oriented and were going with the lowest-price-first carrier and spreading out the demand across this carrier base
Carriers said, “I have a limited number of drivers. I’m short on supply. I’m going to prioritize relationships. I’m going to prioritize where I have predictability of demand.” They went that route. Now, we’re seeing a full turnaround. “How do I become a customer of choice for this carrier?”
Tying it back to sourcing, and tying it back as companies are evaluating that, I think those facets and parameters become important. Broadening the horizon of “what else can you do?” and “where are you innovating from a technology standpoint?” and “how do your technologies seamlessly marry with ours?” are all part of that evolution with the suppliers.
If you’re going to invest in a tier-one supplier relationship, let’s ensure that you have invested the time and effort in understanding those facets through your RFP journey. Or if we’re not doing an RFP journey – because it’s not for MVK’s case – going through that process and ensuring that that diligence is done.
Phil, I want to bring you back in for a couple of things. Certainly, I can see that we have additional questions coming in, but MVK brought up the specific supplier partnerships that exist within automotive and how important those are. I know that that’s a huge part of your practitioner background.
It’s a fascinating industry because the importance of procurement is probably no higher in any other industry than it is in automotive because of the margins within automotive. As a result, there is a lot of investment in tools, in people, and – maybe to a lesser extent – in technology in the automotive space.
However, a lot of times, those can be misused. Or the procurement strategies can be misused where you end up having win-lose relationships, zero-sum games, sometimes questionable ethics to get the pricing that you want. Of course, you see in the automotive world those that actually have invested a lot in supplier relationships – the ones in times of trouble – that actually you are the customer of choice. There’s a huge benefit to those.
For so long, automotive companies said, “Hey! I’m one of five or one of six. If you mess with me, then you’re suddenly taking out 20 percent of your potential customer base.” It’s fascinating to see how that’s changed. Some of those older practices that we refer to come from those days.
That’s definitely inspired me on my journey to look and say, “How can you take the best practices within environments like that, but leave behind some of the practices that were not necessarily very collaborative from a supplier relationship?”
I actually wanted to jump in on the conversation because we talked about customer of choice, but one of the things I think about over the last couple of years is there may be supplier relationships where we believe we have that relationship, but then that supplier comes in and says, “I’m increasing the prices 20 percent – no negotiation!” or “I’m going to put you on a spot buy now. This contract force majeure. I’m sorry about that. I know you thought we had a good relationship, but I got all the leverage here.”
I’d love to know from Yatin and MVK’s perspective, if a procurement person is in that situation, how do you respond to that where you thought you had a great relationship and perhaps you didn’t?
We touched on the data and analytics side. A lot of times, when we are surprised, we are surprised because we don’t have all the facts. We don’t have all the information. What does your contract look like? Are you aware of what you put into that contract? If it was truly a strategic relationship, you shouldn’t be put in that position to begin with.
That said, if we are faced with that situation, in my view, like all good procurement professionals, we are good at introducing competition and creating leverage for our companies using all of the tools that we have at our disposal to start to create that model where we can start to introduce some of the competitive pressure.
To me, surprises come when you are not well-informed and when you don’t have the sound data analytics technology at your disposal. Otherwise, I think you are generally prepared for the worst – again, putting that finance mentality on. You should always be prepared for that. You should always have a Plan B and a back-up plan when it comes to supplier relationships.
I think the biggest difference between the dating analogy you used, Kelly, you probably wouldn’t be dating someone else at the same time. I think that would be frowned upon. But it makes total sense. You always want to have a back-up plan.
As a practitioner, yes, we can have strategic partnerships, but that doesn’t mean that I’m not going to continue to have competitive pressure. You still want to have something to desire. I think that that’s no different in doing business. I can have a really strong, deep partnership with a supplier, but I am probably not going to be single-sourced, for example.
There should always be something to gain. As long as you do your homework, you have the facts, you understand your commodities, you have category plans, you understand the dynamics in the market, I don’t necessarily think that it’ll happen. If it does, of course, there’s time for you to show how agile and resilient you are.
One is that ability to be predictive and be proactive related to that, but also – as you said earlier, MVK – optionality. It’s funny, as we went on this path ten years ago of “we need to consolidate all of our suppliers, we need to have as low a tail as possible, let’s put all our eggs in these baskets,” and then you end up having no optionality, optionality is definitely something that we push a lot with Art of Procurement from a risk perspective.
We did have a question from Charles that I wanted to bring up before I come back to you, Kelly. Let me bring this up onscreen. MVK, I’ll pose this to you first. Maybe it’s an unanswerable question. I’m not sure, but I’m interested in your perspectives.
“How should we ensure that the quality of data is adequate? Is there a baseline for data quality?”
sounds simple, but it’s “garbage in, garbage out.” If you don’t understand what goes into whatever data lake you have or Excel spreadsheet if you’re still very basic and you don’t have some taxonomy to classify your data, it’s garbage in, garbage out.
I’d say start with the source. How reliable is the source? Don’t rely on your ERP. The ERP is not going to give you what you need to manage the business. That’s reporting. It’s accounting, but it’s not spend. I’d say start with the source of your data.
I’m happy to go a little deeper if you want, Charles. Look me up – firstname.lastname@example.org. I’m happy to help. To me, it’s garbage in, garbage out.
If you can stick claim that my data is 99.5 percent accurate – I know it’s almost impossible to get there – and your business believes in it, that goes a long way in establishing your stick measure for data quality because a large part of what procurement does is interacting with those business stakeholders. When challenge comes on data, it generally comes from those same business stakeholders.
The first time you show up with a stakeholder and show them data that they don’t trust, then it does a lot of damage to your relationship which is in some cases really hard to come back from as a procurement professional.
Actually, that provides me with a great transition. I was trying to think about how we pull all of this short-term responsiveness with long-term growth orientation together. One of the phrases that comes to mind is the expression that culture eats strategy for breakfast.
When we talk about trusting data, when we talk about trusting procurement, in some ways, what we’re actually talking about is the culture that is built by procurement leaders and which exists within the team as a whole.
Yatin, starting with you, how can today’s aspiring CPOs work towards creating and contributing to a culture that provides the team with the strength, agility, and creativity they need in the short term but also the vision, planning, and ideation that they need in order to contribute to competitive advantage longer term? How would you pull that all together?
From a culture standpoint, talent is at the core of culture, in my opinion. Procurement – like most other functions – is dealing with challenges. The needs are different. The younger folks that are replacing the institutional knowledge of the retirees are focused on employee experience.
With what’s happening in the digital transformation space, you are eliminating – or looking to eliminate – a lot of the tactical work. There is a stronger need – particularly post-pandemic – for global collaboration – both internally within the organization as well as externally within the supply base.
As companies look to influence culture and talent, they need to ensure that the work is being matched up with the right talent. Let’s leverage contingent labor where it’s warranted. Let’s invest in digital talent which is key. You’re going and making all of these deep digital investments, but do you have the talent to then carry it forward?
Outsourcing is another great thing that we’re starting to see. Aligning the talent with the strategy largely has an impact on culture. That’s what I’m building towards.
The last point I’ll make there is lead from the top. If I think about CPOs, if I think about CFOs, if you are putting in this notion “we’re in cost containing mode” or “we’re looking to be more stringent about where we are spending our money,” embody that. Show that.
Do little examples of that. Go out in town halls where you can personify that a little bit for individuals and make it real for them.
Those are the two things that jump out at me – talent and culture are quite intertwined which is why I doubled down on talent; and then, leading from the top is another good way of doing that.
I would say the first thing is diversity in your team. I think we should really focus. If you look at my team, I have got high diversity – gender but also background, culture, nationalities. I would highly encourage everyone to create a really diverse team. Those are the teams that I also love connecting with within the community.
The second thing is to keep it simple. Have two or three things that you want to be famous for from a procurement perspective, and rally behind that, but don’t make the mistake that one of them is cost reduction.
The third thing is I think we should ensure that we provide everyone with the right tools. Digital fluency and digital capabilities are at the core. There are all of these young smart people that are entering the labor market that we want to attract and retain. Nobody wants to be stuck in Excel. Nobody wants to be stuck in an ERP. Nobody wants to be stuck in JD Edwards or some other ERP that you have that might be really old legacy.
You are going to have to invest in the right tools, the right operating model, the right processes. The foundation should be the right digital capabilities, the right operating model, the right diversity in your team, and then have two or three goals. That could be ESG.
If you look at myself at Coupa, it’s around ESG, it’s around developing my team, and it’s about getting to level-three procurement which is much closer to the business and much more collaboration.
I think those are the three goals that I will have for 2023. My team is going to get behind that. We’re going to put it on our intranet. Everybody knows how procurement at Coupa operates. It’s not rocket science. Then, we just need to execute against that.
Although I will say, one point to debate – you talked about the importance of diversity of background – even in today’s conversation, we have electrical engineering; we have finance; we have automotive.
Procurement in retail is every bit as important as procurement in automotive.
I’m going to use my opportunity of being host today to call out and say, “No, retail is right up there with automotive in terms of importance – the margins, the supplier relationships,” but I think we’re able to have this conversation because of all of the different backgrounds, perspectives, learnings, and experiences that we bring to this idea – both of short-term resilience and of long-term growth.
With that said, I want to thank MVK and Yatin Anand. Thank you both for sharing your perspective, your point of view, and fielding live questions today. Thank you to everybody who submitted questions in advance, who joined us to watch or listen live, or who will watch or listen on-demand later on.