I first heard of Tim Minahan, Chief Marketing Officer, SAP Cloud and Line of Businesswhen his job description literally included the term “procurement influencer” in his role as Chief Service Officer and SVP, Global Supply Research at the Aberdeen Group. For many years Tim was our industry’s leading analyst and advisor on supply management and technology issues. I met Tim a few months after he had left Aberdeen to join Procuri as its SVP of Global Marketing, a role he would have until Ariba acquired Procuri in 2007 and Tim took the role of Ariba’s Chief Marketing Officer & SVP, Network Strategy. Ariba was acquired by SAP in 2012. Through it all, Tim has stayed at the vanguard of our industry.
I recently caught up with Tim at the Chicago installment of Ariba’s Commerce Summit, where we chatted about how procurement has changed in the twenty plus years he has been working in the space and where he sees the industry going.
Andrew Bartolini: What changes have you seen in the procurement industry since you started working in it?
Tim Minahan: Procurement was once a very tactical and reactionary function, predominately focused on driving cost reduction. Today, procurement has a seat at the table creating corporate strategy and helping tap into innovation in the supply chain, and is becoming a platform for strategic value.
AB: Great, let’s look at some of the drivers. What are the underpinning elements that have caused this change?
TM: I think there’s a couple things. Number one is just the fundamental shift in how companies are organized. It’s transitioned from traditional vertical integration where they literally managed everything or vertical integration where suppliers supplied parts and pieces and they did all the assembly work, to a matrixed organization where you have different suppliers doing everything from initial product design, partial assembly and postponement to managing final assembly and delivery to the customer. Obviously globalization is another massive change. The supply chain is no longer right down the street. It is stretched around the globe, and that increases opportunity for cost-savings and efficiency and scale, but also the units that need to be reported on, opportunities for risk and delays and other factors like different cultural approaches, different mores with respect to labor practices, environmental conscientiousness, and the like that need to be managed.
But one of the most dramatic drivers has been the use of technology. Procurement has always talked about wanting to be more strategic, spending time focused on working with suppliers, developing supply, capturing innovation, and driving long-year roadmaps. But it wasn’t easy because they couldn’t get beyond the basic blocking and tackling of negotiating agreements, managing suppliers, and executing orders. But automation technology has freed them up to eliminate those hassles … to automate their core sourcing-procurement-payables processes, to eliminate the paper costs, the burdens that really bog down the supply chain and largely consume most of the team’s time.
AB: So you talked about technology. When you look at the evolution of the management of supply management technology, what are some of the critical shifts that you see in this marketplace?
TM: Procurement is on the plain to really lead their companies in the area of innovation and helping them be disruptors in their market rather than reacting and trying to play catch up. And when it comes to technology there’s really three phases that companies go through.
First, they automate their core processes. So sourcing, procurement, and payables to eliminate that paper andhassles and gain transparency into order status, shipment status, invoice status. Then they begin looking for the next level of efficiency and reach beyond the four walls of their organization to discover, connect, and collaborate with their trading partners in entirely new ways. This is where this concept of business networks comes in: the ability for a buyer to tap into a global community of suppliers through one single integration point and a community of intelligence, services, and experts they can pull in to address their biggest supply chain challenges, have complete transparency and fully automate a process to drive end-to-end transactions and collaboration management.
So procurement taking a much more proactive role in things like managing the financial supply chain, turning payables into a profit center by ultimately having that real-time visibility into “is an invoice OK to pay? has it been matched against the PO? has it been matched against the contract?” Or being able to look at the payables position and do things like extend the days payable outstanding to improve the overall balance sheet while at the same time offering early payment discounts to suppliers because they have that transparency, they’ve been able to eliminate that risk, they have flexibility they didn’t have before.
In the case of sourcing, you’ve got the ability now as a buyer to tap into this large global community of suppliers and get qualifying information not just from the suppliers’ relationships that they’ve had on the networks, but also from other buyers who have given performance scores or who have bought from this supplier before.
I’ll give you an example. Caesar’s Entertainment has gone on a source-to-settle journey, automating the process by moving it into the cloud. And they got efficiencies and transparencies and that was great. But that got them really excited is they’re able to do things they couldn’t before. They’re able to tap into a global supply market and get qualifying information for vetting suppliers they might’ve never known existed. And that not only gives them a high quality supply chain, but actually creates greater cost efficiencies so they can reduce their costs even further on their properties — not only in Vegas but around the world.
AB: When you look at where the market leaders are today and how they’re utilizing those tools, and you start to look at where they’re going to go over the next decade–you mentioned predictive, we see procurement expanding its role on the AP side and also on the services side. What do you see as the drivers of procurement’s growth over the next several years?
TM: I had the opportunity a couple of years ago to do a research project that sought to envision the future of procurement and finance and buyer-supplier collaboration. We spent three and a half months interviewing chief procurement officers and chief financial officers and the like.
One of the questions we asked was where is procurement going, where is it going to add strategic value beyond cost reductions and processes. And four key areas came up. The first was product and service innovation. The second was expanding into new and emerging markets and being the lead scout on that. Third was in the areas of compliance and cash flow optimization. And the last even was in the areas of marketing and branding. And there are already examples of where companies are doing this.
When Tata Motors set up this bold objective to make the world’s most affordable car for the retail equivalent of $2500, it was procurement organizations that went out and identified suppliers and worked on creating innovative new materials and manufacturing assemblies and building supply not just in the global supply base but in the local Indian supply base to make that vision a reality. Or more recently, when Rio Tinto went out and set the uniquely bold objective to create the world’s largest mine in the hinterlands and outer reaches of Mongolia. It was the procurement supply chain organization that went out and created–developed local supply–created entire towns and roads and transportation infrastructure where none existed.
Or where procurement today together with accounts payable is being looked at as a way to optimize compliance and working capital performance whether it’s DollarTree — a retailer that is really using network-based invoicing and discount management to turn payables into a profit center for themselves. This is really where procurement function is going.
AB: SAP in the past couple of years has gone on an acquisition strategy — talk about what SAP is doing in the context of their acquisitions, and what are you planning to do to support procurement reaching their objectives?
TM: Forty years ago, SAP set out an agenda to automate and transform how companies manage their enterprise resources whether it was labor, or finances, or manufacturing, or supply chain. But companieswere structured in entirely different ways back then. Today’s workforce is more contingent – with more than half of employees off full-time payrolls. The supply chain is much more globally diverse and dynamic, and outside parties are taking on much more of the activities that companies used to do – from manufacturing and product innovation to customer service. The next generation of ERP, the next generation of productivity really lies in business networks. So if you look at the acquisitions that SAP has made, whether it’s Ariba, or Fieldglass, and most recently Concur, we’re really trying to enablea model for resource management – a model that’s designed for the modern era. We’re looing to bring the convenience of personal networks to the business world so that companies can manage companies to manage a all of their resources, processes and spend in the simplest possible way – through an open business network.
AB: Thanks Tim!
Stay tuned to CPO Rising for more interviews with Key Procurement’s influencers.
