In the procurement and supply management spaces, Richard Waugh is a seasoned veteran with more than thirty years of experience in B2B, eCommerce, and Sourcing technology development and innovation. Richard began his career at General Electric, where over the course of 16 years, he helped to develop early business networks and B2B eCommerce platforms. Since leaving GE in the late 1990s, Richard has continued to be a pioneer in the supply management industry, having co-founded his own company, B2eMarkets, worked as an industry analyst, and held executive positions at Chalk, Inc, Verticalnet, Vinimaya, and Equal Level, Inc. Richard currently serves as the Vice President of Corporate Development at Zycus. I caught up with him recently to discuss the shifts that have occurred over the last 15 years in the procurement and supply management marketplace and where the procurement function is headed. What follows is an edited transcript of our conversation.
Andrew Bartolini: Richard, what are your views on the procurement market and industry today?
Richard Waugh: One of the things I think is so exciting today is that the playing field has been leveled considerably. There’s certainly better knowledge sharing and best practices so that the best techniques or strategies aren’t only in the purview of the largest companies, but companies of any size can adopt best practices and implement them. And the barriers to entry in terms of the technology to support them has been lowered substantially with the advent of cloud-based technologies, where you’re not having to make a big bet on software upfront; it allows more of a pay-as-you-go approach. It also reduces the burden of having to rely on scarce internal IT resources to drive the implementation. That’s been one of the biggest developments – just making these leading-edge strategies and technologies more accessible to companies of all sizes.
But it still begs the question, “How do we know when we’ve arrived?” – that is, when procurement’s achieved that next level of maturation and development. One thought in that area, the emergence of the CPO role has been critical and it’s sort of encapsulated in the title of your website, right – CPO Rising? I think the reality is that there has been significant advancement in that the CPO does have the seat at the table.
But in terms of benchmarking how far we’ve progressed, it seems to me the best leading indicator will be the emergence a level or two down. When I think about a category manager, there’s no reason why they’re not a rock star; they should have the same status as a brand manager at a CPG company, or a merchandiser at a retailer; a product manager at a high-tech company. In terms of the potential influence they have, the dollars and spend that they are managing, the global supply networks they oversee, their ability – actually, the requirement – to engage so many functions across the business and be a quarterback to drive that cross-functional collaboration. I think it’s coming, but there are a lot of things that have to happen to make that a reality.
AB: How are your clients using the solutions to drive more value? And since it’s not technology, alone, that solves the riddle, what other things have you seen either in your clients or in your experiences over the long term?
RW: I think what’s starting to increase the status and influence of category managers throughout the organization is taking more of that full, lifecycle approach to the entire sourcing and procurement process and the entire lifecycle of the supplier relationship. A good example would be, “How do I start to get beyond just the traditional categories of spend that procurement has had direct influence and control over?” So, direct materials have kind of always been there, but when it comes to indirect in particular, gaining procurement influence and control has been a challenge for a number of these categories.
An example from our client base, a pharmaceutical company, where they’re leveraging spend visibility to get access to categories of spend they were not able to touch previously. Spend analytics is allowing them a fact-based way to engage the business and get that seat at the table. In their case, they had originally planned to look at waves of sourcing projects and planned to go after legal during wave three, because legal had always been difficult to get access to. But by gaining the visibility from spend analytics they were able to have the conversation with legal, who then readily agreed to move it into wave one, and actually invited procurement into the process upfront. In the case of that one category, they realized $4-5 million in savings – wave one – whereas they had thought it was down the road somewhere in wave three or four. So I think it’s getting access to the data, to the analytics, to the visibility throughout the lifecycle of the process to increase the influence and control by making it a fact-based discussion.
AB: Right, absolutely.
RW: The other thing that procurement team in Pharma said, is that, it’s not enough that they got a seat at the table, drove the sourcing process, or negotiated contracts that identified savings opportunities – it’s also critical that they’re closing the loop on the back end by taking a systematic approach to tracking and reporting the actual and realized savings, post negotiation. Having the compliance infrastructure so they could track that the invoices were paid against the negotiated agreement, and getting finance to sign off on those savings, allowed them to communicate to the C-level exactly what their quantifiable contribution was.
Their case is interesting because they can actually say, “When we look back over the last year, we were able to generate $1.2 million in realized savings per FTE.” So that, as much as anything, helps to reinforce the status of the procurement organization within the enterprise because now it’s a very quantifiable, certifiable, finance-blessed and approved return on investment. That is an example of what, I think, procurement organizations will continue to do and need to do more of to continue to elevate the function; and in some cases, just make sure that there’s recognition for what’s being contributed.
AB: It’s communicating the value with greater certainty. It’s using very exact terms, methodologies, and aligning tools that the larger organization has signed off on.
RW: Yeah, we see that as a leading indicator of what some of the more advanced organizations are doing and saying, “We need a structured process that has embedded formulas, approval workflows that have been signed off by the controller” – one that says, “This is how we’re going to quantify the contribution.” And that’s going to impact the future resourcing decisions that are being made to the procurement function. I mean, it seems to me that if I had this kind of an equation that every time I deploy an FTE that I get nine or ten X return on that, that’s a pretty good deal placing that resource there versus making an investment somewhere else.
AB: Absolutely. You mentioned the category manager becoming a rock star. As you look out over the long term, what will drive category managers to become rock stars, and the CPO and the procurement function overall to become a leading alliance within an enterprise?
RW: I think with most evolving situations, there are probably equally compelling challenges and opportunities. One of the opportunities is, if you look at the changing demographics of the workforce, it’s going to increasingly be driven by the Millennials, and they will gravitate towards leading-edge tools and technologies. Easier to use, yes, but very powerful in terms of the analytical capability. And I think that’s going to lower some of the change management hurdles that have hindered technology adoption because you’ve got an eager, and I think in many cases, demanding workforce that says, “We have to have state-of-the-art tools; we’re not going to be content with legacy systems,” or in some cases, whatever the incumbent ERP has to provide.
But one of the challenges will be that the baby boomer generation is going to retire soon – and with it, a tremendous amount of experience and knowledge that will be very difficult to replace. It may be impossible to replace. You can bring in that Millennial workforce that will be very adept at assimilating new technologies, but that doesn’t mean that they have the market knowledge or category expertise. And I think that in and of itself is a strong argument for deploying an end-to-end technology platform that can embed and capture that tribal knowledge, that cumulative wisdom of all those years of experience.
I think that’s the challenge and the opportunity as we look out over the next few years: how do we institutionalize the knowledge, how do you deploy the right mix of skills to take advantage of the leading edge capabilities? In particular, whereas I think process automation in and of itself will become more of a commoditized capability, it will be the ability to have the analytics, the insight, and the ability to execute quickly on those insights that will become the competitive differentiator.
AB: Thanks Richard!
Stay tuned to CPO Rising for more interviews with Key Procurement’s influencers.