Transcript
Thank you for joining us for today鈥檚 AOP Live session 鈥� 鈥淏usiness Resilience for Short-Term Agility and Long-Term Growth.鈥� My name is Kelly Barner. I鈥檓 the Head of Content and Operations at Art of Procurement. I鈥檓 joined today by my partner, Philip Ideson.
Philip, how are you today?
Hey, Kelly!
I鈥檓 good. Thank you very much!
How are you?
I am doing well. I鈥檓 actually looking forward to this.
This is a little bit of a role reversal. Usually, I鈥檓 voice of the audience, and you鈥檙e leading the discussion, but I鈥檒l be the one sitting in that chair today which is something that we always like to bring up at the beginning of these sessions.
AOP Live formats 鈥� if you鈥檝e never attended one before 鈥� this is not your typical webinar. What you will not see are slides. What you will not hear is one person talking for the next 45 or 50 minutes. Instead, this is an opportunity for you to participate in the discussion.
What we鈥檙e going to do is we have a series of questions that came in during the registration process. Thank you to everyone who has already submitted questions! We鈥檒l be soliciting thoughts, comments, and questions from you as we go through the live session.
Now, that鈥檚 what Phil is going to focus on today. Phil will be watching. There is a chat box 鈥� if you happen to be with us live 鈥� right down below this broadcast screen. At any point, you are more than welcome to type in your questions and comments for today鈥檚 guests, so we look forward to the active role you鈥檙e going to play in today鈥檚 session.
One interesting thing with this role reversal is knowing my cue and my prompt.
聽聽聽聽聽聽聽聽聽聽聽聽聽 I wanted to say, if you鈥檒l see me, I may be typing, I may be looking away, it鈥檚 because I鈥檓 really interacting with everybody in the audience. Please do keep those questions coming in.
I鈥檓 going to jump into the conversation a couple of times as appropriate, but I look forward to seeing everyone鈥檚 comments and questions throughout the session.
Before we bring our guests onstage 鈥� and we do actually have two excellent guests with us today 鈥� I wanted to share a little bit about the topic and about them before you get a chance to hear from them directly.
Certainly, discussions of resilience and agility in procurement and supply chain are not new, but what we鈥檙e going to be exploring today is how to look at short-term resilience and agility when you put it against the goal of long-term growth. It creates a much bigger picture challenge.
When a company鈥檚 long-term vision is put up against the actions that all of us need to be carrying out in order to succeed in the short term, procurement鈥檚 role actually starts to change. To discuss that with us, we have two guests.
We鈥檙e going to be joined in a moment by Yatin Anand who is a Principal and Procurement Leader at 乐鱼（Leyu）体育官网, and also MVK 鈥� Chief Procurement Officer at Coupa who happened to make a little bit of news of their own today. Didn鈥檛 they, Phil?
Yes, Coupa closed their acquisition by Thoma Bravo this morning. I want to congratulate all at Coupa on that occasion. I wanted to give a little bit of a shoutout before we get started.
Hi, MVK and Yatin! Thank you both so much for being with us for today鈥檚 AOP Live session!
Thank you! Thanks for having me
To get started, a long time ago, Phil developed a question that we鈥檝e had the opportunity to ask hundreds of procurement practitioners and executives. I want to warm up today by actually putting that question to both of you.
MVK, I鈥檒l start with you. Did you find procurement? Or did procurement find you?
I鈥檓 a recovering finance person, if you will. I started off in accounting. At Footlocker, when I was the European controller, I got excited about the power of data and how to make better business decisions, drive competitive pressure and fact-based decisions and stuff like that, and implementing e-sourcing. That鈥檚 when I learned procurement is a really big deal. I think I found procurement.
It actually sounds as though we might be having some issues with your audio, MVK. Check the settings for us. If you need to, pop out of the stream and pop right back in with that link.
While he does that, Yatin, why don鈥檛 I put the same question to you? Did you find procurement? Or did procurement find you?
I鈥檓 an engineer by trade. Being an electrical engineer and going through that background, one of the first cases was I knew that I did not want to be an electrical engineer for the rest of my life.
As I maneuvered my way through my career, I started out very broad. I was a broad supply chain professional focused on all facets of the supply chain. I stumbled upon procurement and loved it. This was in the early stages of my career when I was in industry in retail at Winn Dixie stores.
That鈥檚 where I stumbled upon procurement. I loved it as a career and have practiced it for the last 20 years. I would say we found each other, and I鈥檓 loving every minute of it.
We鈥檝e got recovering 鈥� as MVK said 鈥� professionals from two different backgrounds 鈥� finance and engineering. We鈥檒l have to see if there are some opportunities to maybe bring those touchpoints into the discussion today.
Yes, thank you. Sorry, I actually said I found procurement at my time at Footlocker.
The good news is 鈥� like you are a recovering finance professional 鈥� Yatin shared that he is a recovering electrical engineer. Potentially, after today, he can look at your electrical setup there. Everything we do these days is digital which puts an element of surprise into everything.
To kick off today鈥檚 discussion, one of the things that we鈥檙e going to bring in, we like to run pulse polls and snap polls on LinkedIn right before we open these discussions. We talk about bringing in the voice of the audience and asking people questions during these sessions, but we get input in advance as well.
Here is a question that we had posed. What I鈥檒l do is I鈥檒l actually read all of this into the conversation because I do know that 鈥� later on or potentially even today 鈥� we鈥檒l have some people that are listening more than watching.
We asked, 鈥淲hich of the following short-term issues do you find most disruptive?鈥� Here are the results. At 40 percent, we have supply availability 鈥� no surprise after the last few years; 26 percent, we have supplier price increases; at 20 percent, in third place, we have sudden changes in business strategy; and, finally, with 14 percent, we have talent shortages.
Phil, I know that you鈥檙e watching the discussion going on among the attendees, but I also want to give you an opportunity to comment on this. Any thoughts or observations based on these results and how they align with today鈥檚 conversation? it鈥檚 definitely interesting how talent shortages is at the bottom of that list, given the fact that we were talking about talent shortages an awful lot the last year 鈥� in fact, the last couple of years.
That鈥檚 not to say that they鈥檙e not important, but I think it鈥檚 important to frame and contextualize this around short-term issues rather than long-term issues. I know we鈥檙e going to talk about both short and long term later in the conversation.
The supplier availability being top is maybe not a surprise, but I think that that鈥檚 probably lessening for most organizations. We鈥檒l go into the conversations to hear MVK and Yatin鈥檚 view of that 鈥� whether a year ago that would have been a far higher number and if that supplier availability issue is moderating or whether we鈥檙e still seeing that across a lot of organizations being an issue.
Let me actually pull you in then, Yatin. When you take a look at these results, what completely confirms your perspective? What surprises you? Any initial thoughts that come to mind?
Yes, I鈥檓 with Phil. I鈥檓 a bit surprised at how low that 14 percent on talent shortage is. That likely has something to do with the current upheaval that we鈥檙e in. All this news about hiring freezes and layoffs 鈥� that鈥檚 probably what鈥檚 driving this perception that we have enough talent.
I think the reality here is, as we climb our way out of the current market uncertainty, companies will still be challenged to find the right talent to enable their long-term vision. If you were to do this over again and do this poll survey in a year, I think that talent story will come back to what I would call more 鈥渘ormal鈥� levels. I guess that鈥檚 my initial gut reaction to that.
The second one I鈥檇 focus on is the price increases. While the market is starting to stabilize, the last two years have had a fairly direct impact to the bottom line. Supply chain professionals and procurement professionals have been challenged.
We鈥檙e trying to take that cost back up. Where those costs crept up, we鈥檙e now focused on looking at supplier price increases and costs. I鈥檓 not surprised that that鈥檚 in the mix and that confirms a lot of what we鈥檙e seeing in terms of demand from organizations today as well. MVK, as I bring you in to get your general thoughts about these results, let me also tack on and ask you an additional follow-up question.
How risk-averse do you think procurement is today versus where we were 鈥� three years ago or five years ago 鈥� looking at it as a trend? What are your thoughts around these short-term disruptions and how they鈥檙e affecting the procurement psyche?
I agree with what was said. Let鈥檚 not echo that, but I think the one that I鈥檓 missing is the cost of capital. Obviously, interest rates are continuously going up, especially as inflation doesn鈥檛 seem to come down 鈥� even with demand starting to soften globally.
To me, I think supply availability is going to straighten itself out very quickly, very soon. You can already see it with earnings releases from big retailers. I have always said that shipping costs and container costs are an early gauge of economic reality. All of that has come down dramatically. I think that鈥檚 all going to balance itself out.
For me, I鈥檇 say cost of capital would be a big one, especially if you鈥檝e been financing your strategy by external capital. That鈥檚 a big one for me.
If you think about risk, I think we鈥檝e all learned a lot over the past 24 months, but I think we鈥檝e also learned that we can come through whatever is ahead 鈥� as long as we break down the silos between supply chain, procurement, finance, the business. We really collaborate together.
I think we鈥檝e developed a muscle that I didn鈥檛 necessarily think we had. I think we鈥檙e only starting to really flex that. From a risk perspective, I think we realize we need much more agility in our supply chain. I think that鈥檚 what a lot of companies have built. I think we look at supply chain very differently today as we did 24 months ago.
I鈥檓 actually quite optimistic knowing that we are either in the recession but we are not admitting it or we are about to enter it. But I feel pretty strong and confident about what鈥檚 coming next. I think procurement is right at the center of it.
MVK, let鈥檚 stay there. Clearly, you鈥檙e leaning on your finance background which is fascinating given the role that procurement is playing in organizations today. You mentioned the R word 鈥� recession.
I read an article the other day that said it鈥檚 been put on hold or it鈥檚 been delayed or something like that. I think everybody鈥檚 cautiously optimistic that it will either not be as bad as initially feared or maybe it actually will never be officially declared, but how do you feel like that lingering possibility of an official recession is coming into executive-level thinking and impacting procurement鈥檚 priorities?
Yes, I think we always say we hope for the best and brace and plan for the worst. That鈥檚 what a finance person does. I still have that in my brain.
I think that a recession is inevitable. I think governments have free money and the cost of capital, et cetera, over the past 24 months wasn鈥檛 where it should have been. It鈥檚 easy to say that in hindsight, but I think we have to go through some pain. I think we鈥檙e going to experience that over the next 12 to 18 months.
What we can do as procurement is focus on what you can control which is your own four walls 鈥� your relationship with your suppliers, understand what goes on with your suppliers, understand their finance structure. Are they reliant on external capital? If they are, let鈥檚 talk about that.
Optionality and building optionality in your supply chain 鈥� I highly encourage every practitioner out there to think about 鈥渨hat if鈥� scenarios. Run a digital twin of your supply chain 鈥� whether you do that digitally or in an Excel spreadsheet as I used to before the technology was there.
Brace yourself. Hope for the best. We鈥檙e all positive thinkers 鈥� at least I know I am 鈥� but I think we should plan for some painful times where topline growth is not as easy as it maybe was in the years past. That鈥檚 fine. We still need to run the business. Let鈥檚 step up and lead from the front. That鈥檚 what I would say.
It鈥檚 interesting because, as you said, we plan for the worst, we hope for the best. This is constantly changing. It鈥檚 like the tides.
I was actually talking to somebody the other day that talked about the perspective of CEOs as being like a weathervane. It鈥檚 not necessarily fixated at one point. To some extent, it鈥檚 affected by all of those external pressures 鈥� the competitive landscape, board-set priorities.
Yatin, if we think about not only procurement wanting to be agile but also remaining aligned with the objectives of the overall business as they shift even if they are in small ways, how can procurement teams ensure 鈥� whether through testing or conversations or listening 鈥� that their priorities and their actions do in fact stay aligned in as real time as possible with what the business as a whole is trying to achieve?
Agility is important in today鈥檚 environment. There鈥檚 no question about it. That said, what we are seeing is employees today get frustrated with this (16:31 unclear) messaging.
If you are just putting out fires, and if you are constantly just reacting to the next fire and don鈥檛 have the longer-term vision, that鈥檚 where this becomes immensely challenging to keep your workforce focused on those goals and be ready for what鈥檚 next.
It is crucial to have a clear long-term vision and to ensure that the shorter-term milestones along the way are in support of that vision. I鈥檒l take a company that we鈥檙e consulting with today.
They have clearly laid out their five- to ten-year roadmap. They have got a vision. Now, along the way, it鈥檚 going to take different paths based on what the market dictates and what some of the shorter-term hurdles are that they鈥檙e going to cross.
As those short-term priorities pop up, what they鈥檙e doing really well is assessing it against that roadmap. They鈥檙e assessing it and saying, 鈥淗ow does this fit within the longer-term vision?鈥� They have put in place a transformation governance model.
Essentially, for every short-term initiative that pops up, they are looking at 鈥渨here does this fit in the broader picture?鈥� and 鈥渨hat鈥檚 the ROI associated with it?鈥� That鈥檚 how they are determining priority and sequence and being very deliberate about where to invest their money.
Additionally, there is consistent communication feedback. People like to be in the know. Having that feedback loop through all the stakeholders, making sure everyone is on the same page is what then takes away the frustration that comes with that (18:03 unclear).
That鈥檚 a little bit of what I鈥檝e seen with one of my clients that seems to be doing well in reacting to 鈥� as MVK said 鈥� the parameters that we can control in the sense of environment.
You mentioned governance. It seems like a good opportunity to bring up maybe the elephant in the room from procurement鈥檚 standpoint. We鈥檝e talked about all of these different short-term challenges.
Are you seeing any evidence that dealing with these short-term challenges effectively is altering the way that companies are approaching their longer-term ESG visions? Are you seeing any indication that there鈥檚 an impact there?
Yes, what I see 鈥� in our community at least 鈥� is it鈥檚 still critical. It鈥檚 still in the top ten, but if you look at what was a priority for 2021 or 2022 versus today, it has dropped from maybe being in the top four to the top eight.
It鈥檚 still a critical element. Your investors still expect it. Your customers expect it. Our customers at Coupa are asking for Coupa鈥檚 own environmental and social governance stands and our diversity spend and our code of conduct.
It鈥檚 still a critical element of doing business. I just do believe that there are a couple of things that we鈥檙e a little bit more worried about 鈥� such as business continuity, raw material shortages, inflationary pressure, and some other things like digitization. I think they have moved up to maybe the top four or five. It鈥檚 still in the top ten, but it鈥檚 not in the top four.
Yatin, I don鈥檛 know if that鈥檚 what you鈥檝e seen.
I think that鈥檚 very consistent, MVK.
Much like the digital transformation agenda 鈥� and that train hasn鈥檛 slowed down 鈥� we have not seen clients completely deprioritize or ditch their ESG strategy. In fact, the two are quite interconnected.
If you think about digital transformation and ESG, we鈥檝e got a client who鈥檚 currently assessing the replacement of three or four of their legacy procurement and supply chain technologies. As we鈥檙e going through that evaluation, ESG is fairly front and center in that criterion.
They are taking the opportunity as they are going through their digital transformation journey to build in the ESG use cases and the ESG requirements. They want to make sure that, when they come out of this on the other side, and when they transform digitally, they are meeting those ESG reporting requirements.
I completely concur with MVK. It may have been a top three or top four issue. It may have fallen down. Somewhat industry-oriented in that sense, but certainly not something that clients have deprioritized.
I want to add a little bit really quick. 聽Going through, there鈥檚 always three things that you can do during a time of high uncertainty. I have said this before in another session, but you can freeze, you can wait, you can flight, you can run for the hills, or you can fight.
What fighting means to me is making the right investments in the right areas that ultimately either give you competitive edge or drive the highest amount of ROI. It sounds pretty straightforward. It鈥檚 not always easy.
But in a situation like this 鈥� and there are lots of great studies out there from the last big disruption in 2007 and 2008, if you will 鈥� that the companies that during that time made the right investments 鈥� in the right people, the right process, and the right technology 鈥� those are the ones that ultimately outperform the ones that haven鈥檛.
I just wanted to make that point. The same applies for ESG as it applies to investments. This is not the time to stop investing in your business. This is the time to maybe recalibrate and look at the investments that are going to drive competitive edge.
To your point, we may think of ourselves as making short-term decisions and choices today, but in the big picture, all of those things do add up to become the long-term trajectory that we鈥檙e on.
Before we switch paths and start actually focusing on some of these longer-term strategies, Phil, let me bring you in and get both your personal perspective on what we鈥檝e discussed so far as well as any interesting questions that you鈥檝e seen come in from the audience.
I鈥檝e written a bunch of notes as well as we鈥檝e been having this conversation.
I do want to give a shoutout to Tim who asked a very similar question on ESG and the importance of ESG as you asked him that question. I wanted to quickly reference that.
Now, the conversation that we were having around investment priorities, sometimes in procurement, we鈥檙e post that. The stakeholder has made a case for investment to buy something and has gotten the OK to buy it then comes to us to help them go and acquire ultimately the services related to that business case.
I鈥檓 going to ask this to both of you. MVK, I鈥檒l start with you first. Does this actually give procurement another value lever to pull to position themselves to help in that business case development before any investment decisions being made by the CEO?
Yes, I would say the first advice I can always give anyone that is thinking about any kind of journey is that we should own this conversation. In other words, don鈥檛 make the mistake that IT 鈥� and I hope there are IT people on this phone call 鈥� or finance people should start to determine what solution procurement needs. We should lead this.
It鈥檚 like the mechanic buying their own car or the neighbor. I would say, 鈥淚 decide the car.鈥� It should be me driving this change. I have done this in my past. I was the one accountable. I want to be responsible.
But I also want to have the decision 鈥� of course, collaboratively with your cross-functional partners. That鈥檚 one thing I always want to emphasize 鈥� how important that is because, otherwise, you鈥檒l end up with something that you don鈥檛 want. That鈥檚 one.
Then, for us, it鈥檚 to clearly articulate why it matters. Why is it important that you make investments in procurement? Forget about technology. I recognize the company I work for, but let鈥檚 talk about investment in procurement and why is it important. If we are unable to talk about this in a very elevator pitch kind of way 鈥� 30 seconds with your CEO in the elevator down 鈥� why he or she should invest in procurement, then you are never going to get it 鈥� whether it鈥檚 more people, whether it鈥檚 operationalization, or whether it鈥檚 about getting the right technology that ultimately is going to allow you to drive real measurable value. I think we often do ourselves a disservice by letting others determine our own destiny.
I鈥檒l build on that. MVK, I completely agree with you.
What鈥檚 happened recently in the disruption, in fact, I think procurement leaders have a wonder
ful opportunity 鈥� if they don鈥檛 have that seat at the table 鈥� to establish that position.
With the inflationary pressures, what鈥檚 happening with the regulatory requirements, where pricing is, and all of the costs and pricing pressures that we have 鈥� what鈥檚 happening from an industry landscape, from an M&A standpoint, these are all key forces compelling procurement leaders to reevaluate their strategies.
It is time for procurement leaders to be the disruptors, bring the function to life, all of the silos, and essentially shift that reputation of 鈥渁ll I鈥檓 looking at are transactions or cost cutting鈥� to something that鈥檚 a little bit more customer-centric and business-enabling.
To MVK鈥檚 point, presenting this to your CEOs and your CFOs, presenting that procurement value proposition, and explaining our role in navigating this change and navigating all of this disruption 鈥� that鈥檚 how we establish our place at the table, influence the strategy for the company.
Yes, and those are the ones in our community. We have a lot of great companies.
We鈥檝e got more than 3,000 companies 鈥� great companies 鈥� but those are the ones that are also able to articulate that it鈥檚 not just about taking out costs. It鈥檚 about better quality, lead time, de-risk your supply chain, innovation, business continuity 鈥� all of those things that you can鈥檛 really quantify as to pennies, cents, and dollars. Those are the companies that get that investment in people, process, and technology.
I couldn鈥檛 agree more, Yatin. Well said.
There鈥檚 a question that I鈥檓 going to bring up onscreen here which is actually really interesting based on what you said, MVK, around cost of capital and that being a driver.
The question is 鈥渉ow much pressure would cost of capital 鈥� or do we believe cost of capital 鈥� would actually have on pricing?鈥� and perhaps expand that to say if there are any specific areas where it might have a bigger impact than others.
I think the answer is quite self-explanatory, but if whatever you鈥檙e buying relies on investment 鈥� in other words, machinery, things that are locked in, your cash is locked into something for a longer period of time 鈥� then, absolutely, it will have an impact on price. If it鈥檚 not, then I don鈥檛 think so. If all you鈥檙e buying is finished goods and it鈥檚 in an inventory and you鈥檙e able to really churn your inventory very quickly, then I think you might actually have a competitive edge.
I think what鈥檚 more important is maybe not so much cost of capital. It鈥檚 more your working capital. It鈥檚 how much money do you need, where does that money come from, and what is the price of that money 鈥� of course, with interest. I think that鈥檚 going to determine the pricing of your company and ultimately your competitive edge.
Here鈥檚 what we鈥檙e seeing with companies when it comes to capital spending in particular. I think companies have gotten a lot more deliberate about where that money is going and what is the net outcome. Going back to MVK鈥檚 point, it depends on what you鈥檙e buying. It certainly depends on how capital-intensive the purchase is.
But what I鈥檓 seeing a lot of CFOs and CPOs partake in now when it comes to capital spending is 鈥渓et鈥檚 be a lot more deliberate about our decision-making and where we are putting our money,鈥� and how does that line up with our longer-term goal.
In some cases, it might be capital-intensive, but it will still make sense because you鈥檙e going to come out on top and you鈥檙e going to come out ahead of your competition. So long as everybody is aligned with that message, clients and companies are (29:23 unclear) with that.
We鈥檙e certainly never short of questions. I have other questions to pose, but I鈥檓 also cognizant of the time. If time allows towards the end, I鈥檒l come back with a couple of other things that I was going to ask based on the first conversation, but that may be a good segue into talking about the long term.
Yatin, if I start with you, is there more that we can be doing today to leverage the data that we have and then even to strengthen that data so that it advises us better as we try to provide recommendations to the organization as they make longer-term plans?
Yes, no questions asked 鈥� there鈥檚 always more we could be doing in the data domain. I see clients and companies have a continued focus and emphasis on this. If I put the procurement hat on, from a procurement lens, most companies have the basic foundational data in place around spend and classification by suppliers鈥� categories.
When companies are faced with fires or deal with some of the disruption that we鈥檝e dealt with, the key is to have that data available at your fingertips and for there to be a high degree of reliability on the accuracy of that data. The organization has to believe that the data is accurate.
A lot of what we see is 鈥渨ell, we鈥檙e not sure if this is the right data, so let鈥檚 go to our suppliers to get that data.鈥� In a time like this, that issue gets magnified, and that issue gets amplified. Some of the data domains that we鈥檙e seeing a lot more emphasis on over the last couple of years, I would say, contracts.
Again, in the procurement world, contracts are rich with information. With technology where it is today, almost every facet of a contract is mineable and should be available at the tips of a procurement and finance professional.
Reliance on external market data 鈥� how do you enrich your data with all of the external market data 鈥� whether it be ESG or all of the other streams that exist? That has become a very powerful avenue to plan for and to predict to some degree some of the disruption that may come in your supply chain.
The third domain for me is supply performance. How do you wholistically measure supply performance, including risk? What does that story look like? That goes a long way in building those strategic supplier relationships and moving from that transactional 鈥渓et鈥檚 negotiate price鈥� relationship to 鈥渓et鈥檚 innovate together and let鈥檚 drive cost out in that fashion鈥� type conversation.
I have always said that spend analytics in itself is meaningless because it is spend that has incurred, and it is in the rear-view mirror.
What I like is what Yatin was talking about 鈥� predictive analytics. How can I 鈥� ideally, in a larger data set such as a community 鈥� leverage the power of a community and how can that community help me make better business decisions? I think that鈥檚 where it鈥檚 going.
It鈥檚 no different than how you do this in your own private life when you go to a restaurant, or you get in a car and you from A to B to C to D and back to A. I want the technology to tell me the path of least resistance 鈥� what is the best restaurant, how reliable is that rating 鈥� Yelp or whatever you use.
My point is I want the business world to operate exactly the same as my private life which is I will let the technology help me where it makes sense. Obviously, I still have human interaction. AI is interesting. RPMA is very interesting. But we still need human brains and I still believe we need human capital, but that鈥檚 where I think the data should be.
If you don鈥檛 have data at your fingertips today, you are going to die 鈥� not literally, but figuratively. I really want data to be part of a much bigger pool and let that be predictive and tell me what I should be focusing on and give me alerts. That鈥檚 really what I think data should be doing.
To pick up on your point about the human element, the other thing that鈥檚 incredibly important 鈥� both in the short term and the long 鈥� are the strength of our supplier relationships because, in both cases, if we find ourselves in a bad short-term situation, it鈥檚 most likely our suppliers that we鈥檙e turning to and saying, 鈥淐an you help us through this?鈥� but we don鈥檛 want to do that so many times that we burn a bridge and can鈥檛 maintain a longer-term partnership with them.
MVK, any thoughts about how we can lean on our suppliers as we need them in the short term without damaging the potential value orientation of those relationships in the longer term?
Yes, we can only look at the car industry and how important it is to have excellent partnerships with your suppliers. That鈥檚 exactly what happened with the chips. That鈥檚 an easy hindsight.
I think you need to open up your books to your suppliers. It鈥檚 no different than you should ask your suppliers to do the same with you. I鈥檝e always believed 鈥� years ago when I started in procurement 鈥� that its not just about getting a great price and beating a supplier on the head until they cave. That鈥檚 really the 90鈥檚 and maybe even before.
It鈥檚 opening up to your suppliers. It鈥檚 explaining to them where you struggle. Be really transparent about what it is that you鈥檙e after. What are my objectives? Where am I going three years out? Five years out? What matters to me? Is it cost of capital? Is it pricing? Is it quality? Is it the lead time? Is it reliability? Is it competitive edge? Whatever are the value drivers for my company. In exchange, you also should almost demand from your suppliers to do the same.
The relationships I鈥檝e had in my life with suppliers that I still have today that have been the most meaningful are the ones that have been the most transparent and not transactional 鈥� getting an RFP done. I鈥檓 not a big fan of RFPs to begin with, to be honest, but that鈥檚 a different conversation.
I say open up the books. Be clear and transparent about what your goals are. Ask for something in return from your suppliers.
Yatin, this actually comes back to what you were saying in some ways around contracts and being able to mine them for information, but also maybe changing how we think about them.
MVK is talking about working with suppliers and the difference between a shorter-term, more transactional supplier relationship and something that truly does rise to the level of partnership.
For me, it even calls to mind something as simple as dating. Very few people are in the dating world and are at a romantic dinner and say, 鈥淭ell me, how are you with plumbing and basic home electrical?鈥� But over the longer term, those things that you don鈥檛 tend to make decisions about in the short term are important.
If we鈥檙e running a sourcing project, even if it鈥檚 initially for two or three years 鈥� a relatively contained frame of time 鈥� how do we need to change both the way we think about which suppliers to choose and also what we build into the contracts to reinforce that?
As MVK was talking, the term that kept going through my head is 鈥渃ustomer of choice.鈥� Now, it has a whole new meaning. Procurement professionals should be 鈥� if they are not 鈥� focused on establishing that status 鈥� at least with their key tier-one suppliers.
As much as the days of a procurement bidding up a supplier, et cetera, I think what this disruption has taught us is you need to be on the top of the list for your suppliers.
Again, case in point, what happened in the logistics space for a number of clients that we have consulted with in the last couple of years Folks that were more transactionally oriented and were going with the lowest-price-first carrier and spreading out the demand across this carrier base
Carriers said, 鈥淚 have a limited number of drivers. I鈥檓 short on supply. I鈥檓 going to prioritize relationships. I鈥檓 going to prioritize where I have predictability of demand.鈥� They went that route. Now, we鈥檙e seeing a full turnaround. 鈥淗ow do I become a customer of choice for this carrier?鈥�
Tying it back to sourcing, and tying it back as companies are evaluating that, I think those facets and parameters become important. Broadening the horizon of 鈥渨hat else can you do?鈥� and 鈥渨here are you innovating from a technology standpoint?鈥� and 鈥渉ow do your technologies seamlessly marry with ours?鈥� are all part of that evolution with the suppliers.
If you鈥檙e going to invest in a tier-one supplier relationship, let鈥檚 ensure that you have invested the time and effort in understanding those facets through your RFP journey. Or if we鈥檙e not doing an RFP journey 鈥� because it鈥檚 not for MVK鈥檚 case 鈥� going through that process and ensuring that that diligence is done.
Phil, I want to bring you back in for a couple of things. Certainly, I can see that we have additional questions coming in, but MVK brought up the specific supplier partnerships that exist within automotive and how important those are. I know that that鈥檚 a huge part of your practitioner background.
It鈥檚 a fascinating industry because the importance of procurement is probably no higher in any other industry than it is in automotive because of the margins within automotive. As a result, there is a lot of investment in tools, in people, and 鈥� maybe to a lesser extent 鈥� in technology in the automotive space.
However, a lot of times, those can be misused. Or the procurement strategies can be misused where you end up having win-lose relationships, zero-sum games, sometimes questionable ethics to get the pricing that you want. Of course, you see in the automotive world those that actually have invested a lot in supplier relationships 鈥� the ones in times of trouble 鈥� that actually you are the customer of choice. There鈥檚 a huge benefit to those.
For so long, automotive companies said, 鈥淗ey! I鈥檓 one of five or one of six. If you mess with me, then you鈥檙e suddenly taking out 20 percent of your potential customer base.鈥� It鈥檚 fascinating to see how that鈥檚 changed. Some of those older practices that we refer to come from those days.
That鈥檚 definitely inspired me on my journey to look and say, 鈥淗ow can you take the best practices within environments like that, but leave behind some of the practices that were not necessarily very collaborative from a supplier relationship?鈥�
I actually wanted to jump in on the conversation because we talked about customer of choice, but one of the things I think about over the last couple of years is there may be supplier relationships where we believe we have that relationship, but then that supplier comes in and says, 鈥淚鈥檓 increasing the prices 20 percent 鈥� no negotiation!鈥� or 鈥淚鈥檓 going to put you on a spot buy now. This contract force majeure. I鈥檓 sorry about that. I know you thought we had a good relationship, but I got all the leverage here.鈥�
I鈥檇 love to know from Yatin and MVK鈥檚 perspective, if a procurement person is in that situation, how do you respond to that where you thought you had a great relationship and perhaps you didn鈥檛?
We touched on the data and analytics side. A lot of times, when we are surprised, we are surprised because we don鈥檛 have all the facts. We don鈥檛 have all the information. What does your contract look like? Are you aware of what you put into that contract? If it was truly a strategic relationship, you shouldn鈥檛 be put in that position to begin with.
That said, if we are faced with that situation, in my view, like all good procurement professionals, we are good at introducing competition and creating leverage for our companies using all of the tools that we have at our disposal to start to create that model where we can start to introduce some of the competitive pressure.
To me, surprises come when you are not well-informed and when you don鈥檛 have the sound data analytics technology at your disposal. Otherwise, I think you are generally prepared for the worst 鈥� again, putting that finance mentality on. You should always be prepared for that. You should always have a Plan B and a back-up plan when it comes to supplier relationships.
I think the biggest difference between the dating analogy you used, Kelly, you probably wouldn鈥檛 be dating someone else at the same time. I think that would be frowned upon. But it makes total sense. You always want to have a back-up plan.
As a practitioner, yes, we can have strategic partnerships, but that doesn鈥檛 mean that I鈥檓 not going to continue to have competitive pressure. You still want to have something to desire. I think that that鈥檚 no different in doing business. I can have a really strong, deep partnership with a supplier, but I am probably not going to be single-sourced, for example.
There should always be something to gain. As long as you do your homework, you have the facts, you understand your commodities, you have category plans, you understand the dynamics in the market, I don鈥檛 necessarily think that it鈥檒l happen. If it does, of course, there鈥檚 time for you to show how agile and resilient you are.
One is that ability to be predictive and be proactive related to that, but also 鈥� as you said earlier, MVK 鈥� optionality. It鈥檚 funny, as we went on this path ten years ago of 鈥渨e need to consolidate all of our suppliers, we need to have as low a tail as possible, let鈥檚 put all our eggs in these baskets,鈥� and then you end up having no optionality, optionality is definitely something that we push a lot with Art of Procurement from a risk perspective.
We did have a question from Charles that I wanted to bring up before I come back to you, Kelly. Let me bring this up onscreen. MVK, I鈥檒l pose this to you first. Maybe it鈥檚 an unanswerable question. I鈥檓 not sure, but I鈥檓 interested in your perspectives.
鈥淗ow should we ensure that the quality of data is adequate? Is there a baseline for data quality?鈥�
sounds simple, but it鈥檚 鈥済arbage in, garbage out.鈥� If you don鈥檛 understand what goes into whatever data lake you have or Excel spreadsheet if you鈥檙e still very basic and you don鈥檛 have some taxonomy to classify your data, it鈥檚 garbage in, garbage out.
I鈥檇 say start with the source. How reliable is the source? Don鈥檛 rely on your ERP. The ERP is not going to give you what you need to manage the business. That鈥檚 reporting. It鈥檚 accounting, but it鈥檚 not spend. I鈥檇 say start with the source of your data.
I鈥檓 happy to go a little deeper if you want, Charles. Look me up 鈥� mvk@coupa.com. I鈥檓 happy to help. To me, it鈥檚 garbage in, garbage out.
If you can stick claim that my data is 99.5 percent accurate 鈥� I know it鈥檚 almost impossible to get there 鈥� and your business believes in it, that goes a long way in establishing your stick measure for data quality because a large part of what procurement does is interacting with those business stakeholders. When challenge comes on data, it generally comes from those same business stakeholders.
The first time you show up with a stakeholder and show them data that they don鈥檛 trust, then it does a lot of damage to your relationship which is in some cases really hard to come back from as a procurement professional.
Actually, that provides me with a great transition. I was trying to think about how we pull all of this short-term responsiveness with long-term growth orientation together. One of the phrases that comes to mind is the expression that culture eats strategy for breakfast.
When we talk about trusting data, when we talk about trusting procurement, in some ways, what we鈥檙e actually talking about is the culture that is built by procurement leaders and which exists within the team as a whole.
Yatin, starting with you, how can today鈥檚 aspiring CPOs work towards creating and contributing to a culture that provides the team with the strength, agility, and creativity they need in the short term but also the vision, planning, and ideation that they need in order to contribute to competitive advantage longer term? How would you pull that all together?
From a culture standpoint, talent is at the core of culture, in my opinion. Procurement 鈥� like most other functions 鈥� is dealing with challenges. The needs are different. The younger folks that are replacing the institutional knowledge of the retirees are focused on employee experience.
With what鈥檚 happening in the digital transformation space, you are eliminating 鈥� or looking to eliminate 鈥� a lot of the tactical work. There is a stronger need 鈥� particularly post-pandemic 鈥� for global collaboration 鈥� both internally within the organization as well as externally within the supply base.
As companies look to influence culture and talent, they need to ensure that the work is being matched up with the right talent. Let鈥檚 leverage contingent labor where it鈥檚 warranted. Let鈥檚 invest in digital talent which is key. You鈥檙e going and making all of these deep digital investments, but do you have the talent to then carry it forward?
Outsourcing is another great thing that we鈥檙e starting to see. Aligning the talent with the strategy largely has an impact on culture. That鈥檚 what I鈥檓 building towards.
The last point I鈥檒l make there is lead from the top. If I think about CPOs, if I think about CFOs, if you are putting in this notion 鈥渨e鈥檙e in cost containing mode鈥� or 鈥渨e鈥檙e looking to be more stringent about where we are spending our money,鈥� embody that. Show that.
Do little examples of that. Go out in town halls where you can personify that a little bit for individuals and make it real for them.
Those are the two things that jump out at me 鈥� talent and culture are quite intertwined which is why I doubled down on talent; and then, leading from the top is another good way of doing that.
I would say the first thing is diversity in your team. I think we should really focus. If you look at my team, I have got high diversity 鈥� gender but also background, culture, nationalities. I would highly encourage everyone to create a really diverse team. Those are the teams that I also love connecting with within the community.
The second thing is to keep it simple. Have two or three things that you want to be famous for from a procurement perspective, and rally behind that, but don鈥檛 make the mistake that one of them is cost reduction.
The third thing is I think we should ensure that we provide everyone with the right tools. Digital fluency and digital capabilities are at the core. There are all of these young smart people that are entering the labor market that we want to attract and retain. Nobody wants to be stuck in Excel. Nobody wants to be stuck in an ERP. Nobody wants to be stuck in JD Edwards or some other ERP that you have that might be really old legacy.
You are going to have to invest in the right tools, the right operating model, the right processes. The foundation should be the right digital capabilities, the right operating model, the right diversity in your team, and then have two or three goals. That could be ESG.
If you look at myself at Coupa, it鈥檚 around ESG, it鈥檚 around developing my team, and it鈥檚 about getting to level-three procurement which is much closer to the business and much more collaboration.
I think those are the three goals that I will have for 2023. My team is going to get behind that. We鈥檙e going to put it on our intranet. Everybody knows how procurement at Coupa operates. It鈥檚 not rocket science. Then, we just need to execute against that.
Although I will say, one point to debate 鈥� you talked about the importance of diversity of background 鈥� even in today鈥檚 conversation, we have electrical engineering; we have finance; we have automotive.
Procurement in retail is every bit as important as procurement in automotive.
I鈥檓 going to use my opportunity of being host today to call out and say, 鈥淣o, retail is right up there with automotive in terms of importance 鈥� the margins, the supplier relationships,鈥� but I think we鈥檙e able to have this conversation because of all of the different backgrounds, perspectives, learnings, and experiences that we bring to this idea 鈥� both of short-term resilience and of long-term growth.
With that said, I want to thank MVK and Yatin Anand. Thank you both for sharing your perspective, your point of view, and fielding live questions today. Thank you to everybody who submitted questions in advance, who joined us to watch or listen live, or who will watch or listen on-demand later on.聽
