In the procurement and supply management world, Rick Hughes is a seasoned veteran with more than thirty years of service and accomplishments under his belt working with some of the world’s most recognizable brands. He has seen the rise of globalization, the push to outsource, and the need to innovate and collaborate inside and outside of procurement’s four walls. Andrew Bartolini was fortunate to catch up with Rick one day in May and discuss his background, the depth and breadth of changes that he has witnessed in the industry, and where he sees it going, particularly now that he is an executive advisor/consultant with GEP. It was a very insightful and fruitful conversation, and as a result, we present to our readers the first of two articles from our conversation with Rick.
Andrew Bartolini: People probably know you as the CPO of Procter and Gamble, but obviously you’re wearing a different hat today. So, I’d like you to talk about your career and how you ended where you are today. I’d also like you to talk about the industry – how the procurement function has changed and evolved since you started working in the space 30 or 35-years ago, where it’s going now, and what the drivers will be to get it to the next level.
Rick Hughes: I started with P&G after six years in the military working in logistics. But I really started the procurement work in earnest in 1982. Like most P&Ger’s, I started at the bottom and worked my way up. And like many other companies at the time, we were very focused on direct materials. So I was buying chemicals, packaging, and many other direct materials. We were barely playing in the indirect spaces and didn’t know much about it. Then in the late 80s, I got into a marketing purchaser’s role, which was very unique at the time because it involved purchasing marketing materials.
So, one of the changes that I’ve seen over my 30-plus years in the procurement space is the broadening of procurement’s influence beyond just buying raw materials or packaged materials into just about anything where there’s third party spend. I’ve watched – not only at P&G but at other companies – the growth of influence of procurement organizations as they have expanded not only their value offering beyond just direct cost savings, but also their influence over what they can touch, shape, and in many cases, reshape from third-party spend at corporations, large or small.
That was also the start of globalization for P&G and probably for many other enterprises, which is the second change that I’ve seen. In the late 80s and early 90s, companies were often focused on where they were headquartered and did business; they weren’t thinking about a global environment. P&G was one of the early adopters of global sourcing, as we call it now. They had some operations in non-U.S. and non-Western European countries, but clearly it’s expanded since then. And as I look at, work with, and compete with many other companies, they’re expanding much more of their sourcing, locations, supply base – even their thinking – on a geographic basis. There’s no part in the world where they don’t have either suppliers, second-tier suppliers, or offices for sourcing.
It’s been a rewarding change to see in that if you meet with people in other cultures, you can learn about the world. It’s also taxing in that you’ve got to work within multiple time-zones, cultures, laws, regulations and parts of the world. It’s a double-edged sword as you think about globalization and the expansion of your supply base, capability, and reach from an organizational standpoint. So, that’s been fascinating for me and I think it’s been fascinating and challenging for many others at the CPO level.
In 2001, I moved into the lead role for procurement at P&G (there wasn’t a CPO role there at the time). One of the things that I noticed as I moved into that role is that we had expanded from being a direct materials organization – we had some marketing and some indirect purchasing for help with the IT space – but there were still huge white spaces for P&G in 2001. So, one of the things that I thought that we could improve upon was to drive the value proposition for the corporation by getting our arms around as much of the external spend as possible.
The big opportunity at P&G, like at many other CPG companies, was media. They spend upwards of $4 billion or more on media; it’s bought by media people – not procurement. So, that was the big opportunity; but to get there, we had to tackle the rest of IT spend, travel spend, and some more of the indirect spend. I know that other, very mature companies had done that, like an IBM. But, I believe that early on, P&G got its arms around a high proportion of the total spend. We went through a series of expansions into what we call “white-space spend”. Finally in 2006, we took on what P&G really needed, and the rest is history. We ended up transforming the organization, moving to a centralized model.
So, the third area where I see change in a lot of corporations, particularly from my work at GEP, is procurement transformation – i.e., the transformation of a procurement organization that is doing great work, that is doing good strategic sourcing, to one that is influencing and shaping the future of the enterprise. So if we fast forward to today, I think that’s where a lot of procurement organizations are – they’re influencing and shaping, both physically as well as strategically, the focus of the business that they work in, where it’s going, what it looks like, and how it should be organized to get the best value out of the external market.
AB: Certainly, Procter and Gamble was ahead of its time. Clearly, it holds a lead position in the market. But I think you hit upon a few of the major shifts in the profession, so let me drill down a little bit here in those areas. One is the concept of “spend under management” – the idea of procurement expanding its influence across all areas. Not just on the direct side, but on the indirect side with materials. There’s still a lot of work to do: the average procurement organization manages a little more than 60 percent of its total spend. So, there are still big opportunities for influence. I also think some organizations are still responding to the late-90s push to low-cost country sourcing. The spend’s already moved across, and now the challenge is, “How do you ensure that your local suppliers that you can periodically ‘pop in on’ are managing towards your goals, the SLAs, and the requirements that you agreed upon?”
On the third point, I think most organizations are looking at services procurement. At Ardent, we call that “complex spend management.” It’s this other animal that requires a different type of engagement – typically, with the larger organization or the budget holders, just based on what it is that you’re buying. Media buys are a lot different than the promotional materials that are more straightforward that you hit on in your earlier days. When P&G made its move globally – obviously, you were already a global organization, so you had some type of infrastructure and understanding of the different markets. But did you have a specific strategy that you said, “Okay, we’ve got to get 30% of our spend to China in the next three years, and it doesn’t matter how, or what, or why – that’s the goal.” Talk a little bit about how you laid that out, and the planning of that.”
RH: So, again, this goes back now several decades. In the late 80s, P&G was heavy in North America and Western Europe. We had two hubs, or locations, where we had most of our buyers. Back in the late 80s, as you may recall, Asia – particularly China – was waking up and becoming much more part of a global economy. One of the things that we did in 1988 was establish an office in China for procurement, probably sooner than we had a business headquarters simply because the opportunity for us to source goods and services – primarily goods, specifically chemicals – was huge. And so, we deployed someone there at the director level of P&G in China. His goal was to go “mine the gold” – the opportunities for sourcing chemicals from China.
We called this project, “Gold Mine” for obvious reasons because there were lots of chemicals, like sodium sulfate, acrylic materials, caustic soda, and others to source. Again, P&G has somewhat of a high number of chemicals in its laundry detergent and some of it’s packaged for hair-care products. But that was a big opportunity for us. We had set a target and said that by the mid-nineties, we were going to have five million dollars of purchases coming from China. We blew that goal away because as we grew our business, materials were flowing not just to North America, but to Western Europe and different parts of Asia, like India, Indonesia, and Japan. So, we found that there are huge opportunities to source where the sourcing is attractive and where we could change the value equation.
P&G did not, however, go with the massive outsourcing to China, India, and other parts of Asia when seemingly everybody else was shifting wholesale to Asia, simply because we knew that it would only be attractive for a year or two, or maybe three. But then the opportunities to locate those kinds of – whether they’re shared services or an outsourced arrangement – would change based on how the economies of those countries shaped the change as we moved forward. So, I think that was an opportunistic play on the part of P&G, and it paid out from a chemical standpoint in the long run. P&G has since re-balanced where it buys chemicals from so it’s not heavily weighted in China, although they still do a fair amount of business there. But I think, from a globalization standpoint, that was an early example – and again, ‘88 was pretty early to globalize procurement and put people in different parts of the world – that I think paid out for them in the long run.
That’s all the time we have for now, but certainly keep an eye out for Part II in our discussion with Hughes, right here on CPO Rising.
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