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Becoming a Valued Business Partner: Procurement Analytics SCRC Meeting Insights

The December 2015 SCRC meeting was held this week in the brand spanking new Talley Student Center, and was a resounding success.  We had over 200 people attend the student poster sessions on Monday, and almost 130 executives, students, and faculty attending the fantastic sessions on Tuesday.

After highlighting some of the results from the IBM study I worked on this past fall on procurement analytics, I introduced Rich Hughes, former Chief Procurement Officer from Procter & Gamble.  Rick told me that my presentation brought back a lot of early memories from P&G back when it was in its early days of procurement transformation in 2000-2001.  During this period, spend under management was 50% at best, and there was significant fragmentation in the supply base. The procurement space was also complex, and still is – with spend at about $45B, managed by about 1000 procurement people in 29 locations worldwide – it is moving in the right direction. Rick notes that “When I moved in we had 125,000 suppliers! We were spending $30B – and not having very good leveraging. We reduced that to 85,000 – and down to 65,000 – which is still probably too many….”

P&G’s emphasis on digitization started in 2008.  “This conversation started with our CIO….we wanted to drive digitization, and I was looking at our master data (which I didn’t trust) and realized we did not have a solid contract management approach. We needed to digitize as many of our source to pay processes as we possibly could. This would in effect enable us to drive daily decision making, using a graphic portrayal of all the operations at P&G, including profitability data.  We had this for our customer facing operations…but what about our supply chain!”  P&G established “cockpits” that brought up key analytics for every procurement and supply chain manager that was customized to their work.  They also drove video collaboration, which significantly reduced travel spend.  In 2011 procurement began work on supply network optimization (now called customer replenishment network ) that sought to integrate suppliers with manufacturing and distribution through to customers in an efficient way.  This involved significant work to re-align the supply chain, to ensure that suppliers were more closely located to manufacturing and distribution sites, that in turn needed to be closer to customers and where the growth was (in Eastern Europe, and later in Asia).

In streamlining the P2P system, Rick notes that he had to take someone from procurement to go work in AP in finance  to fix it. The goal was to ensure that procurement was no-touch. “As we mined data from our AP organization and started to do some assessment to drive better working capital from our terms and our AP, we found how to streamline and simplify and deliver cash to the organization. In 2012 we put together a cash acceleration program through supply chain financing which enabled P&G to drive $3B of cash flow, working with treasury  to leverage size and scale.  This effectively allowed suppliers to leverage their payables to get better terms with banks on commercial loans than they would be able to get independently, because of P&G’s AA- rating! Rick emphasized that every one of these initiatives required solid analytics to influence stakeholders and make a business case.

Rick notes that “Even though my examples are simplistic in light of today’s efforts- the power of analytics is significant. You can take business insights from analytics and drive value. We don’t do enough of that! There are huge opportunities that are untouched, but you constantly need to sell from leadership on down using analytics to drive change.”

Next on the agenda was Pierre Mitchell from Spend Matters.  Pierre noted that we are ALL analysts, in effect, and we all help with our organizations to find opportunities that will drive business results. Analytics will never change, although technology certainly will. Many companies still face a lot of basic problems and so we can’t just limit ourselves to thinking only about spend analytics, but also about supply analytics.  Results from a recent study by Spend Matters shows that 15% of spending occurs because of the old “use it or lose it”mentality – which means we need to do a much better job of budgeting, and think of all forms of spending, not just purchases,  and need to look at it through the context of supply markets.

Pierre emphasized the importance of busienss-related focus for procurement.  “This idea of being able to support the business with good decisions is key.   How to tie together data management, and supply information, and intelligence and supporting analytics?  We get good decisions from asking the right questions, which leads to timely analysis of supply information managed and governed systematically – which then means having to deal with data management (mass quantities of different data types.)

Pierre also talked about the importance of good master data.  Master data ties together suppliers, items in catalogs, contracts, cost centers, Key performance indicators, and supply drivers.  This is a lot of data you have to unpack, but once established, provides a wealth of data to yield the analytics you need to be able to run the busienss.    There is no one perfect path available.

The tie to the business was again emphasized by Pierre, echoing Rick’s earlier comment.    “Procurement needs to gain a clear understanding of what the business is looking for, and how to derive our value from improving supply outcomes.  We will be judged by ability to not just be responsible for purpose, price, and cost, but to be a facilitator to assess performance across a number of dimensions, to enable the business to make choices.  This allows procurement to become  a value added business partner not wedded to a single methodology or one’s own particular desired outcomes that we are measured on. We will be judged by our ability to facilitate and use analytics as part of a broader toolkit, which is linked to becoming an active member of a broader change management team to improve the business.”

Our last session featured a panel of speakers including Dan Carrell VP of Procurement from IBM, Joseph Martinez, Head of Global Sourcing – APAC at Deutsche Bank where he is responsible for regional sourcing, travel, and procurement to pay operations for the 17 APAC markets (over $9.5 Billion in supplier spend).  Pierre Mitchell also joined the panel.  In discussing their experience with driving analytics into the business, all members of the panel provided some clear insights into examples and opportunities to become a better business partner.  All of them also shared their insights into some of the future trends that lie ahead.  For example, Dan shared the application of Watson analytic technologies to supplier intelligence, risk management and other approaches.  Joseph talked about the ability to connect front end systems of consumers to supplier capabilities and requirements.  He also emphasized the importance of being tied to the business first and foremost.    “We are not just procurement people, we are business people.  We have to be constantly finding ways to be better business partners, and help people with business problems, that are not just procurement problems.  Analytics becomes something that we can provide that is agnostic, independent, and a source of truth for decision-making.  We facilitate discussion through our ability to build analytical insights.  And that’s something that we can all do, no matter what business we are in.”

And on that note – we ended the meeting.  Thanks to everyone involved – the faculty, students, speakers, executives in attendance, and of course, Clyde and Troy, who are true business partners!