Q4 - 2020
INSIGHTS FOR TODAY’S PROCUREMENT LEADERS
LEADING AND LOVING
Through Digital Transformations
Tracking Supplier Risk: Are Your Suppliers Legitimate? Legal Procurement and the Meaning of Life Let’s Make a Deal to Embrace Digital Transformation Embracing the Churn: How Digitalization Will Drive Us Forward as We Face a New Post-Covid Frontier
2 Leading and Loving
10 Let’s Make a Deal to Embrace
6 Tracking Supplier Risk:
12 Embracing the Churn: How
Through Digital Transformations Are Your Suppliers Legitimate?
8 Legal Procurement and the Meaning of Life
Digital Transformation
Digitalization Will Drive Us Forward as We Face a New Post-Covid Frontier
Q4 - 2020
INSIGHTS FOR TODAY’S PROCUREMENT LEADERS Editor-In-Chief Andy Beth Miller
Design Laura Sawyer Messing
Writers Ronald Hedley Andy Beth Miller
Outside Contributor Chris Doxey
Advertising Branden George: 940-230-5830
Visit us @
procurising.com No part of this publication may be reproduced without written permission from the publisher Real Sourcing Network (RSN).
LETTER FROM THE EDITOR Friends, we are living in strange and shifting times. The world was caught by surprise this year, and we are now facing a fearful pandemic and myriad political and societal issues that can cause our heads to spin. The word “surprise” in its verb firm is any action that causes one to feel wonder or astonishment, like when encountering something unanticipated. It can also mean to be caught unawares. In light of this surreal and unprecedented time in history we are currently attempting to navigate, I felt the theme of surprise would be only fitting for this issue. The positive news is that surprising things don’t have to be bad. In fact, many are quite good… or can be. But don’t take my word for it, read for yourself as writer Ron Hedley interviews founder and CEO Silvia Hodges Silverstein, who enlightens us with her surprising insight into how puppies and legal procurement share remarkable similarities. Along with the surprise theme, but veering more toward the shock and awe factor, expert Joanna Martinez offers a bold challenge that flies in the face of what most of us feel as we lean toward playing it safe these days. Learn why Martinez attests that now is the time to “embrace the churn.” Fast on Martinez’s heels, following that same surprising mentality of bucking the system by embracing the churn is Austin Dittrich of Volkswagen Group of America. Dittrich specifically points to embracing digital transformation as we make our way forward. CEO and founder Crystal Khalil then taps into our emotions as she portrays how love can be a surprising—and powerful— driving force in digital transformation. Finally, in an uncertain world where we have learned the hard way that all that glitters is not gold, an expert outside contributor helps us suss out would-be suppliers, ensuring that they are legitimate and trustworthy.
This publication is intended to provide accurate, authoritative, and detailed information in regard to the subject matter covered. All written materials are disseminated with the understanding that the publisher is not engaged in rendering legal advice or other professional services. Under no circumstance should the information contained herein be relied upon as legal advice, as it is designed to be a source of information only. ProcureRising strongly encourages the use of qualified attorneys or other qualified experts with regard to the subject matter covered. As the publication does not guarantee the accuracy of the information, it is therefore not liable.
And speaking of trustworthy, I am humbled and feel blessed and privileged to be a part of the ProcuRising team, all of whom hope you feel like family and know you are cared for as you entrust us to keep you current in all things procurement—and encouraged. Surprised but still kicking, Andy Beth Miller
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LEADING AND LOVING Through Digital Transformations
By Ronald Hedley
Crystal Khalil is CEO and founder of Crystal Khalil and Associates. She launched her company after working nineteen years for Porsche, most recently as Director, North America Indirect Procurement. She is also an author. Her book Hard Workers Work Hard, And Networkers Move Up is an international best seller. An excerpt from Khalil’s book reveals her faith in God and humanity, and highlights her unbreakable bond with her late mother: “I was raised with an abundance of love. [Mom] instilled in me a good work ethic, integrity and morals” (p.17-18). She taught me to serve God, respect others and myself, persevere against the odds, [and] judge a man by the content of his character” (p.22). Woven into Khalil’s career is her mom’s legacy. Khalil’s work ethic, community service, and faith in others can be directly attributed to her mom’s influence. By applying her depth and breadth of supply chain knowledge to digital transformations, and by developing and nurturing a network of colleagues and peers, Khalil has cultivated her mom’s legacy and made it her own. Khalil reveals in her book how she learned early in her career that leaders do more than just work hard; they develop a network. “The best leaders understand success is a team effort. These helpers become the network, an arrangement of intersecting horizontal and vertical human connections that exchange information, support, develop, and introduce professional or social contacts” (p. 39).
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Khalil believes that in order to move up in the business world, one must challenge oneself to “push past the terror barrier and walk into your purpose” (p. 154). She followed her own advice when she made the difficult decision to leave her comfortable job at Porsche and launch her own startup. “It was a difficult decision to
make. I had a beautiful nest. It had [metaphorical] down pillows and glitter, and I got a new Porsche of my choice every six months,” she shares. Although she loved her job and her colleagues at Porsche, that wasn’t enough. She recalls, “I just didn’t want to be comfortable. I wanted to continue challenging myself because I feel life is short. We should do the things that make time stand still, things that make our lights shine as bright as possible, things that make us feel good, things that create a legacy for ourselves and our families.” Khalil developed her expertise in digital transformations at Porsche and has brought that knowledge to her startup: “There’s a lot happening in procurement right now. Everything from source to pay (S2P) innovation, AI and robotic processing, IOT, big data and analytics, mobility, and block chain. At Porsche, [I] focused on indirect procurement. S2P innovation was a major digital transformation that we went through. I was able to implement a full S2P system over the last four years,” she says. Although she is no longer personally affiliated with the company, Khalil’s influence on Porsche remains. She says, “We have a Strategy 2025 where procurement is 100% paperless. As we continue to implement a S2P strategy, we plan to be 100% paperless in other functions too, such as accounts payable and legal. We have the opportunity to enhance controls [and] create efficiency across all of the S2P activities. When we did an assessment of all our processes, we found duplicates.” Khalil still fondly refers to her former colleagues at Porsche as “we.” She then adds, “We were able to lay those processes on top of each other and figure out where we were having inefficiencies. [We monitored and evaluated] supply performance and developed scorecarding in the digital system versus the manual way we had been doing it.” Khalil shares how she knows that proactive monitoring of any risk related to the supply chain is imperative: “Looking at the data from start to finish, and seeing how they are interrelated, helps drive the decision making. It gives you the ability to make quicker, more agile decisions.” She believes that as the industry evolves with innovations and new technologies, the same old procurement just won’t cut it anymore.
“I just didn’t want to be comfortable. I wanted to continue challenging myself because I feel life is short.” –Khalil
Khalil is proud that her new company is contributing to that evolution. “We’re able to help leaders optimize their team results, manifest their vision, and catapult their leadership so that they can move up to the next level in their career. We serve high-performing leaders in the areas of coaching, training, [and] change management, and we’re venturing into diversity and inclusion. I am putting together a new proprietary S2P assessment and transformation process to change the management leadership process,” she shares. Khalil and her associates understand that supply chain innovation alone will not suffice. She knows that digital transformation has a lot to do with technology, but she also knows that it correlates with human behavior. “People transformation is the most difficult part of any transformation because you’re challenging the status quo. Procurement people are analytical, problem solvers. They are compliant, cautious, precise and deliberate, myself included. When you challenge them to think outside of the box, it’s a little difficult.” It is human nature to resist change, especially if said human doesn’t see the big picture. But Khalil believes that she has a remedy for the I-want-tokeep-doing-things-the-same-old-way syndrome: Over Communicate. She painted how this scene looks, and works, in real life: “Deal with the issues up front. When people are concerned with the extra work, address that up front. Tell them, ‘Yes, this is going to be a little extra work; you’re going to feel like you are working two jobs for the next six to nine months [during implementation]. But know that everything you put in now is going to make your life easier in the future. It’s going to allow you to do the things that you love.’”
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Did she say love? She did indeed. Khalil explains how she believes procurement professionals are romantics at heart: “They love problem solving, having a seat at the table, negotiating with suppliers, and putting together a good contract that saves the company money and brings innovation to the team. They love all that, but they rarely get to indulge [in those things] because they are seen by many as [only] paperpushing roadblocks.” Khalil knows that procurement departments need to be the ones meeting with suppliers, that they need to take the lead in their respective companies. She adds, “When you use the tools to take those mundane tactical tasks off the desk of a category manager, then [she/he is] able to spend more time with the functional departments building those relationships, and [is] able to spend more time with the suppliers looking for innovation opportunities.”
“When you use the tools to take those mundane tactical tasks off the desk of a category manager, then [she/he is] able to spend more time with the functional departments building those relationships, and [is] able to spend more time with the suppliers looking for innovation opportunities.” –Khalil
Khalil then explains how, in order to make human and digital transformations a reality, there must be leadership: “Leadership is influence. Plain and simple, it’s influence. As the leader of digital transformation at Porsche, [my role] wasn’t just about rolling out a tool; it was about influencing the stakeholders internally, so that they are involved. [In order to achieve that, I created] internal ambassadors for the rollout.” Khalil created ambassadors in each department, who understood that digital transformation was going to be difficult, but, in the long term, [also knew that] innovation and technology was going to add value to the company and help bring procurement to the forefront. She explains, “A lot of companies put their money to the marketing and salespeople, and procurement is on the back end. If you allow your procurement organization to be a thought leader in the organization and have that seat at the table, we can help with the overall competitiveness and performance of the organization, so you can be a customer of choice.”
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Khalil’s mother would be proud to know that her daughter does her homework. Khalil knows that Artificial Intelligence (AI) and all that it implies is a relevant topic. She has recently researched the Human Centered Artificial Intelligence Department at Stanford University. She was impressed. “They recognize the importance of diversity, inclusion, humanity and thought, and their goal [in developing AI algorithms] is to enhance and augment what only humans can do.” She then adds, “It takes one call to a call center to know that sometimes you need to talk to a human being. I like that they are looking at AI from an augmentation and enhancement standpoint. And they’re trying to bring diversity to the table.” Khalil then recalled an AI algorithm mistake made by Google in 2015. It was discovered that the Google face recognition algorithm recognized black people as gorillas. When it was pointed out to Google, the initial
fix was to remove and block the image of a gorilla from their system altogether. Khalil rhetorically asks of this move, “Do you think there were any black people involved in the testing and creation of the algorithm? Absolutely not. Or else they would have known before it went live that it recognized black people as gorillas. Now imagine if that same algorithm were used in autonomous vehicles. And now a car has to make a decision as to whether or not it’s going to hit another car or a gorilla. What is it going to do? Who created it? That’s why it’s critical to have diversity and inclusion at the table, or else you make mistakes like that.” Khalil sagaciously concludes with the declaration: “The future of AI in procurement is driving efficiency. It’s about automating the tactical pieces of procurement so that you reallocate those efficiencies to be more strategic, to enhance and augment, not to take over completely.”
Khalil’s mother did not attend college, but she dedicated her life to making sure that her daughter did. Khalil describes her mother’s commitment to her daughter’s higher education in her book: “My mother made it clear to me that college was expected. My mother provided me with every opportunity and experience she could afford so I could have a head start in life” (p. 17). In 1993, Khalil graduated from DeVry University with a bachelor’s degree, and later graduated from Central Michigan University with a master’s degree. Her mom gave Khalil a head start in life, and through Khalil’s professional career and volunteer work (which includes Porsche Cares Network and the Caring For Others), she continues to lead.
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Tackling Supplier Risk:
Are Your Suppliers Legitimate? Chris Doxey
Despite extensive focus on risk management and internal controls, why are there still situations in which payments are mistakenly paid to criminals and/or phony companies posing as legitimate suppliers? How is it possible that a seemingly legitimate company has a private mailbox at the local UPS Store, a private residence, or even a prison address? Is it possible that invoices have consecutive numbers? Shouldn’t it be a red flag if invoices from a supplier are issued from the same address as an employee? How can a company properly vet a potential supplier?
Most leading organizations recognize the importance of comprehensive supplier qualification processes but struggle to communicate qualification requirements to potential suppliers, and have difficulties creating a baseline for evaluating supplier risk levels. Ardent Partners reports that 51% of the respondents in “The CPO’s Top Goals for Investing in Technology” survey report improving compliance as a goal. The Hackett Group includes customizing supplier
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onboarding, identifying fraud, and addressing internal policy non-compliance as the best practice tactics for a world class P2P organization. So how can we stop these fraudsters, improve compliance, reduce risk, and establish a good supplier onboarding process? Consider the following best practices and controls to ensure that your suppliers are legitimate.
1 Segregation of Duties:
Setting up a new supplier or making changes to an existing supplier record requires appropriate segregation of duties. This means that the individual or department establishing the supplier is from a different department than the team processing invoices and creating disbursements. When considering segregation of duties for the supplier master, consider both the ownership of the process along with systems access. System access should be controlled and reviewed on a periodic basis to ensure that authorized individuals are processing transactions as assigned. Unfortunately, poor segregation of duties controls is one of the leading causes of fraud.
2 Supplier Master and Onboarding Controls:
Onboarding new suppliers should include the following set of controls that will improve the accuracy of your P2P process: 1) Requiring W-9 and W-8 forms for all new suppliers before invoices and payments are processed 2) Using the IRS TIN matching service is a recommended control for your supplier master. This validation can be completed by using an IRS website dedicated to TIN Matching. The IRS eServices site enables entry of both a Federal Tax ID and vendor name to confirm the existence of the vendor and the validation of the Tax ID. TIN’s can be validated in a group up to twenty, or you can upload your entire supplier master file, in the required IRS format for validation. The IRS eServices site can be found at: https://la.www4.irs.gov/e-services/ Registration/index.htm 3) Supplier Master Naming Conventions establish the business rules and data formats for new suppliers, such as the use of appreciations in company names and addresses. This process will also reduce duplicate and erroneous suppliers in your Supplier Master. 4) Confirm Supplier Information: Confirm your supplier’s information against one of the many online resources that enable company look-ups. Review the information provided by a new supplier and check-out the supplier’s website to help ensure that your supplier is a legitimate company. Examples of these resources are: www.anywho.com www.superpages.gte.net www.infospace.com www.switchboard.com www.sec.gov http://www.treasury.gov/off ces/enforcement/ofac/ www.bbb.org
3 Supplier Master Compliance Screening:
Compliance screening is a key component of supplier validation. It’s also important to complete the due diligence process to ensure that an issue is acted upon. The due diligence process includes researching the Better Business Bureau. You can also validate the supplier’s State of Incorporation by individual state. Other imperative compliance screening should be completed by screening new suppliers against the following lists: • The Office of Foreign Assets Control (OFAC) is a financial intelligence and enforcement agency of the U.S. Treasury Department. It administers and enforces economic and trade sanctions in support of U.S. national security and foreign policy objectives. Under Presidential national emergency powers, OFAC carries out its activities against foreign states as well as a variety of other organizations and individuals, like terrorist groups, deemed to be a threat to U.S. national security. As part of its enforcement efforts, the U.S. Department of Treasury, OFAC publishes a list of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries. It also lists individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific. Collectively, such individuals and companies are called “Specially Designated Nationals” or “SDN.” • The Bureau of Industry and Security (BIS) is an agency of the United States Department of Commerce that deals with issues involving national security and high technology. • The Office of Inspector General (OIG) for the United States Department of Health and Human Services (HHS) is charged with identifying and combating waste, fraud, and abuse in the HHS’s more than 300 programs, including Medicare and programs conducted by agencies within HHS, such as the Food and Drug Administration, the Centers for Disease Control and Prevention, and the National Institutes of Health. OIG Screening is applicable to healthcare organizations since there should be validation that a Medicare or Medicaid fraudster is not being paid. • The Foreign Corrupt Practices Act (FCPA) is a United States law passed in 1977 that prohibits U.S. firms and individuals from paying bribes to foreign officials in furtherance of a business deal. Since the FCPA places no minimum amount for a punishment of a bribery payment, you need to make sure that your suppliers aren’t actually foreign officials. (Continued on page 13)
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Legal Procurement and the Meaning of Life By Ronald Hedley
In his 2018 article entitled 10 Things You Need to Know as In-House Counsel, Sterling Miller offers compelling evidence to in-house lawyers, supporting his assertion that they (legal) should work with procurement professionals to better serve the needs of their clients, the legal department, and the business(es) they represent. Miller begins his thesis with the following definition of legal procurement: “Legal procurement focuses on buying legal services and managing the business side of relationships with law firms and other legal services providers. Buying and negotiations is their forté. They are based in the procurement department and report to the chief procurement officer. The majority of legal procurement professionals have a business/finance background rather than a legal background.” The above quote is from Silvia Hodges Silverstein, the founder and CEO of Buying Legal Council, which is the international trade organization for legal procurement. Recently, I had the privilege of interviewing her. My conversation with Silverstein likewise centered on legal procurement, but, unlike Miller, who speaks in his article to in-house lawyers, Silverstein speaks truth to procurement professionals. Her message is clear: “Get involved in the legal category!” Silverstein is adamant about procurement professionals venturing into the final frontier of organizational procurement. She added, “What are you waiting for? If not you, who? If not now, when? [You] need to reach out to the CEO or the CFO and get to know their in-house counsel and see how [procurement] can help [legal]. This is an opportunity.” “In this world, you only get what you grab for.”—Giovanni Boccaccio
The Meaning of Life During our interview, Silverstein was fending off the loving caresses (and bites) of her newly adopted family member, a German shepherd-Husky-Chow Chow-pariah-blend puppy named Rose. When the Silverstein family adopted Rose from the Humane Society, they were not only gaining a loving family member, they were contributing to humanity, or, if you will, caninity. According to the Humane Society of the United States, “Each year, it is estimated that more than one million adoptable dogs and cats are euthanized in the United States, simply because too many pets come into shelters and too few people consider adoption when looking for a pet.” The website continues, “The number of euthanized animals could be reduced dramatically if more people adopted pets instead of buying them. When you adopt, you save a loving animal by making them part of your family and up shelter space for another
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animal who might desperately need it. When you adopt, you can also feel proud about helping an animal in need. [When you adopt] you’ll change a homeless animal’s whole world.” (“Top Reasons to Adopt a Pet”. The Humane Society of the United States. 2020) Raising a puppy and starting one’s own company share remarkable similarities. Both endeavors require discipline, patience, and diligence. And both have potential long-term positives. Raising a puppy like Rose in a loving environment will provide lifetime companionship. Running a company like Buying Legal Council can change the world by educating others and by helping them realize their potential.
Raising Buying Legal Council Silverstein began this adoption process in 2002. At the time, she was living in Italy and working for a law firm that specialized in marketing. When she asked her managing partner about their client’s buying practices, Silverstein discovered that there was no research on the topic. She described her next step: “I went to [the managing partner] and said, ‘I want to do research on how clients make purchasing decisions in Europe.’” Silverstein’s managing partner thought her idea had possibilities and gave her the go-ahead. Silverstein described her next step: “In 2003, I researched how [law firm] clients in the UK, France, Germany and Italy make purchasing decisions. To my knowledge, that was the first research ever [conducted] on that topic in Europe.” Silverstein then shared how she took her research one step further: “I wrote my PhD on purchasing decisions and legal services at Nottingham Law School. I finished in 2009, and I have been teaching at law schools and writing about it ever since. I have been teaching at Columbia Law School and Fordham Law School. I [also] lecture at Harvard.” Silverstein then connected her research to procurement. She recalled, “In 2010, I was at a legal technology conference, and I met with business clients from procurement. Up until then, I had never spoken to people from procurement. They were aliens to me. I had only spoken with GCs (General Councils), CFOs, and HR directors for employment law services.”
She added, “It was very interesting to hear that procurement might get involved in buying legal services. I found it so fascinating that I wanted to write a series of case studies on how [to source] legal services.” And write case studies she did. Of the experience, Silverstein said, “I reached out to other companies and [found] that more and more procurement people were interested in the legal category. I started some informal get-togethers. At that time, I still had my main job as the director of research at a legal analytics company.” In September 2014, Silverstein launched her new company. She explained, “We had our very first official meeting under the banner Buying Legal Council. We have been focusing on educating procurement people about legal ever since. We show them the best practices of how to buy legal services. We teach [procurement professionals] how to be successful.”
Educating Procurement to Benefit Legal Silverstein loves helping others, be it human or otherwise. Her company reflects her altruistic values. “Our goal is to educate people. We believe that when you understand, you become a better, smarter buyer of legal services and legal technology. You can be more valuable to a company that you work for because you [bring] value to your employer,” she said. According to Silverstein, if legal procurement is going to add value, then procurement professionals need to be proactive. “The main drive of bringing in procurement [to work with legal] is managing cost, reducing supplier spending, and making sure that the company buys goods and services in compliance with company policies. That is something that is important to procurement,” she explained. And Silverstein knows that companies can no longer accept a legal department that is not cost-effective. She said, “We make sure that the company gets the right products and services from reputable suppliers. [Procurement people are expert] in making good auditable decisions: showing objective comparisons, benchmarking the different providers, and in making sure that the best one is chosen.” Silverstein added, “Procurement professionals are proficient in streamlining operations and defining efficiencies. Because of procurement’s push to [add value], their priority is to get Alternative Fee Arrangements.” She then offered an example: “You don’t want the law firm you have hired to be paid [based] on how many hours they are on the job. Your interest and their interest [need to be] aligned. The longer the lawyer takes, and the more inefficient he is, the more money you owe them. Procurement [prefers] fixed fees or flat fees to bring more transparency to the table.”
What Legal Procurement Looks Like Today Change is rarely easy, especially when it comes to legal accepting
the help of procurement. In fact, sometimes change can be downright dangerous. Silverstein recalled an unpleasant incident: “10 years ago, when procurement was just dipping its toes into the legal category, there was a lot of [pushback]. In 2011, I was talking about procurement getting involved in buying legal services at a conference in New York. I almost got booed off the stage.” Perhaps Silverstein should have worn a helmet. “No one threw a tomato at me, but I felt one was coming. These partners from the law firms were saying, ‘How dare I say that they should be reduced to [working with people] that buy toilet paper, paper clips, and widgets,’” she recalled. Things look differently now. Silverstein said, “In the past, the legal department was helping procurement with their contracts. Now procurement works with legal to help them make smarter purchases for the services that they need. Procurement professionals who are in charge of legal services [know what they are doing]. They are very humble and [take the time to] learn what is different with legal. They may have bought management consulting services, or tax advisory services, or engineering services in the past, so they have [expertise].” “We are not going in circles, we are going upwards. The path is spiral; we have already climbed many steps.”—Hermann Hesse, from Siddhartha
Closing Arguments Silverstein’s final two points focused on budget and transparency. “There is a lot of money left on the table if procurement doesn’t get involved. It’s typically a top management mandate from the CEO, or CFO after they cut RND and other budgets. Top management sees the legal budget and don’t necessarily know if the numbers [are accurate],” she said. And procurement brings transparency to legal. “Until procurement gets involved, there isn’t [transparency]. There is often rogue or maverick spend because different business units might be hiring lawyers. Many companies—very large companies, very relevant companies—don’t know the number of everything spent on legal,” Silverstein said. Despite her success, or perhaps as an attribute of it, Silverstein sometimes wonders if she is contributing enough to the world: “I guess in my midlife crisis, I’m looking for a deeper meaning.” Has she done enough to make the world a better place? Does she need to do more? Her work on women’s equality in the workplace is important, and she has adopted Rose, but, I think Silverstein’s colleagues said it best when they told her, “You’re a bridge between the legal community and the procurement community,” and “You’re such a thought leader.” For now, their truths will have to suffice. For further information on legal procurement, you may want to read The Legal Procurement Handbook by Silvia Hodges Silverstein.
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Let’s
MAKE
a
DEAL
to Embrace
By Andy Beth Miller
You could cheekily say that Austin Dittrich—via his role in Purchasing, In-Car IT & Innovation at Volkswagen Group of America—drives a hard bargain. He also knows what it takes to succeed. As we sit down for our interview, Dittrich quickly points me toward the subject of digital transformation, which I soon realize is a treasure trove of useful technologies that will help as we all make our ways, attempting to navigate this seemingly narrow path the best way possible.
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“Digital transformation is adopting new technologies to do work more efficiently and effectively,” Dittrich declares, roaring with enthusiasm straight out of the gate like one of his company’s most elite models. “Companies need to make these changes in order to reduce costs and remain competitive in a constantly changing landscape.” My mind then instantly gravitated to the popular saying, “Out with the old and in with the new,” and when asked whether or not this mentality aligns with his own individual perspective on digital’s role in procurement today, Dittrich offers a definite—and emphatic—affirmative: “Absolutely. I see this saying jiving with digital’s role in procurement. Historically RFPs and negotiations have been a very manual process. Now, we have cloud based tools to conduct RFPs and negotiation with suppliers autonomously. Companies that continue using traditional processes and tools are only creating extra work for their employees.” Dittrich follows his assertion with a real world example of how he saw this digital evolution “at work”… at work: “I saw this at my previous company, Cummins Inc., and [at my] current company, Volkswagen. Our purchasing departments have upgraded systems that allow greater visibility into reporting and streamlining processes. As these systems improve, purchasing organizations need to adapt and evolve.” Its is clear by Dittrich’s definitive statements that focusing on the importance of adapting and evolving in order to stay relevant and continue to be able to “keep up” in the ever-changing procurement world is no joke. However, I had to pose the question: “Change—which is really what adaptation and evolution are—is hard and scary to face for many people, much less embrace. So, how you would put their minds at ease and explain to them the great benefits of digital transformation?”
DIGITAL WINNER!
Taking a moment to collect his thoughts, Dittrich nods with obvious empathy for such individuals, then offers this sage advice and encouragement: “Change is scary. To people who are resistant to change, I would say digital transformation will make most people’s jobs more enjoyable.” How? He explains, pointing out a plethora of ways: “The focus will go away from the low-value purchases and be rerouted to high-spend tasks. Better purchasing systems and AI will give businesses better visibility into their spend and enable buyers to make better decisions.”
“Change is scary. To people who are resistant to change, I would say digital transformation will make most people’s jobs more enjoyable.” –Dittrich
Chuckling good-naturedly, Dittrich then brings his own experience into the mix, admitting a particular pet peeve: “If anyone else is like me— they find themselves spending a lot of time unsuccessfully looking up information in our Contract Management and purchasing systems that should be easily available. It [especially] frustrates me when I can’t find a start and end date for a contract in our CMS. Digital transformation can help remove these annoying tasks from our days.” Sounds good to me, as annoying anything is definitely on my list to avoid. However, with so much evolution (read: change) going on in the procurement industry, many people in the field hear about these modern procurement concepts (digitalization especially), and immediately worry about job security and the like, completely misunderstanding what it’s really all about. As I bring up this kink in the process toward procurement professionals embracing such evolution, I have to ask how Dittrich would best put their minds at ease, specifically regarding where—and how—human workers can fit in all of this moving forward into the future. “Great question,” Dittrich replies instantly, clearly undaunted by tackling the inquiry. He then explains, “With the adoption of new tools, procurement professionals can refocus their time on important tasks without being bogged down by time consuming low value processes.”
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Seeing my head nod, clearly following his line of thinking, he then continues to elaborate, “For most, if not all companies, the top 1% of purchase orders make up a disproportionate amount of total spend. These high value purchases are typically very complex and not processes that can be replaced with automation. Procurement professionals can focus on cross-company purchasing collaborations and bundling on the top 1% of purchases. Buyers will have more time to focus on saving money on those high value purchases, which will have the largest impact on a company’s bottom line.” This also sounds good to me. Very good. But I still want to be sure I have a real clear and concise picture of what exactly digital transformation looks like IRL (in real life), so I request of Dittrich a “dumbed down” version for yours truly, suggesting he could perhaps provide us with a bullet point list of real world examples that would help readers (okay, me particularly) wrap our minds around all of this. We decided to title it simply “Digital Transformation at Work,” and after reading this short list, I soon “see” that digital transformation not only sounds good, but it looks good, too. As painted by Dittrich, the “pretty” picture of digital transformation at work is undeniably attractive, and the following “beauty marks,” according to Dittrich, are just a few of the its best features:
• Low value negotiations are being automated and streamlined • AI is enabling better visibility into contracts and spend • Reduced risk with better processes • Improved compliance • Time to complete sourcing processes are drastically shortened It’s clear that digital transformation is all the rage and absolutely en vogue in 2020, and when asked how he sees this phenomenon fleshing itself out in the next five—ten— fifteen—years, Dittrich uses his answer to expound upon his aforementioned insights: “To build on my previous answers, in regards to procurement, I [predict] the low value purchases and negotiations will become more and more automated.” What else? “Procurement departments will focus on the largest dollar value and most complex buys,” he states.
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Directly following my admittedly opaque query for Dittrich to basically predict the future, as if he had a magical crystal ball (which he proverbially “consulted” quite well, I might add), I angle the questioning to a much more tangible arena by asking him how he first became interested in the procurement field. The way Dittrich describes it, his journey in procurement began as pure happenstance: “Prior to college, procurement was never a profession that crossed my radar. When I was in my second year at Miami University of Ohio, I randomly took a Global Sourcing course. My professor made the subject seem interesting and exciting, so I decided to find an internship in the field.” From that initial internship, a seed was planted, which grew to a passion for what many of us find fascinating, making deals. We even have a beloved game show, adored by millions across the globe, centering around this exact premise. When expounding upon his ardor for this “Let’s Make a Deal Mentality,” Dittrich describes what he loves most about negotiating in procurement, “We’re not just sitting in the office crunching numbers on Excel all day. There is a strategic and social aspect of the field that suits my personality well and aligns with my strengths.” Alongside being a stellar negotiator, Dittrich’s other strengths are numerous, among which includes his tenacity to not back down from a challenge. When asked about what he sees as some of the current obstacles facing digital transformation’s continuing evolution, and how he personally tackles each, Dittrich immediately rattles off a rapid-fire list of the top offenders:
• Outdated processes deterring change • General employee fear and resistance to change • Limited budget, especially with the Coronavirus crisis currently happening • Lack of expertise to lead digitalization initiatives • Digital transformation not being a part of core strategy
So how do we deal with such criminal lacks of forward motion? According to Dittrich, the answer is simple: Innovation. “A large portion of my role at Volkswagen Group of America consists of scouting out innovations. Volkswagen has a big push—from the top down—for the company to change from a traditional automotive OEM into a technology company.” They are clearly on the right track, but Dittrich is careful to be honest with us, divulging that even such a well-established company meets a few roadblocks along the way. “While this transformation is a core part of our strategy, there are still legacy processes in place that really slow down the speed of business.” He continues, “I think heading into the digitalized age, businesses need to take a look at their existing processes and think about if they fit in with their digital initiatives. In order for the digital initiatives to succeed, it is important for these initiatives to be part of employees' KPIs to help them buy into change.” As I nod my head, while furiously scribbling notes, Dittrich keeps going: “As for overcoming not having a budget, many digital tools pay for themselves and even offer an ROI. I’ve
received pushback for not having a budget when trying to implement an innovation. In some cases, I’ve been able to put a business case together and show cost and time savings.” And it is just this spirit of soldiering on and keeping that eagle-eye focus on forward motion and innovation that continues to drive Dittrich… well… forward. After calling my attention to a well-known saying, “The only constant is change,” Dittrich gently reminds, “With digital transformation, changes are happening faster than ever.”
“With digital transformation, changes are happening faster than ever.” –Dittrich
He then summons that proverbial crystal ball again, divining, “Digital transformation is going to decrease costs. Whether it’s automating tasks and negotiations, or using artificial intelligence to provide business insights, digital transformation in procurement is going decrease the bottom line.” And when that bottom line is reached, we all want to make sure we are on the right side of it, operating in the black.
Continued from page 7 Key Point: All these compliance requirements sound incredibly daunting, but using a third party software or services can significantly streamline your screening process. Additionally, using a B2B Trade Directory can provide you with credit checked and compliance screened company data.
4 Supplier Profile Form:
The supplier profile form contains the information that further increases your ability to verify a company’s existence. The supplier is required to provide certain documents that include an insurance certificate, certificate of incorporation, payment (ACH) information, sales tax certificate, and a city business license. The objective of the supplier profile form is to gather sufficient information to verify a company’s legitimate operation, gather the names of key officers from a conflict of interest perspective, and gain physical business address, daytime phone number, and other confirmable data points. As a recommendation, the supplier profile form should be obtained and verified using an automated supplier portal.
5 The Continuous Monitoring process should include a review of the controls noted above. The review should include selecting a sample of suppliers and reviewing
the supporting documentation for the validation of a new vendor and the supporting documentation for a change of address. All system generated audit reports must be reviewed – not only for segregation of duties, but to determine if a vendor address has been changed, and then immediately changed back to the original address. Another consideration for the Continuous Monitoring process is to periodically review all duplicate suppliers and initiate a vendor master clean-up process. It is much easier to control a smaller vendor master than a large one. The clean-up process will alleviate duplicate suppliers that have been set-up for the same vendor at the same address. There could be a slight difference in spelling or the use of abbreviation. Key Point: Legitimate Time Continuous Monitoring will quickly identify a potentially fraudulent supplier and will identify where your controls need to be improved. If there is a concern about a specific supplier, raise the issue to your internal controls or internal audit department after gathering all the facts.
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Embracing the Churn: How Digitalization Will Drive Powered Us Forward Digital Transformation as Face a NewChange Post-Covid by We People-Driven Frontier By Andy Beth Miller
Embracing the Churn: How Digitalization Will Drive Us Forward as We Face a New Post-Covid Frontier By Andy Beth Miller
The Cambridge Dictionary defines the word churn as moving something with great force, or to be agitated. Now, I don’t know about you, but I would certainly say that these recent days, weeks, now stretching into months, match that definition to a tee. And COVID-19 is the culprit behind the chaos. If you are also like me, you find yourself feeling like you are operating in the dark, trying to navigate your way through these unprecedented circumstances, where there simply is no rulebook or manual to light your path. Or is there? My following interview with expert Joanna Martinez proves her to be a visionary far before her time, having already penned a book that speaks (almost with an eerie premonitory nature) to exactly the conundrum that we are facing during this global pandemic. But we will get to all of that. In the meantime, we begin our talk discussing her solution, which requires fast action, including the adoption of digital elements like Artificial Intelligence (AI) or Robotics Process Automation (RPA).
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“I’ve been doing a lot of educating lately on digitization there are a surprising number of people out there who have heard words like AI or RPA, but don’t understand them. [These tools] offer a huge opportunity for companies to become more efficient and lower costs—which is going to be very important as things gear back up in a post-covid world,” Martinez says. I then ask Martinez, who studied engineering at Rutgers University and has held a succession of executive positions with such powerhouses as Cushman & Wakefield, AllianceBernstein LP, Diageo, and Johnson & Johnson, and is now a speaker, advisor, and self-described “Digital Enthusiast”, to define digitalization in layman’s terms. “Digitization is the application of technology to change a business model. Exactly which technology and how you employ it depends
on the business you’re in. Overall a digital transformation should result in improved process, quality, and consistency,” she explains. Martinez then offers two excellent examples of the possible digital tools that a company could employ: “AI is the capability of machines to do things that typically require human intelligence, like language translation or problem solving. When you ask Alexa a question, you’re dealing with an application of AI. Same when you’re ordering online and have a question – likely, the first ‘conversation’ you have will be with a Chatbot powered by AI.” She continues: “RPA is about automating repetitive transactions. For example, an insurance company processes thousands of forms a day. Getting the right information to the right place in their system is likely being done through an RPA tool. Businesses with modest volumes who can’t do it on their own can outsource to an RPA provider.” These innovative tools sound great, and I have to wonder how exactly they can be integrated into today’s procurement world. So, I pose a favorite question: “We often think of the saying, ‘Out with the old and in with the new,’ does this jive with your perspective of digital’s role in procurement… for the future?” Martinez kindly obliges with a succinct answer and ready smile: “I love this question because the answer today is so different from what the answer would have been a few years ago. Early adopters [of digitalization], the large companies that have been around for a while, all have some kind of platform solution like Ariba or Oracle or Workday that integrate the entire financial process flow and often include procurement functionality. In the beginning, the implementation of these big box solutions created many opportunities for process improvement. With any end to end enterprise solution there are compromises, and often, they were in the procurement space. But that was the best any of us could do.” She quickly follows her assertion with yet another downside: “And the transition cost of switching platform solutions is huge, particularly when they’ve been in place for a long time. There are tentacles reaching all through the organization.”
Luckily, according to Martinez, times—and options—have changed, or to use a better word, they have evolved: “Today, there are countless point solutions that deal with specific tasks – Bid Ops, for example, integrates AI into the bidding process. Tealbook for supplier identification and vetting. RSN is specific to print and promotional materials. You don’t have to throw out your big box platform model anymore or compromise with a sub-optimal solution. Instead, you can find the right point solution and employ it at a reasonable price point. Your P2P process can be the sum of many specific automated solutions. That’s a game changer.”
“Today, there are countless point solutions that deal with specific tasks – Bid Ops, for example, integrates AI into the bidding process.” –Martinez
A game changer. A concept that is music to most of our ears in the current COVID-19 era, which is changing everything, shaking things up, and creating so much chaos and uncertainty—almost as if we (and our businesses) are being churned like butter, rousted about as myriad dynamics are constantly shifting all around us. Martinez understands the fear and uncertainty we are all feeling, but rather than sit and allow it to overwhelm, she offers a much more proactive call to action: “In the midst of the COVID-19 crisis, it should be all hands on deck to do whatever is needed to source, manufacture, or distribute what the world needs today, whether it’s a food item or a respirator. That’s the number one priority, the short-term need.” After clearly pointing out this initial first step, she then wastes no time in pointing to where the other proverbial procurement foot should be placed next: “How you do it is another matter. Many of the new point solutions out there are making their products available to help in the sourcing process, and even more importantly, their experts are there to assist. The point solution providers can do that because they are cloud-based and don’t require a lengthy implementation.”
Then? “[Ask yourself]: ‘What doesn’t work in our buying process?’ As you’re sourcing these important items, maybe you can be trying out these new tools to see if there’s one that’s right in the long term for your business,” she explains. “Emerging from the COVID-19-caused disruption, nearly every business will have an uphill climb back to prior profitability. How will you make your company more competitive going forward?” Martinez reminds us that we are in the early stages of a digital revolution, then offers a somewhat surprising way to cope: “This is disruption, pure and simple, and the way to cope is different for every person. I specialize in helping businesses that are undergoing upheaval because I endured so much business disruption through mergers, acquisitions, sales, competitors, you name it. It was so traumatizing that I eventually developed a way to ‘embrace the churn’ – and I wrote a book about it. Maybe you’d cope the same way I did, maybe do something different, but none of us can stick our heads in the sand.”
“This is disruption, pure and simple, and the way to cope is different for every person.” –Martinez
Martinez’s alluded to book, A Guide to Positive Disruption: How to Thrive and Make an Impact in the Churn of Today’s Corporate World, does exactly as the title teases, offering a roadmap of sorts to navigate your way through these turbulent times, and as she notes, “embrace the churn.” The good news is that, according to Martinez, this act of embracing—although it may sound daunting—is not Mission Impossible. “[Procuring] the money to invest in new [digitalization] tools is going to be a lesser problem than you think, because we are talking about point
solutions, not the multi-million dollar multi-year big box installations. I’ve already mentioned that the smartest product providers will allow you to ‘try before you buy.’… If you are interested in trying one of the point solutions out there and a test run isn’t offered, just ask. It never hurts to try.” Martinez’s passion about educating her colleagues on digitalization is clear, which makes it come as no surprise that she has recently developed a course called “Blockchain to “Bots” which does exactly that. “Time after time, people have quietly confessed to me how little of this digitization they understand. Executive management often thinks the organization is in a different place than they actually are... or maybe their own understanding of the possibilities isn’t robust either,” she shares. But she is seeking to change all of that—so that we can deal with, change. Martinez leaves us with this priceless nugget of wisdom: “Digitization brings lower cost, better quality, improved decision-making and a faster process. Success will rely heavily on the smart contracts we negotiate and the way the tools are put to use up and down the supply chain. For those who embrace it, there is a whole new set of ways procurement can add value.” She then issues a final, emboldened battle cry: “The future belongs to the brave. The shortages and agility demands from COVID-19 required many of us to step out of our comfort zones, because in the midst of the crisis the old playbook no longer worked. Don’t go back.” Joanna’s Martinez’s online tutorial, Blockchain to ‘Bots, is available at www.worldofdisruption.com.
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