Some of the best analysis of the state of procurement and its future comes from leaders who have experienced it from the inside as a Chief Procurement Officer or procurement leader and from the outside as an advisor to CPOs and procurement leaders, guiding them towards the future of the business. Roy Anderson is one such procurement influencer who has done both. Over the course of his 30-plus years in procurement, Roy has transformed the procurement departments at Raytheon, Textron, Fidelity Investments, John Hancock, MetLife, and State Street Bank from back-office, tactical functions to technologically-driven, strategic operations. After being such a change agent at these defense and financial services heavyweights, Roy decided to form his own firm, MetaProcure, a managed service provider of procurement services and staffing. I sat down with Roy recently and discussed how procurement has changed over the last few decades and what he sees as the future of procurement.
Andrew Bartolini: Over the last 30 years, the procurement profession and procurement departments alike have seen extraordinary changes. I don’t need to tell you as you’ve seen it first-hand. What do you think the key drivers of that change have been?
Roy Anderson: So let’s start with transitioning from a transactional organization to something that is more strategic. I believe that companies that have incorporated catalog management, e-procurement, and e-sourcing activities and have enabled supplier networks to connect end-to-end solutions have driven great value. They have made the investment to move out of transactional work and into discussing “How can I drive strategic supplier value creation within my organization?” I believe that the teams that have taken it to that level have realized that talent acquisition and development is crucial to being successful. The underlying issue is that these strategic resources are limited, and need to be focused on the highest level of value creation which is: internally, change management and externally, supplier innovation.
I have spent time across multiple industries and organizations; manufacturing, engineering, R&D, advertising/ marketing, and actuarial teams and the key to the success of a relationship is not stating, “Well, I’m procurement, I’m going to do a strategic sourcing event and you’re going to like it.” But more importantly, presenting, “I have a person who fully understands your area because they were formerly in actuarial, they were on the manufacturing floor, or they have R&D experience. They have the connection to the internal customer and bring additional value to the discussion that the internal customer doesn’t have: the capability of the supply base.”
For example, the internal customer is looking for expertise in a new marketplace. They need a solution that understands the laws, regulations, consumer needs, local talent, and the real estate requirements in that new marketplace. The Procurement team needs to present the concept that the expertise is embedded in their suppliers. Your CPO needs to bring this expertise into the discussion, bring this to the internal customer, so they have the information to make better decisions. I would suggest to you that the most effective procurement operations that I have worked with, have a true valuation of the talent inside the team and bring the full value and capability of the supply base to the organization.
Developing the Procurement team is essential with one element being the creation of a University rotational program that starts as a summer intern, then continues into a full time 2 year rotational program with an experience in each of the major areas of excellence. We also built rotational programs from procurement to the internal customer and bring talent from the internal customers into Procurement. Bring IT talent into Procurement so that they can understand the supply chain management structure, and when they go back to IT, they have a broader understanding and they have a recognition of the value that procurement brings to the table. The rotation of internal experts can also bring the perspective of those teams into the Procurement thought process. How we work with suppliers and prioritize the work, the goals of the department and the deliverables to the organization. The expert can understand the value of the marketplace, the expectations of the CFO, the process to create an auditable solution.
Change begins at the top and what I find is that many of the newest CPOs are not from historical procurement experience. Instead they come in from finance, marketing, engineering, and manufacturing; and they understand how those areas work inside the company. Their expertise is then integrated into the supply base capability and creates a more effective value proposition. They realize the power of the supply chain in impacting the organization and integrate that understanding with their core competency in manufacturing or engineering.
AB: Great, but we still have a long way to go. Talk about some of the things that continue to hold procurement back.
RA: What holds a CPO back is, in some cases, an unwillingness to give up what they’ve built, what they’ve taken so long to develop. Personally, I was an expert on how procurement technology can transform an organization. Well, once you get there, it’s really difficult to then say, “Well, that is now standard operating procedure and should be outsourced.” I’m telling Chief Procurement Officers that what they have been spending their time on within strategic sourcing, should not necessarily be done by someone on their internal team. They have developed a person that is a technologist and then saying, “Hey, the technology is more effectively managed by a third party. Your strategic sourcing or the things you spend three quarters of your time on are more effectively managed and sourced by third parties.” The value proposition that CPOs have to bring to the table is to interface with the internal customer; how they understand their five-year plan and bringing competent, capable, well-contracted suppliers to bear on those problems. They need to drive innovation, creativity, and transformational events in support of those plans.
So what’s holding CPOs back is them not necessarily willing to give up what they’ve built their careers on, and realizing that they now need to go to the next step. Now they need to be in an executive level discussion, which is well outside just the supply chain. It is understanding the future of the corporation, and then being able to see how their organization can internally transform, manage change, and go beyond strategic sourcing, technology enablement, and supplier networking. Those are yesterday’s transformational events, those skills are now today’s commonplace competencies. Don’t get me wrong, these need to be done but they do not need to be done internally as the higher value of their teams is to drive innovation and collaboration between the company and the supply base.
AB: I’d say that is very similar to the view that we take at Ardent. Efficient processes and managing 70-80% of spend, today defines the Best-in-Class. In the near future, however these measures become table stakes to procurement operations. As you look ahead, what do you think are going to be the elements that drive Best-in-Class performance?
RA: One is an area that they’ve already started to become known for, which is transition management. When you bring in a new technology, supplier, or geography, the individuals in the old methodology have to be transitioned. That transitional activity is painful and requires a team that understands the larger picture in order to be successful. This is where procurement can make a significant difference in managing change. We’re changing the supplier, the product, the methodology, the shipping, the approach. We spend all of our time implementing change. We have to take that capability and experience and drive it to a significantly greater level to help the organization do their transition from old methodologies to new.
The second area that has got to become an enormous value proposition and skill set is risk management. Supplier viability, the number of suppliers that are going in or out of business, the net new suppliers that have greater capabilities that need to be incorporated, the change, the mergers, the acquisitions, the growth and failure. That side of risk management with the supplier has to be known, and understood on the impact of the organization.
Another risk is associated with energy. Just recently, the change in oil prices has changed the dynamics around the world of where energy is bring produced. That’s just the start of the transformation that is going to occur, as we get into solar, wind, hydrogen and the future types of energy production. It is going to change where it is viable to produce products and deliver services.
Then let’s just add in cyber terrorism – you think it’s a CIO issue, but basically, every one of your suppliers has a technology infrastructure that could be impacted, and that’s a risk that has to be managed. There’s going to be a lot of work with your suppliers to bring them up to speed and be able to support them, or they’ll be shut down at one point in time or another.
Another area that is going to be really big is this whole transition on the availability of labor and the growth of crowd sourcing, which will become the talent pool of the future. Your company is going to use crowd sourcing, and all of your suppliers will need to use crowd sourcing to stay competitive. What I mean by crowd sourcing is the use of people that are have time and skills that can be utilized in a tasked based solution. Those that are retiring or currently out of the workforce or students have time and talent that is an enormous value that companies need to tap into. The idea of working eight hours a day from an office, moved to a mobile worker which was the first transformation. The Crowd worker will deliver tasks based on their skill sets with the tools and technology to tie those tasks into delivered solution sets as the next transformation.
I believe that with the amount of available talent that’s around the world, and the technology that’s able to connect this talent to work that needs to be done will make task-based work a required solution and will transform the way companies do business. Procurement needs to get their hands around that competency and capability and be able to bring it forward, just like what procurement and CIOs did 15-20 years ago on business process outsourcing (BPO). BPO transformation was enormous. The crowd sourcing transformation is going to be equally as large over the next 15-to-20 years, and procurement needs to be on top of that structural change on how work is done in order to be an effective solution.
There is still an extremely long tail of companies that don’t have the competencies, they don’t have the technologies, and their supply chain management is second-tier. Understand that there’s the leading edge guys – and then there’s the long tail of those teams that still don’t have the competencies and capabilities.
AB: – In fact, this is exactly how we segment the market in our research – Best-in-Class and all the rest. Roy, thanks for your time today – we hope to see you at CPO Rising 2015!
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