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 second of two articles from our conversation with Rick (the first can be found here).
Andrew Bartolini: As we research and discuss the evolution of procurement, agility and innovation keep appearing. You touched upon the globalization aspect of the supply base in the different markets. When I see companies today, their major move now is to figure out how to move beyond China to Southeast Asia, or potentially to Africa. They’re still chasing that lower-cost source or higher-value source – in this case, P&G was looking at a lower-cost source. But over time, organizations are becoming more reliant upon their supply chains, and needing to make decisions in a faster cycle.
Market leadership is no longer a decade, right? It’s two or three years. It may shift in the typical contract cycle, so the need to stay agile is a theme that we’re frequently seeing and discussing. And innovation is why markets are shifting. P&G, very famously with its open innovation program, said, “We’re going to go out and find innovation. We’re going to innovate inside our own company walls, but we’re going to find a lot of innovation outside.” That really puts you front and center in a major initiative – you, the CPO; you, your organization; you, procurement. Talk a little bit about what that move meant for “you,” and how it affected the way that “you” worked with suppliers.
Rick Hughes: So, that started for P&G in 1999, and the idea went public and materialized at the same time that I moved into the lead purchasing role. But the idea was that there was a wealth of innovation that was occurring in the world that P&G wasn’t taking advantage of because we were too myopic, and too focused on innovation coming from within. So, the “not invented here” syndrome was alive and well at P&G – not just in the research and development (R&D) organization, but in the marketing and engineering spaces. At the time, we created a lot of our own equipment; we may have created it to our own specification, but we did the design and specification for production equipment for P&G facilities. So it was kind of a captive approach to how we engineered our manufacturing plants as well as designing our own molecules that go into the chemicals that go into the various products. Again, it was a very myopic focus.
Luckily, some of the leadership – self, included – said, “Boy, there’s a big, beautiful world out there and we’re not taking advantage of it, either from our supply base or from other communities, like academia, government-sponsored R&D, and the public sector. So the challenge was to expand the innovation for our products, and then expand that innovation to our own operations – engineering, how and where we manufacture, where we create our supply chain, and so on. Also, for marketing and media, we’re not taking advantage of the digital space; so how do we innovate in digital media, in programs like Olympic program, which we were early pioneers on. So that concept of innovation kind of permeated the culture starting in 2001, about the same time as A.G. Lafley moved into the CEO role and encouraged everyone to think outside the box and be more innovative. What that meant for procurement, then, was a huge opportunity.
So, one of the themes that I have for procurement is whenever there are major shifts in a company or in the world, it portends opportunities for procurement. Our opportunity at the time was to translate that culture and drive for innovation to help our external business partners understand what that means and what role they can play in it. So the company had said, “We want to get fifty percent of our new product innovation coming from the outside.” My addition to that was, “I would like to see fifty percent of our external innovation come from our supply base.” So, in total for the company a 25%, but 50-to-50. And I sold that into our senior leadership. The CEO at the time said, “We’re going to translate this for our supply base into innovation opportunities.”
After we began, we extended the initiative beyond new chemicals and packaging to marketing, media, etc. What we found is that our external business partners were very receptive and more than willing to commit time, resources, and energy towards helping us think about how we can innovate in any space – whether that’s thinking about a different travel model or a different IT services approach through our shared services organization. It went beyond the different structures and approaches and ideas, and it opened up a whole different way of thinking for all of us: How do we drive new ideas and new innovation to the bottom line? And then, importantly, how can procurement facilitate that for the corporation as well as acknowledge/recognize that as part of the value proposition?
So, that was one of the factors that bounded out of savings, and I know that a lot of companies struggled with, “All you can do is drive savings – forget about the other stuff.” Granted, when the company is focused on delivering innovation, savings are important because they fund innovation. But the innovation, itself, is also important. So for us, it became a pipeline, and a question of how to feed the pipeline. And it became a tight metric. We started asking ourselves, “How do we move it through the innovation pipeline to commercialization much more quickly, and how do we reduce the risk of failure? How do we try quickly? And if we do fail, let’s fail quickly so we can start the next tranche of innovation.” So, it brought on a whole new view of what procurement does and how we interact with our internal and external business partners.
I’m jumping forward, but I think the future will entail collaboration linking into the other pieces of innovation. So, as I see us going forward in procurement, there are really three areas. One of them is innovation, another is collaboration (internal and external), and the final is integration – that is, how do you become a bigger part of the company linking disparate parts within the corporation as opposed to being stand-alone functions.
AB: So talk a little more about what that means – integration, and maybe some of the things that you’re starting to do. You impacted a major global organization for many, many years – you have the ability to impact dozens each year, or whatever the number is. Talk about how that is going to manifest itself with your vision of the future.
RH: Yeah, so, when I was at P&G, one of the things that we were working on between 2012 and 2014 was we had data in different databases that they could access, but we had to go in and out of them. We had supply chains that were not integrated. We had information that was flowing, but not well because they had different ways of turning it on and off, different companies that they’re working with to try to grow that innovation. So, as we looked at it at P&G, we said, “We’ve got to integrate all of this – the consumer knowledge, our operations information, and our supplier information into a single, seamless pipeline of information flow.” You’ll understand, Andrew, that that’s a big part of what other companies are doing. And then we had to link all of that to our supplier- and their supplier base so that we had the kind of information that we all need in procurement to advance the business and help make sure that we’re managing and providing the procurement, supply, and logistic information all the way to our customer base, because that’s what our customers are asking for. And ultimately to our consumers.
One of the companies that P&G worked very closely with is Amazon.com. I think they are probably the one that does the best job of connecting with consumers – whether they’re shopping, buying, expecting, or returning a package. They have an incredible relationship with consumers. You talk to people about their experiences with Amazon and it is, in most cases, over the top. So, that is the kind of integration of information and relationships that P&G aspires to and I think they’re working on it, but they’re not quite there yet. I think other companies will eventually, if they’re not working on it now, begin working on it.
The last piece of the integration is to connect procurement, operations, marketing, engineering, and other internal partners so that they’re bringing specialty, but they’re really focused on driving the business. I think in the past, at least at P&G and I suspect at other companies, as well, people have sub-optimized. We’ve done the best job of delivering spend at the expense of innovation, R&D, or capital savings for engineering. That sub-optimization is not healthy for the business. So the challenge really is to integrate all of the specialty capabilities and the outcome so that you get the best business result as opposed to the best functional result, whether that’s savings, innovation, or however many other outcomes are important.
AB: This is fantastic stuff. Any final thoughts?
RH: I would say, Andrew, the only one we didn’t talk about was collaboration. A big part of supplier relationship management is the relationships that you have with your external business partners. For P&G and I think for many more mature organizations, the internal collaboration with “the client”, the business partners, is important, and sometimes it’s more important (than your supplier relationships). That’s one of the things that when I work with companies through GEP is, “You’ve got great relationships with your suppliers – fine, thank you very much. But what are you doing with your internal business clients to talk their language and to meet their needs as opposed to continually talking about savings that you’re going to lay on them and not help them with whatever their metrics are?” So that collaboration – internal and external – is critical.
I think that between collaboration, innovation, and integration, what that’s going to do is offer some terrific opportunities. Again, as I’ve looked forward at what I do and through my GEP role approaching other procurement organizations, there’s terrific opportunity for us to make a difference and to, again, reshape the future of the company. It really is changing how companies are organized, changing the focus, and changing the value metrics, both from the supply chain side as well as from a customer side that allows corporations to gain competitive advantage.
AB: This is all great stuff – thanks for chatting!
We hope you enjoyed our latest installment in our “Procurement Influencer Series”, and we encourage you to tune into the ongoing and insightful series, only on CPO Rising.
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