EXCLUSIVE
I s sue 11 • www.cpostrateg y.com
People-driven procurement
Five speakers at Digital Procurement World 2020
A procurement transformation We visit Danish Crown’s Group CPO, Lars Feldskou, regarding the company’s procurement transformation
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Welcome to issue 11 of CPOstrategy! WE HOPE THAT you are safe and in good health and that our magazines come as a welcome distraction during these difficult times, whatever situation you may be in. Our cover star this month is Lars Feldskou, Group CPO of Danish Crown. Earlier this year CPOstrategy flew out to Denmark to sit down with Lars and his procurement team to explore the company’s massive procurement transformation that saw a huge shift away from siloed working, creating a completely fast, agile and centralised procurement function. “The old strategy was very much decentralised, while the new strategy is very much based around centralisation and a group perspective on many key areas,” he explains from Danish Crown’s offices in Randers. “I must say, I love the challenges of working with transformations, development projects and change management.” Elsewhere, we travelled down to London to speak with one of the UK’s largest utility companies, ENGIE UK & Ireland to speak with Jonathan Sims, Chief Procurement Officer. Jonathan sat down to tell us all about how the strength of his procurement team is the key to successfully delivering a transformation. “I think it’s probably one of the strongest procurement teams I’ve ever worked with. We’ve got people being seconded into international business units and I think that’s really starting to create a positive message. Plus, we over-delivered on our group savings target last year, which again shows that we’re backing that up with business results,” he explains. Also in this month’s issue we have exclusive content from Mike Cadieux as he continues his quest to “make procurement cool” and Soren Petsch is back with another deep dive into the complexity around procurement risk I hope you enjoy the issue!
EDITOR IN CHIEF Andrew Woods
EDITOR Dale Benton
SOCIAL MEDIA MANAGER Callum Rivett
CONTRIBUTING EDITOR Kevin Davies
CREATIVE LEAD Mitchell Park
VP GLOBAL FINTECH & INSURTECH Alex Page
VP TECHNOLOGY Andy Lloyd Craig Daniels
VP PROCUREMENT Heykel Ouni Greg Churchill
PRESIDENT & CEO Kiron Chavda
PUBLISHED BY
Dale Benton, Editor content@b2e-media.com
3
CONTENTS
Danish Crown
6
Engie
40 Exclusive Q&A with Michael Cadiuex
28
Risk assessments made easy
62 Five speakers at Digital Procurement World 2020
70
6
A procurement transformation CPOstrategy visits Denmark to speak to Danish Crown’s Group CPO, Lars Feldskou, regarding the company’s massive procurement transformation WRI T T EN BY
Andr e w Wo o d s
PRODUCED BY
Hey kel O u n i
7
P
rocurement transformation represents a dramatic shift in an enterprise’s structure,
operations and bottom line, resulting from the establishment of a new collective mindset, processes and tech. Those tasked with rolling out new procurement strategies require experience, ambition and the ability to motivate and organise large numbers of staff. Danish Crown AmbA is a food processing company, dealing primarily in the meat processing of pork and beef and through its subsidiaries, as part of Danish Crown Group, it’s Europe's largest pork-processing company and Denmark's largest beef-processing company. Like many traditional and well-established manufacturers, Danish Crown operated in a divisional, siloed structure that saw separate arms of the company working in relative isolation. However, the current demand of business owners, the wider market and the all-important customer focus now require companies like Danish Crown to be fast, agile and centralised. In 2016, Danish Crown launched a new transformational programme across the Group called the 4WD Strategy (4WDS). 4WDS was established to reconfigure the €9bn company so it could break free from its different divisions, to work as one 8
DANISH CROWN
unified company. An integral part of the strategy involved the transformation of the procurement function. Lars Feldskou joined Danish Crown as Group CPO in 2017 to help facilitate the 4WDS across procurement. A highly experienced procurement professional who has delivered many transformations at previous companies, Feldskou relished the challenge of delivering a Group-wide strategy. “The old strategy was very much decentralised, while the new strategy is very much based around w w w . c p o s t r a t e g y. c o m
9
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You can’t underestimate the value of a great working relationship. The benefits of two
to success in the market,” says Moens. “We have
companies aligning together on key projects in a
the Pulled Beef. Those concepts have been
harmonious collaboration brings alignment on
launched into the market, and are now front
strategic goals, and nurtures innovation.
runners in retail.”
Solina is a leading designer of customised ingredient
One of the key trends linked to customer demand
solutions for customers operating in the savoury
is that of sustainability, of which an important
food industry, food service and butchery markets
element is strategic sourcing, being vital for
and a key customer in those endeavours is Danish
a modern food company. Therefore, Solina works
Crown, the global meat production group. Excellent
in close partnership with key suppliers to achieve
and trustworthy – the pair enjoy a long-term
full transparency related to the quality of the
relationship which goes back to the early 1930s.
ingredients, and their traceability. “We’ve really
One of Solina’s companies in Denmark (previously
been ahead of the curve with best practice, for
known under the name SFK), had been owned by
example with sustainable pepper. We are always
Danish Crown in the past.
investigating how we can value optimise our
several examples such as the Pulled Pork and
customers’ proposition and so procurement is “Solina is the leading European provider of taste,
a key aspect. How can we be more efficient for
texture and functional solutions for the savoury
them? We are all working in the same direction to
food industry,” Anthony Francheterre, CEO Solina
have healthier or cleaner products, for marinades
Group explains. Anthony Francheterre joined Solina
for example,” says Francheterre.
as CEO in September 2019, having worked at some major food brands, and was soon made aware of
NEXTERA® by Solina – the future generation of
just how intimately the two companies have been
Protein Foods – is a “new” business unit within
working together from day one. “Danish Crown is
Solina that is focused on the development of
one of our key customers because of its size, the
new protein foods. The concepts and creations
quality of the relationship, and the match of the
of NEXTERA cater to vegan, vegetarian and
respective DNA.”
flexitarians, people who simply want to eat less meat while retaining the full pleasure of food.
One of the key values the two companies share is
“It goes without saying that we used all our
a sense of being ‘glocal’. Solina and Danish Crown
know-how to develop with Danish Crown the
operate globally, but are keen to capture the local
first veggie based paté on the Danish market,”
trends and respond to consumer needs in each
says Moens.
market. “So, we’ve got a kind of mirror effect on how we operate. And it means that because we are
To meet these challenges, in a constantly changing
operating in a diverse market, we need to be agile,
environment, Solina and Danish Crown rely on
flexible and innovative.”
one vital aspect of their enduring partnership: trust. “Danish Crown is one of our key customers,”
Innovation is one of the main drivers between the
says Francheterre. “I think it’s a win-win relationship
two companies. Several growth platforms have
because we learn a lot from each other as we
been created completely in line with how they
build on the same platforms for the growth of
work together with customers. Kristel Moens is
both companies. You can’t discuss Solina, without
responsible for Marketing at the Solina Group: “The
discussing one of its most important customers,”
two sides come together in a partnership approach
he says.
working together to achieve innovation and to drive new concepts to market by doing workshops based on new ideas, new trend insights, exciting taste propositions and consumer preferences. It’s so exciting the way our working together leads
www.solina-group.eu
centralisation and a group perspective
“Formerly, the business units had their
on many key areas,” he explains from
own local setup for procurement,” he
Danish Crown’s offices in Randers. “I
explains. “And so, the first thing we did
must say, I love the challenges of work-
was create a group of existing staff
ing with transformations, development
within it. I'm a very strong believer that
projects and change management.”
things are driven by people and not only
Feldskou’s procurement transformation
by Excel sheets and PowerPoints and
at Danish Crown was initially two-fold.
other systems. We had to get the people
The first element was to establish a
engaged and centralised. I had to create
number of initiatives to create some
a strong management team that under-
bottom-line savings. The second ambi-
stood the journey, the vision, while also
tion was to build up a centralised global
being prepared for a massive amount of
professional procurement department.
change such as the collective mentality,
12
DANISH CROWN
“ I now have a good set-up and a mix of people that know the business from the inside, and people that have come in with knowledge from the outside” —
LARS FELDSKOU, GROUP CPO, DANISH CROWN
involving the readiness to live in an envi-
existing staff, some of whom know the
ronment where everything changes week
business from the inside out including
by week and month by month. Some
Annette Jakobsen, Henrik Skov Madsen,
people live it and love it. Other people
and newcomers Chris Hoffmann, Niels
hate it. For me it was important to find
Hedegaard, Ole Mortensen and Adrian
out who could embrace this change and
Fisher. “I now have a good set-up and
the journey and who could not. Setting
a mix of people that know the busi-
the right management team and the right
ness from the inside, and people that
procurement team, was the first thing that
have come in with knowledge from the
we focused on.”
outside, from companies that have been
Danish Crown now has seven main leaders in the procurement management team with a mix of new and
on a similar journey over the years,” he says. According to Feldskou it was the w w w . c p o s t r a t e g y. c o m
13
tangible business opportunities that were
The start of the procurement transfor-
the main drivers behind the new strat-
mation was about creating relationships
egy. “Danish Crown got a new CEO, in
with the businesses, as Feldskou talked
Jais Valeur in 2016, who saw that there
with them about their ambitions and the
was a number of opportunities that could
best strategies to achieve them. “Danish
be harvested in doing things in a differ-
Crown is a big company with nearly
ent way,” he explains. “This was about
25,000 employees and 60-plus facto-
working across the different businesses,
ries all over Europe and Asia also. So, for
some of which were better at it than
me, in the beginning, I was getting out
other business units, but it was never
and getting to know people to find out
really planned or managed in an organ-
what they were doing, as well as their
ised way. He saw that going a bit hori-
challenges, what they were good at, and
zontal instead of going vertical, in our
where they could see possibilities. It was
approach to a lot of things, could benefit
very much about creating some fast and
the company.”
significant results that we could use in w w w . c p o s t r a t e g y. c o m
15
our communications to prove that work-
at the heart of the Group, and Boston
ing together across the company was a
Consulting Group (BCG) came in to
greater benefit to working in silos. It was
recommend points of action. “We invited
very much about convincing people that
BCG to come in early 2019 and make a
this new setup was right with benefits
review about the level we had achieved
within it, so they could play an active part
to that point and asked them to come
to get something out of it. We established
with their recommendations about how
a very clear structure and organisational
we should take it to the next phase. They
plan, including a new reporting set-up.
(BCG) went around and talked with a
We outlined some very clear targets and
lot of people both in the business unit
KPIs.�
and the group setup and came up with
One of the key parts of the procure-
a model which introduced business unit
ment strategy involved the establish-
procurement partners, that represents
ment of a new operating model that
group procurement inside the business
would place the procurement function
units. The partners have a role in the
16
DANISH CROWN
“ It’s vital to have the support from the top management; support that is very visceral, very communicated, and fundamental to all layers of the company” —
LARS FELDSKOU, GROUP CPO, DANISH CROWN
challenge. “Danish Crown is a huge company and has a long, long history of being decentralised. Then, suddenly, you’re working on group targets, group mandates, group perspectives, which are a huge challenge. This is a 180-degree turnaround. There was also a massive job in terms of standardising master data across all the different levels of the company from business unit to business unit.” The technological side to the transformation addressed Danish Crown’s procurement tools. For many years, Danish Crown had been running SAP across the different business units and individual set-ups. However, JAGGAER
daily life in each of the business units,
was introduced as a procurement
but also play a part in our procurement
tool for source-to-contract which also
strategy and journey. They became
addressed e-procurement in the busi-
ambassadorial and acted as a bridge
ness units, acting as an umbrella across
between us and the business units to
the business.
ensure the projects and the strategy we
“From a procurement point of view, we
execute is also implemented out in the
can do a lot of stuff, having implemented
business units. It was a good, strategic
that system. This will give us transpar-
move to get an external company like
ency and knowledge about our daily
Boston Consulting Group to come in and
business. Right now, we’re creating the
do that for us because they were neutral
baseline or the foundation for taking the
and looking from the outside in.”
journey into a lot of other procurement
Feldskou has delivered a number of
activities and areas. We still have a way
transformations in his time, but even
to go to establish, for instance, transpar-
accounting for his experience, this shift
ency on our master data. In certain cate-
at Danish Crown represented a massive
gories, we're very good, because in the w w w . c p o s t r a t e g y. c o m
17
categories like ingredients and packag-
at challenging each other. I think that's
ing materials that goes directly into our
where we start to see things happen-
end products, we have a lot of knowl-
ing. This team are good at challenges
edge; we have item numbers, we have
and supporting each other, and they're
a specification and stuff like this. But in
good at moving each other into new
other areas like our logistics, our indirect,
levels. And by having such diversity in
our CapEx spare parts and stuff like this,
the team, we create a genuine speed
we don't have the transparency and we
that moves this transformation forwards,
really need to move as fast in those categories as we can. We're going live here in the second half of 2020 with our ePro as we call it, and that will take us into the next level with precise, described procedures and processes and even further transparency. We can then control our spend and eliminate a lot of the tail spend and maverick spending that we have today. That will probably take a couple of years before we are through with that journey.” Niels Hedegaard is Senior Director Group Procurement, Business Development: “One of our levers for getting more in control with our procurement activities across the company is through implementing systems that will help us. So, we have invested in a piece of software called JAGGAER, consisting of two modules. We launched the “Source to contract” module on the 13th of December, so that all of our category managers can operate in our six-step 18
DANISH CROWN
Lars Feldskou Group CPO, Senior Vice President, Danish Crown For the past 20 years Lars has worked on establishing, optimising and restructuring and/or building up/downsizing organisations such as Ecco Shoes, BB Electronics, Vestas and MHI Vestas Offshore. His work has included major change management transformations with massive costout and source-to-pay-transformation programs within procurement, logistics and supply chain management areas. Lars also has extensive experience in the management of big organisations including team establishing/team-building exercises. Lars has been Group CPO, Senior Vice President at Danish Crown since 2017.
19
sourcing model, through that tool. The other part is the “E-procurement” tool. That is more or less an eBay platform for all of our employees across our company. Whenever they want to buy anything from a pencil, to a spare part, a piece of machinery, or a marketing event, or whatever they want to buy, then they will actually go into this platform instead of just picking up their phone and doing maverick buying. Getting this tool implemented will be a great, great lever for us to be even more in control around our procurement activities. This will make us even better in securing the suppliers with whom we have contracts because their catalogues are available in the JAGGAER system. So, it's easy peasy for our colleagues to find whatever they need from the suppliers that are already approved.” Feldskou is particularly enthused by his team, tasked with driving the massive operational changes across Danish Crown. Feldskou is determined to underline the importance of the team and constantly underlines the importance of a positive and talented workplace. “We have a very good mix of people that are thinking very pragmatic and operational, and others who are thinking very strategically, and together they're good 20
DANISH CROWN
w w w . c p o s t r a t e g y. c o m
21
Build your digital roadmap Transforming Procurement. Enabled by Technology. Powered by Intelligence. DOWNLOAD OUR REPORT
What is the digital maturity of organizations and industries? Download our report to find out how other organizations are building their digital roadmap for procurement. What technologies will deliver the most value for procurements? What steps does procurement need to take to get the most out of their investment?
JAGGAER Global HQ Research Triangle Park, NC 3020 Carrington Mill Blvd, Suite 100 Morrisville, NC 27560 Telephone: +1 (919) 659-2600 Email: BSUK-Sales@jaggaer.com JAGGAER UK 103 St John St London EC1M 4AS Telephone: +44 (0)20 7796 4170 Email: BSUK-Sales@jaggaer.com
because there's always one in the team
easy to communicate. It's easy to make
that takes the next step and gets the
decisions.”
rest of them to follow. I think we've come
We've detailed a lot about the trans-
quite far in terms of the way we operate,
formation program at Danish Crown, but
communicate and the way we work in a
what advice would Feldskou impart to a
standardised, organised way. I think we
CEO or CTO or CPO contemplating such
are recognised for that, and we already
a large transformation? “It’s vital to have
reached the targets in 2019 that were set
the support from the top management;
for 2021. But that’s just the beginning of
support that is very visceral, very commu-
the journey and has created the path for
nicated, and fundamental to all layers of
the years to come. We are at a level now
the company. One of the strongest things
where we are very organised. We have
I have at Danish Crown, is a very precise
a structure and a governance around
strategy that runs the overall company.
what we do, which is working, and is
I have massive support from our CEO,
making a lot of things transparent. It's
COO and CFO in the journey, and that's w w w . c p o s t r a t e g y. c o m
23
important. I have strong support from the
Krakow within procurement. And last, but
management teams out in the business
not least, we also are heading up training
units, and I don't think we would have
and education of people within the group
been able to have the speed we have
procurement environments.
without that support. That's the main
The really big change Lars is leading, is
driver besides creating the right team to
one of the key strategic initiatives within
actually execute it. So, ensure you have
our organising, namely, to establish a
the right capabilities, the right skills, the
group procurement organisation and
right people with the right mentality. It is
thereby delivering on the strategic ambi-
the people that drive it. In daily life, it's
tions within procurement. Previously all
the people that engage with the relevant
procurement activities were handled in
stakeholders. For me, the most important
the different business units, and thereby
aspect of taking on a transformation like
the opportunities with leveraging the size
this is to ensure that you have support
of our company were simply not happen-
from the top, and that you set the right
ing. As part of defining the 4 Wheel
team in place from day one. Then you
Drive Strategy, we expect to improve on
can overcome a lot, and ensure that you have movement, and that you're moving forward, fast.�
Niels Hedegaard, Senior Director Group Procurement, Business Development, Danish Crown “Within the business development area, we have our strategic development that we are leading, we have our entire strategic governance structure, we have the controlling and reporting and KPI follow-up. We are also developing processes and systems in close cooperation with our colleagues in the Procurement Centre Of Excellence in 24
DANISH CROWN
“Right now, we’re creating the baseline or the foundation for taking the journey into a lot of other procurement activities and areas” —
LARS FELDSKOU, GROUP CPO, DANISH CROWN
the company's performance to start to join forces on procurement across the business. And that was why the group procurement organisation was established and Lars was hired to take the lead on that journey.”
Annette Jakobsen, Director of Procurement, Danish Crown “The main changes we are seeing now in the way we're doing procurement is how we involve the business and work together with the business. Previously, it was very much doing the procurement at a desk and only looking at what we buy today: ‘Let us go and find the same, just at a lower price.’ Today, we look into the whole value chain and look for optimisations. In order to do that, we need to work really close to the business. We also have the new operating model that ensures that we actually do work with each business unit. Each business unit has a business unit procurement partner with one leg in procurement and one in the business unit. They report into the business unit, but work closely together with us. This brings us much closer to the business unit.” w w w . c p o s t r a t e g y. c o m
25
26
DANISH CROWN
Henrick Skov Madsen, Procurement Director, Danish Crown “The benefit of making it into one big organisation, where we pool the quantity is we’re much, much stronger together, in that we can start optimising. Now we can work across Europe on finding ways to focus on the best suppliers. Because if you want to be a good European supplier, it requires a different set of skills to being a good Swedish, Danish or Polish supplier. From an organisational point of view, we need to make sure we get the benefits out of the size we have when we're talking with suppliers. We have opportunities that we simply didn't have before when we were operating as eight different units at the time. When we put all the business units together, we can see the value of what it makes for us, but also what we can offer the supplier market, and help them with a totally different agenda than we have seen before.”
w w w . c p o s t r a t e g y. c o m
27
EXCLUSIVE Q&A WITH MICHAEL CADIE founder of Procurement Foundry Michael Cadieux returns to CPOstrategy, as we break down why he feels procurement needs to be made cool and why the world needs the Procurement Foundry right now WRI T T EN BY
28
D al e Bent on
EUX,
29
Canada. And by the time it was all done, I
MICHAEL CADIEUX F OU NDER OF P RO C UR EM E N T F OU NDRY
had a team of about 20 managing somewhere in the area of about $2 billion worth of spend under management, including the production spend.
Tell us a bit about yourself, who is Michael Cadieux? I’ve been in procurement and sourcing for about 30 years. The first 12 -13 years of my career was actually in the
Looking back at when you were starting out in your first role within the sourcing area, what would you say have been some of the biggest and most dramatic changes?
seafood industry and I was sourcing
There certainly have been a lot of
live commodity goods in the seafood
changes, both from just a shift from the
industry and then I came to corporate
actual act of procurement and doing a
America about 20 years ago. I started
lot of transactional processing type activ-
off in IT and managed some IT depart-
ities and what I’ll call just rudimentary
ments and assets for some financial
paper pushing. Always adding value, but
institutions. Then I moved into advertis-
really just doing a lot of vendor sourcing
ing and marketing and went to work for a
and buying and purchasing. Now, I see
company called Digitas out of Boston and
it as a strategic sourcing partnership at
took over their sourcing and manage-
the back of the house where you’re part
ment and business operations for their IT
of the team that’s driving operational
organization.
efficiency, EBITDA, improved margins
A little bit later down the road, Digitas
for companies. Lots of procurement and
got acquired by Publicis Group and I
sourcing people are now working on
went to work inside of the Publicis Group
merger and acquisition strategies and
procurement organization. I was actu-
synergy saving models. So it’s really
ally hired in from the acquisition to build
a much more dynamic role than it was
out and manage the North American
years ago, certainly.
procurement organization for all indirect
In addition to that, there was the massive
spend for Publicis Group’s holdings. That
tsunami of technology and digitalization
expanded later on to South America and
of procurement as a whole. It sounds a
30
EXCLUSIVE Q&A WITH MICHAEL CADIEUX, FOUNDER OF PROCUREMENT FOUNDRY
Excel and Word POs back then. They
How has the perspective of procurement changed from an executive and overall business level?
weren’t procure to pay systems per se.
I think it used to be something that a
We’d cut purchase orders out of our ERP
long time ago they all used to do on
systems back then and now we’ve got
their own and considered to be part of
full blown integrated machine learning
their job description. Didn’t really see it
enabled procure to pay workflow systems
as a true niche specialty. And now it has
that are cloud-based, have punch outs
truly become a specialty and a leaned
and benchmarking. It’s just amazing
on partner in the space. You see stake-
what’s available today from a technology
holders that are bringing in strategic
perspective, which I think has enabled
sourcing at the inception point of new
the expansion and the growth of the job
activities, be it new technology needs
to what it is today, which is really enabling
or new process improvements. I see
the strategy side of it to take hold.
strategic sourcing being brought in on
lot like I’m using a lot of buzzwords, but it really is true. We did a lot of stuff on
w w w . c p o s t r a t e g y. c o m
31
“ Y O U N E E D A L O T M O R E EQ SKILLS, A LOT MORE Q U A L I TAT I V E S K I L L S . Y O U R C O M M U N I C AT I O N S K I L L S A R E C O M P L E T E LY D I F F E R E N T THAN THEY USED TO BE. Y O U ’ R E R E A L LY M O R E O F A MARKETING PERSON OR A POLITICIAN NOW” –
MICHAEL CADIEUX F OU NDER OF P RO C UR EM E N T F OU NDRY
annual budgeting and forecasting sessions now, so that people can know what sourcing can do to optimize their cost basis and their
With more influence, being more engaged and more involved in the business,does that create more opportunity, and also create more pressure?
budget. So we’re almost financial
That’s true with any expansion of respon-
advisors as well. It’s truly amaz-
sibilities and being part of a larger team
ing to go from somebody down
that’s delivering, and being seen as a true
the hall who just cuts the POs to,
piece of the equation in any enterprise
“Hey, I need your help strategi-
class program now, where you have real
cally aligning my business plan
deliverables as part of the team on either
for my P&L this year, and what can
cost saving initiatives or opportunities for
you do to enable me to hit my own
transformation, introduction, vendor inno-
targets and benefits?”
vation, continuous improvement models
32
EXCLUSIVE Q&A WITH MICHAEL CADIEUX, FOUNDER OF PROCUREMENT FOUNDRY
against services. You’re being asked to
cases than you are a finance operation
make some really hefty recommenda-
that you used to be. Certainly a lot more
tions on things, like potentially outsourc-
goes into your positioning in the room
ing some of the operations to third party
when you’re surrounded by the rest of
vendors and best cost country geogra-
the C-level executives. You’re no longer
phies and things like that.
that red headed stepchild that you used
The skill set is starting to change as
to be, and a lot of times the majority
well because of that. You need a lot
of the folks in the room are looking at
more EQ skills, a lot more qualitative
you to drive new innovative thought
skills. Your communication skills are
processes around significant business
completely different than they used to
goals and objectives.
be. You’re really more of a marketing person or a politician now in a lot of w w w . c p o s t r a t e g y. c o m
33
You’re obsessed with making procurement cool, but why does procurement need to be made cool and why isn’t it already cool?
in on my meetings to give us a fresh
I think anything worth doing is worth
worth doing, it’s worth having fun at.
perspective and just different verbiage, different person, different set of eyes. Just make it exciting and interesting. If it’s
doing and having fun doing it. I think
sourcing demigods down the hall who
By bringing in that fresh perspective, what was the immediate impact of that?
are having fun and breaking new ground
At first people were like, “Hey, who’s
every day, have a lot more fun and enjoy
that person in the room or who’s our
what they do. Let’s face facts. Sourcing
new set of eyes or Jesus, this is a crazy
has a lot of conflict in it. Every day you
new approach.” Procurement, sourcing,
have a conflict of some type that you’re
supply chain management, in my opin-
trying to resolve and conflict can cause
ion, is an art form. So much so that, our
stress and it can get a little bit mundane
friend Phil Eidelson, he named his outfit
people who enjoy their jobs and think of themselves as the procurement and
from time to time. I met a gentleman a year ago who’s been buying spray enamels for a very large manufacturer for the last 30 years, and I thought to myself, “Boy, if I had to buy spray paint for 30 years, I think I’d be a little bit bored.” But if you can figure out some way to make it cool, inject some life into it, maybe take a new lens at it every once in a while. I used to run a program where we did our weekly reviews and every once in a while I’d bring somebody from completely outside of the industry in. I’ve got some friends that own auto dealerships and things like that. I’d have an auto dealership owner come in and sit 34
EXCLUSIVE Q&A WITH MICHAEL CADIEUX, FOUNDER OF PROCUREMENT FOUNDRY
“SEND YOUR PEOPLE IN YOUR PROGRAMS OUT TO THEIR MEETINGS TO GET NEW IDEAS ON HOW THEY RUN THEIR MEETINGS AND H O W T H E Y A P P R O A C H P R O B L E M S A N D W H AT T H E Y A R E U S I N G F O R C O L L A B O R AT I O N T O O L S . T H AT ’ S T H E R E A L C R U X O F W H E R E I N N O VAT I O N ’ S H A P P E N I N G ” –
MICHAEL CADIEUX F O UNDE R O F P RO C U R E M E N T F O U N D RY Art of Procurement. In my opinion, I think that a very well written contract is a piece of artwork, and I don’t see why you shouldn’t revel in that. I think that there’s a lot of artistry in what we do. Everybody thinks that it’s just head down grinding, accountant, procurement, finance type work in the background and legal work and jargon. Good negotiations is definitely an art form. No question about it. So I think that when you start to inject some other folks into it, be it completely removed thirdparty outsources or just other peers from other departments and let them just sit in your meetings from time to time and listen. Send your people in your programs out to their meetings to get new ideas on how they run their meetings and how they approach problems and what they are using for collaboration tools. That’s the real crux of where innovation’s happening.
What is the Procurement Foundry? The Procurement Foundry’s really an interesting phenomenon. When I left my role at Publicis Group a couple of years ago and started my own consulting w w w . c p o s t r a t e g y. c o m
35
firm, I was really looking for a way to collaborate with some peers and I started off with a really small online private group inside of LinkedIn, and it was kind of non published and I just wanted some people that I could talk to because when you rise up into the senior levels of procurement, your negotiation chops get a little bit rusty and opening up your own business, I had a calling to be back in the back in the fields negotiating real deals. So I needed some collaboration. I built a small little group for some of my peers and I to be able to chat and have discussions about different topics associated with terms and conditions and things like that and what they were seeing in the marketplace. That went from 25 friends and colleagues to a bunch of invitations out to other people, all private, all practitioners. We ended up with like 1100 people in this group in like five months. And then I realized, “Geez, we’re building a community here and we probably need to be on another platform, something that’s certainly searchable.” So in June of 2019 we founded and launched Procurement Foundry, which is one of the fastest growing online private communities now for supply chain management and procurement, indirect sourcing people. It’s fully vetted and manually vetted by our staff to make sure that you are actually a practitioner. We don’t let any sales or consulting folks into the community. We want to make sure that our people feel comfortable collaborating and sharing inside of our community. It’s really built for the practitioners, so unlike a lot of other communities or other types of resources that are available that come through your current employer, this is 36
EXCLUSIVE Q&A WITH MICHAEL CADIEUX, FOUNDER OF PROCUREMENT FOUNDRY
w w w . c p o s t r a t e g y. c o m
37
38
EXCLUSIVE Q&A WITH MICHAEL CADIEUX, FOUNDER OF PROCUREMENT FOUNDRY
really, in my mind, built for the practitioners themselves.
Why is it important to step away from the comfort zone of the boundaries of your own business and to talk to people in similar positions? Why is that so necessary? I think at procurement and sourcing score, it’s all about knowledge. You don’t go into a contract negotiation or a sourcing event without knowledge. Communities like Procurement Foundry are offering people an opportunity to go in and network, collaborate, get information, share information about who to invite to their RFIs and RFPs, where they’ve had good experiences and bad. There’s a very good community of people out there in supply chain management and procurement. The sharing and the networking and the collaboration people are willing to do, if you can find a place to ask them, is unbelievable what people are willing to offer other folks to help out to better their careers without asking for anything in return. It really truly is amazing.
What would the elevator pitch be for the Procurement Foundry If you’re looking for a place to collaborate on your time, when you can, at the pace that you can collaborate at and find peers that understand what you do and can attempt to help you, and it’s free and it’s really built for the practitioner to help advance your career, then Procurement Foundry is a place where you should absolutely come.
w w w . c p o s t r a t e g y. c o m
39
ENGIE UK & Ireland: people-driven procurement CPOstrategy talks to Jonathan Sims, Chief Procurement Officer, ENGIE UK & Ireland to talk about the utility’s massive procurement transformation… WRI T T EN BY PRODUCED BY
40
Andr ew Wo o d s Hey kel Oun i
41
T
he modern Chief Procurement Officer currently occupies a space within enterprise hith-
erto unheard of in years gone by. The CPO and the procurement team are now armed with an incredible array of insights and skills that embolden the aims and ambitions of the business units. This shift heralds the procurement function as an integral strategic tool far more sophisticated than a merely savings-led practice. Procurement now has the ability and freedom to align itself to, and inform and strengthen, a company’s goals, through the provision of a 360-degree vision of a company’s operations. As a result, the origin stories of many modern CPOs are not following the traditional path of working their way from the top to the bottom of the procurement function. Many modern CPOs now have an array of skills and expertise that underscores this shift. Jonathan Sims is Chief Procurement
by background. A development surveyor
Officer for the UK and Ireland business
and I worked in that field for about 10
of the French multinational electric utility
years before moving into mechanical and
ENGIE. However, Sims is not a procure-
electrical engineering in a work-winning
ment guy through and through. “I came
role before ending up in strategic busi-
into procurement a little later on in my
ness projects. And one of those change
career, having only been in procurement
programs was around procurement.”
for about eight or nine years,” he explains
Sims’ work involving the procure-
from the ENGIE offices in London’s
ment function was the springboard
Canary Wharf. “I’m a commercial surveyor
for a number of increasingly senior
42
ENGIE UK & IRELAND
procurement roles that led to his current position at ENGIE. “Procurement lends itself to a lot of transferable skills,” he explains. “So, as a team, even through to our group CPO, many individuals have had a very transversal route into that role. I think the generalist skill set lends itself to procurement and I think as long as you have that kind of business acumen and an affinity with people and suppliers, then it’s a great function to work in. The ability to make a significant fiscal impact on a business and to have that breadth of reach across people, teams and functions appeals to me significantly.”
w w w . c p o s t r a t e g y. c o m
43
The UK arm of ENGIE turns over £3.6bn
in 2018. The way procurement was posi-
with 17,000 staff while ENGIE as a group
tioned within the organisation “probably
is active in 70 countries with a turno-
wasn’t correct” according to Sims with,
ver of around £60bn and 170,000 staff.
from an engagement perspective, people
Sims’ role is responsible for all procure-
who were not as engaged as other
ment within the UK operation that has
central services teams.
a procurement team of around 60, split
Sims managed to retain and develop
across five operating divisions. The team
a significant proportion of the staff he
manages all aspects of procurement of
inherited, with a clear succession plan for
goods and services where they spend
the next two or three years in terms of
approx. £1bn annually. The procurement
where they were going as individuals and
community at ENGIE needed a little bit of
how ENGIE could get them to that next
a reinvigoration at the time of Sims’ arrival
level of procurement excellence while
44
ENGIE UK & IRELAND
driving performance. “For me, having
based on robust competency mapping
that succession plan within the business
and some really clear and insightful
is fundamentally important. I think for a
people assessments, which is particularly
number of key roles, when I joined about
important. We’re launching a strategy with
15 months ago, we didn’t have the right
the business where the key stakeholders
succession within the business and we’ve
have contributed and feel very much an
changed that significantly. So, all levels,
integral part of that.”
myself included, we have a clear line of
Retaining key talent has been one of
sight for who will be taking that next role.
the most important challenges for Sims
That’s something we’ve looked to drive
at ENGIE with an historically “higher than
across the wider group business whether
desired attrition rate” amongst procure-
the opportunity is within the UK business
ment staff. “It’s a very buoyant market
unit or another global business line. It’s
for senior procurement individuals at the w w w . c p o s t r a t e g y. c o m
45
moment. So, creating that clear pathway
within finance, many of whom felt a little
where people could see the next three
remote from previous procurement strat-
or so years of their working life at ENGIE,
egies within the organisation. Sims’ strat-
while enjoying incremental milestones of
egy was very much building a transversal
development linked to reward, was really
cross functional team with non-procure-
fundamental. Once we got that stability
ment execs as sponsors for each strand
in the team, we could then really start to
of the strategy. “I think that really helped
take things forward.”
us get traction and slip under the skin of
Integral to the procurement strategy
what the key stakeholders in the business
at ENGIE is early stakeholder engage-
wanted,” he says. And Sims feels fortu-
ment. Sims’ primary focus in the first few
nate to have garnered senior sponsor-
weeks involved concentrated stake-
ship from the CEO of the UK and Ireland
holder engagement with the divisional
business: “That really helped us drive that
chief operating officers, the commer-
message through the wider business.”
cial directors and the key stakeholders
ENGIE’s three-year strategy is
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Rethinking Procurement and one of
a better result for them. Responsible
the major focuses for Sims is around
procurement remains at the heart of
its Supplier Of Choice Strategy. “That’s
everything we do, making sure that we’re
ensuring we’ve got the right relationships
eradicating any potential risks of modern
with the right suppliers in the right place
slavery within our supply chain, while miti-
to really make a difference for our clients,”
gating any risks of counterfeit product or
he says, “so we’re engaging suppliers in a
child labour.”
mature and considered way. We need to
The biggest element to the new
stay at the forefront of innovation and our
procurement strategy lays with people,
clients are demanding much more than
as seen in some bold new ambitions in
just a compliant price. We really need to
that area. The Competency Matrix maps
be demonstrating over the duration of a
all procurement people to one of the
contract, how we’re going to fundamen-
seven strands of the strategy. “Working
tally enhance our offering and deliver
through 70 different competencies, we’ve w w w . c p o s t r a t e g y. c o m
47
understood how best placed that particular individual is to support a particular strand, or aspect of the strategy, be it innovation or responsibility or supply chain consolidation. All members of the team have objectives set specifically to a strand of the strategy and then from an overarching perspective, we have an executive director that’s non procurement who leads in a particular area, plus one member of the procurement SLT. To some extent it’s cascaded through the business and we’ve had some key conferences along the way with the procurement community to share how we’re launching the strategy, what it means for them and how we’re looking to evolve that over the next 12 months.” There are of course challenges linked to any transformation, especially where people and work culture are concerned, with change management often cited as the number one obstacle. “I think the first few months were particularly crucial around that because there was a lot of change in a very, very short period of time; including change in personnel at senior level within the procurement function. There was definitely an aspect of winning hearts and minds, while moving very quickly to turning what we said we’d do into tangible action with people going through that Competency Matrix.” The manifestation of this action were individual training plans and incremental steps, so staff were being rewarded for delivery. “I think that helped to build that positive messaging. And I think the sponsorship we’ve had from the exec level and how that’s repositioned procurement has been particularly useful. I don’t think procurement had that profile within the business previously. The Competency Matrix has created some real expectation 48
ENGIE UK & IRELAND
w w w . c p o s t r a t e g y. c o m
49
“Externally, we’ve got a strategic partnership with EcoVadis and they’re really supporting our Responsible Business Development Initiative within the UK” — J O N AT H A N S I M S C P O, E N G I E U K & I R E L A N D
in our people. We’ve got a lot to deliver
down into a set of initiatives that we’re
on over the next 12 months to make sure
going after as a team. We attack that as a
people really feel that those commit-
team. We deploy the individuals with the
ments we made last year are being borne
best placed and most appropriate team
out in their development. That’s a real
members leading in that certain area.
pressure.”
But we deliver that target collectively
Procurement has always been decep-
and success or failure is determined by
tively people driven while from the
that rather than one individual feeling
outside appearing very much, the oppo-
they’re exceeding and another individual
site. Sims’ early conversations with
with a different set of addressable spend
stakeholders around how things had
or more complicated dynamics feeling
operated previously, had been incred-
unable to make the same level of contri-
ibly savings orientated and yet had
bution. For the first time in a number of
struggled to perform against savings.
years we exceeded our savings targets.
“The way we moved things forward last
So that said to me it was the right
year was very, very people driven. One
approach.”
Target, One Team is a new initiative
“Hopefully the team is more engaged
that has helped procurement at ENGIE
in that method of working and feeling that
to fully harness its new agility. It was us
they’re contributing their talents more
trying to break away from people feel-
effectively and more appropriately. But
ing constrained and restricted by a huge
it takes a lot of maturity to do that. Other
individual savings target. We broke that
stakeholders potentially can feel that
there isn’t the same level of accounta-
co-create together. There are also chal-
bility perhaps. We’ve been quite effec-
lenges in terms of what we’re doing with
tive in working through that, but it has
our people; how we’re retaining them,
been a challenge. People centrally didn’t
while mapping their skills for a changing
have an individual savings target, but we
marketplace in zero carbon. For procure-
delivered that collectively through initi-
ment professionals, this is a different set
atives, so people understood what we
of metrics in terms of how we’re look-
were going after, plus they didn’t neces-
ing at success. It’s put particular focus
sarily feel the personal burden of having
on what we’re doing within responsible
a number over their heads. I think that
procurement and innovation. We currently
drove a different mindset and culture and
have a £4m innovation fund in the UK
ultimately, we’ve been better for it. I think
where we’re actively looking to invest in
it’s demonstrating to the business that
organisations to drive new solutions. And
we’re more than just a savings depart-
that’s something that’s very, very new for
ment. There’s a lot of intellect within that
us. It’s also created changes in terms of
team, a lot of ability to add far greater
our overarching systems and processes.”
value to commercial, to finance, to oper-
Project Mercury is a completely new
ations. We’re definitely on that journey to
ERP system that ENGIE is developing
emphasise that.”
jointly with Capgemini, partners in that
It is hard to escape sustainability, no
space. Project Mercury will effectively
matter the sector, and for an energy
change the way that ENGIE does busi-
company it pretty much drives every
ness. “Mercury will help us become a
aspect of ENGIE’s focus going forward.
truly data-driven business with data driv-
The past six to nine months has seen the
ing the right decisions for the business
company position itself at the forefront of
and more robust procurement decisions
leading the zero-carbon transition, creat-
based on science.”
ing some new challenges for procure-
Jonathan Strelitz, Head of Category
ment. “It creates challenges in terms
Management is also looking forward to
of the types of suppliers and subcon-
the benefits of Project Mercury. “We’re
tractors we should be working with,”
about to embark on a £17 million trans-
Sims explains. “It also affects how we
formation program by bringing our five
engage with them and what solutions we
ERP systems to one. This is a fantastic w w w . c p o s t r a t e g y. c o m
51
opportunity for us. We are now leading the P2P work stream and embedding that within Jonathan’s strategy. So, it becomes almost like the DNA of the strategy in terms of how we move that forward. It then allows us to embrace that within the whole team, so everybody has an understanding of that program.” With procurement evolving so much outside of ENGIE, and within, how does Sims remain at the forefront of what’s going on in this transformational space? “Our partnerships with a number of organisations have really helped that,” he enthuses. “Externally, we’ve got a strategic partnership with EcoVadis and they’re really supporting our Responsible Business Development Initiative within the UK, which is where we’re forming a strategic alliance with more than a thousand organisations to build a community investment fund, where we’re going to invest in the communities we serve. Our ongoing relationship with EcoVadis is fundamental. Our Mercury Change Program will be really, really pivotal this year to start to change the way that we buy and enable us to make better decisions.” Sims has also taken on the Solutions Director role for the P2P aspects of Mercury. “Having procurement 52
ENGIE UK & IRELAND
Jonathan Sims CPO, ENGIE UK & Ireland Jonathan Sims has more than 20 years’ experience working in the UK Construction, Engineering, Facilities Services and Energy Sector. Jonathan spent 10 years working in commercial property development as a development surveyor, before joining the Shepherd Group Ltd in a variety of business development and strategic business projects roles. Jonathan has held senior procurement leadership roles for a number of major UK construction companies including Kier PLC and Morgan Sindall PLC, before taking on a leadership role at NG Bailey Ltd, the largest privately owned construction and engineering organisation in Europe. Currently, Jonathan is the CPO and Solution Director at ENGIE UK&I, which has a turnover of c£3.6bn and employs 17,000 staff across its energy, regeneration and facilities portfolios, with an annual spend of goods and services of c£1bn. Jonathan is passionate about developing procurement teams, talent and culture and is currently in the final stages of his PhD. Jonathan has strong associations with academia, and has been an external advising practitioner at Nottingham Business School since 2013, supporting the MSc programmes, with a particular focus on international business. Jonathan has also been a guest lecturer on the Durham MBA programme for a number of years. Jonathan is also a non-executive director of a major multi academy schools trust in the UK. Jonathan lives in Nottingham with his wife, two children and French bulldog
53
“I think it’s probably one of the strongest procurement teams I’ve ever worked with. We’ve got people being seconded into the business units and I think that’s really starting to create a positive message” — J O N AT H A N S I M S C P O, E N G I E U K & I R E L A N D
stakeholders really embedded in that
the way that the team present themselves;
process, positions procurement differ-
they’re enthused, they’re engaged,
ently within the organisation and enables
they’re all very ambitious and they can
us to really shape that process rather
see where they’re going within ENGIE. I
than it happening to us. Sometimes we
think it’s probably one of the strongest
inherit some systems and processes that
procurement teams I’ve ever worked with.
we wouldn’t necessarily have created in
We’ve got people being seconded into
those ways.” There is a lot of transformation taking place within procurement at ENGIE and so how does Sims gauge his departmental success? “The level we came from at the start of last year was fairly low compared to other central services teams within ENGIE, in terms of engagement. We were about 16% less than other central services teams and we made a huge step forward in that engagement score last year. So, this is something that happens every single year, which is very, very important for the wider business. We made a 16% improvement in one year, which was a huge step. And I think you can see that in 54
ENGIE UK & IRELAND
international business units and I think that’s really starting to create a positive message. Plus, we over-delivered on our group savings target last year, which again shows that we’re backing that up with business results. The procurement team are now involved in cross-functional initiatives, working with business and innovation teams while being identified as stakeholders that can add a lot of additional value. For me, it’s about having that desire to continually keep moving the function forward. We’re always looking for that next iteration in how we improve. We’ve had recognition at group level, from a supply chain perspective, for best practice being deployed in other business units through relationships we’ve developed and nurtured in the UK, and that gives me a warm feeling. We’re really making a positive change.” w w w . c p o s t r a t e g y. c o m
55
ONE TEAM, ONE GOAL Jonathan Strelitz, Head of Procurement Energy Solutions, ENGIE “Procurement really was seen as the compliance police and the savings function. And I think for me, with the experience that I’ve had and with the people that we now have within the team, it’s trying to allow us to show the business, we’re more than just about saving money and stopping people from ordering goods and services. I think it’s more about trying to look at the end-to-end process and the strategy we have where
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savings is just really one lever of what we
having a long-term strategy, we need the
try to bring here at ENGIE in the UK.
right people in the right places at the right
I think the importance of having the right
levels. And then it’s incumbent on us as
people within the team, is that they create
the senior managers to try and develop
their own networks. So, within that they’re
and train these people so they can be
not then reliant on the management or
successful. Not just in terms of generating
the whole team in driving our strategy
savings, but generating overall value for
through. It means that there are CPO
the business.”
interfaces at the senior level. Then, there’s the next layer down and below that. So it enables us to try and communicate the
Charlie Roberts, Hard Services Category Manager, ENGIE
right messages in terms of what we are
“We have a good mix of services and
doing in making a compelling argument
solutions and projects, which means we
of why we want people to go and spend
have to keep a fairly open mind and have
their money in certain areas or use certain
a holistic approach rather than being
suppliers within our supply chain.
a purely CapEx driven strategy. That’s
For me, if we are to be serious around
helped us mould a very diverse range of w w w . c p o s t r a t e g y. c o m
57
skill sets and a growing number of more youthful category category members growing from an apprenticeship position to lead buyer. I think we’ve got one or two who are knocking on the door for category manager in the next few months. So, it’s definitely moved to a much better place than it was where I think we had a very siloed approach, poorly integrated team from the top down prior to Jonathan’s appointment. We struggled to build the general morale that we needed to then go out to the wider business. That’s changed completely now we’ve opened the doors and we’ve kept those doors open with the wider business who actually see us as generating real value.”
Lisa Boumaza, Category Lead Buyer, ENGIE “It’s a really nice place to work and I can
in developing us. They’ve built up this
really see the difference from when I
competency assessment tool to map our
started in 2017 where I was in an opera-
profile against our current role, but also
tional procurement role. Now, we’re look-
where we want to be in the next three
ing at category management, which is a
years, building a development plan for
bit more strategic. We look at spend on
each individual so they can get where
a national scale working with the Group
they want.
and we have a team where we really get
When I began working for ENGIE in
on well altogether with great leadership
2017, we were in a much different place;
within the team. We know where we’re
it was all very operationally, almost
going and our managers are interested
commercially, driven, with no early
58
ENGIE UK & IRELAND
category management has really helped in giving us a path in terms of what we prioritise for the business, and locating the higher value categories of spend where we could drive better performance and savings.”
George Mangham, Procurement Manager, ENGIE “My apprenticeship scheme was brand new to Engie when I started. It was a two-year apprenticeship scheme with three rotations. I’ve done a rotation in operational procurement, so I understand that side. I also did a placement in the bids and mobilisation procurement and so I understand the initial forefront where we mobilised contracts and bid for them with our potential clients. I am also familiar with the category management side as well. I’ve had quite a rounded experiprocurement involvement. So, it was
ence in two years of the apprenticeship
always too late to build any proper strat-
scheme. I’ve had a lot of opportunities
egy. It was all very reactive. And now we
in there and the mentors I’ve had are
have a much different approach, which
fantastic. The scheme’s been fantastic.”
is building three-year category plans. We engage with the business to get sign off and work closely with operations
Vincent Tissendie, Category Manager, ENGIE
to implement their strategies, making
“For a long time, we were seen as
sure that it’s good from a technical
people who only looked after cost
and commercial and legal level. So, it’s
prediction and spend, which is not the
very different to where we were. I think
exact purpose of a procurement function. w w w . c p o s t r a t e g y. c o m
59
“ The past six to nine months has seen the company position itself at the forefront of leading the zerocarbon transition, creating some new challenges for procurement” — J O N AT H A N S I M S C P O, E N G I E U K & I R E L A N D 60
ENGIE UK & IRELAND
other, because we have some cross-functional, cross-category project where we’ll work together and plan in advance to deliver at the right time. We are working in an industry where things happen very quickly, so when we meet for a project, we’ll mobilise and when the contract is mobilised, we need to ensure delivery. So, things need to be ready. It’s not when the contract goes live that we need to think about how we can add value to this contract. We need to be ready before to engage with our key stakeholders and make sure that we can deliver on time. We look at the full spectrum of the value chain, and not work only around savings. We look after innovation, sustainability, zero carbon emission, processes, digitalisation, technology. That’s what allows us to deliver bigger, better and faster, to be honest, because if we do not take these into account, we will be basic procurement people without any category plan or structure. And I think that’s what will take We tend to cover the full spectrum of the
us through to the next level as procure-
value chain and deliver across all aspects
ment individual and as a function too.”
of it. Yes, of course, it’s savings, but it’s also innovation processes, sustainability, zero carbon emission processes. So, yeah, that makes us much more interesting for the business. I love the way we engage with each w w w . c p o s t r a t e g y. c o m
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RISK ASSESSM MADE EASY WRI T T EN BY
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S รถr en P e t s c h
MENTS
An exploration as to how risk assessments can be made easier, create more value and become integral to the vendor sourcing process
LISTEN TO THIS PODCAST ON THE DIGITAL INSIGHT’S OUTPUT CHANNELS
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SÖREN PE T SCH FORMER VP OF PROCUREMENT AT ALLIANCE DATA CARD SERVICES
R
isk assessments can be an arduous task for everyone involved. Procurement and
compliance teams view this process as ‘mission-critical’ while internal stakeholders view it as ‘lots of paperwork’. In fact, it is one of reasons why internal stakeholders hesitate to engage because outcomes can take time and be uncertain. Even after a risk assessment is complete and the contract is executed, three certainties still remain; no one can anticipate all risks, no company can or is protected against all risks and a given contract is unlikely to have anticipated the risks exactly as they materialize In short, there is a lot of work being done with little appreciable benefits – at least, that’s what it looks like. Still,
pain? In my experience, the solution to
regulators require financial institutions
align these conflicting interests is to
to assess risks extensively and compa-
integrate risk assessments into the
nies do it as a best practice. So, how
procurement process. Procurement
can risk assessments be more integral
teams need to stop looking at the
to the vendor sourcing process while
risk assessment process as one work
also be more value-add – without the
effort being completed as one of the
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RISK ASSESSMENTS MADE EASY
assessment on the vendor itself during the selection process. By splitting the risk process into the engagement risk assessment (ERA) and the vendor risk assessment (VeRA) phases, it becomes integrated into the entire procurement process and creates many benefits. These benefits range from better clarity as to what is being sourced to measurable efficiencies in the contracting process and significant leverage during negotiations. But before touting them further, I will outline the ERA / VeRA process in more detail. For purposes of illustration, I will assume the purchase of digital marketing services. An integrated marketing services agreement presents different risks and legal terms than a data purchase agreement.
Engagement Risk Assessment (ERA): What it is and when to complete it? final steps in on-boarding a vendor.
Once a procurement professional starts
Specifically, I propose to break the risk
working with the internal stakeholders
assessment process into two stages at
on a new engagement, they need to
which to discover and assess various
gain clarity as to what is being sourced.
risks discreetly by performing a risk
Discovery is key here. Not only does the
assessment on the engagement itself
procurement professional need to under-
before the launch of any bid process
stand the what, why, who, and when
like an RFx and Completing the risk
but also the intentions and definition of w w w . c p o s t r a t e g y. c o m
66
success. Key discoveries require an under-
requirements in the RFx, several risk assessments can be conducted at this
standing around the setup (systems
stage. Specifically, the ERA should
integrations, work product, KPIs),
include a financial viability assessment
responsibilities ( data sharing, timing of
on all vendors (likely via an external
deliverables etc.), and security (encryp-
data provider like DnBi or Tealbook), a
tion standards, data hosting, data sepa-
strategic risk assessment, and (if appli-
ration etc.). Key internal stakeholders
cable) a country risk assessment.
to be engaged are InfoSec (for data
By defining these initial discover-
security and hosting requirements),
ies (which guide the intended service
Legal (for contractual guidelines or
setup) and integrating them with the
language), the internal business part-
ERA, the risk-integrated bid event (RFx
ners (for engagement specifics), and
+ ERA) accomplishes market research
others as applicable. All of these stake-
that benchmarks the viability of
holders should be able to provide
proposed setup to what suppliers actu-
guidelines (“nice-to-haves”), guard-
ally can do (i.e., the RFx provides some
rails (“cannot-do’s”), and requirements
truly useful insights beyond costing).
(“must-haves”). By understanding these key questions, contractual requirements and related risk requirements are becoming clear. This up-front intentionality may be more work at this stage but will save hours and likely weeks on the backend. Also, in many cases these guidelines will only need editing or validation in the future. None of these discoveries are specific to the supplier but apply to the engagement and to any and all providers. In addition to including applicable guidelines, guardrails, and 67
RISK ASSESSMENTS MADE EASY
It also provides greater clarity around
the contracting hurdles because key terms and conditions (T&Cs) are broken out without requiring attorneys redlining an entire agreement. Specifically, the company may request certain terms (such as limitations of liabilities, cyber insurance, data ownership, intellectual property rights, work product definition, and others) to discover what vendors are willing to give. Lastly, it provides leverage in the upcoming negotiations since the selection process includes not just pricing but also other inputs impacting total costs of ownership or retained risks.
Vendor Risk Assessment (VeRA): What it is and when to complete it? After the conclusion of the risk-integrated bid event, the company’s cross-functional team needs to select a front runner as the partner of choice. Now Procurement initiates the contracting and negotiation process inclusive of conducting a VeRA. w w w . c p o s t r a t e g y. c o m
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The VeRA consists of two aspects. First, there is the backend validation of ERA’s guidelines, guardrails, and requirements or outline of gaps of the same. This step is critical as it offers the opportunity for creating a feedback loop, which creates a learning process. Then, there is the risk assessment specific to the vendor selected. There is quite a comprehensive list of risks that need to be assessed as part of the VeRA. These include, financial risks including credit risk, operational risk such as loss resulting from inadequate or failed internal processes, people, and systems or from external events, compliance risk form a violations of regulations or noncompliance with internal policies, transaction risk (problems with the service or product delivery) and finally reputational risk such as negative public opinion. In addition to the aforementioned, the ERA will have already assessed the strategic risk (including adverse business decisions or the failure to implement appropriate business decisions) and even country risk (accounting for different legal, political, and geopolitical variances). At any given time, these risk assessments that are performed as part of 69
RISK ASSESSMENTS MADE EASY
the VeRA will vary by a given company’s risk appetite, industry-specific regulations, and criticality of a given engagement. The Procurement professional should run the VeRA in parallel to the contract negotiations. This negotiation process should be significantly easier because there should be ewer surprises or late uncovering of “deal breakers” or discomforting trade-offs, better leverage and understanding due to market insights from participants’ replies to the the RFx questions, greater clarity as to the intent of the engagement and desired setup due to guidelines, guardrails, and requirements and an incoming understanding as to the contract hurtles resultant from the risk-integrated bid event. Although no company can protect against all risks, procurement can more proactively discover known risks early and clarify engagements-specific requirements upfront. This intentionally risk-integrated procurement process can drive more expedited contract negotiations as there will be fewer surprises to address by both parties – and that is truly a win-win.
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Five speakers at Digital Procurement World 2020 CPOstrategy takes a look at five of the many influential speakers that will be in Amsterdam this September at Digital Procurement World 2020
WRI T T EN BY
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D al e Bent on
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Dr Elouise Epstein VP, A.T. Kearney A procurement and supply chain digital futurist with a keen focus on how to apply digital to solve actual business problems, Dr Elouise Epstein has over 20 years of experience in the digital procurement sphere. In her own words, she seeks to disrupt subpar technology adoption and build future strategies through advanced partnerships with startups and emerging technology solution providers.
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2 Geraint John
Research Vice President at Gartner
An experienced researcher, content creator, presenter and adviser to leading companies with over 19 years
experience as a research specialist with responsibility for sourcing, supplier management, supply chain risk management and globalization.
As Research Vice President at Gartner and SCM World, a Gartner-owned cross-industry learning community
powered by the world’s most influential supply chain practitioners, help organisations share best practice
insights so they can drive competitive advantage and business growth through supply chain innovation.
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3 Simon Geale
SVP Client Solutions at Proxima
Responsible for Products and Solutions at Proxima,
Simon is an experienced technology professional that works closely with organisations to break down and
solve complex organisational challenges and calibrates the solutions to solve them. Geale is a regular author, speaker and commentator on all things procurement, a keen digital and transformation enthusiast, a realist
interested in helping Proxima’s customers solve their problems and accelerate performance and personal
growth. In his own words, he manages the best team in procurement.
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Matthias Gutzman Founder of Digital Procurement World
“There is no conference like Digital Procurement World in the industry” A seasoned procurement professional, with over 10 years at Procurement Leaders, Gutzman was looking for a procurement conference to showcase a startup he used to work for. Realising he couldn’t quite find one that checked all the boxes, he decided to build his own with Digital Procurement World, which successfully held its first event in 2019.
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Kevin Frechette Co-Founder & CEO of Fairmarkit Kevin is the co-founder and CEO of Fairmarkit. It’s SaaS platform enables companies to achieve increased savings on their tail spend purchases by delivering a highly functional product to mitigate risks, reduce costs and drive business value. Fairmarkit uses machine learning to simplify tail spend processes and bring the final 20% of unmanaged spend under control.
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Join us at #DPWconf
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