Welcome to another episode of The Procuretech Podcast!
We're continuing our third series of conversations with industry leaders, which now releases twice a week.
This episode, we've got a guest who's been talking about procurement for decades. With a long-standing blog and a podcast that goes all the way back to 2009, it's Jon Hansen of Procurement Insights – the original procurement podcaster.
We're going to talk about everything that's changed in the world of procurement over the course of Jon's long-standing career.
One of his first business ventures was to start a company with funding from the government. It leveraged algorithms that allowed the Department of National Defence to procure indirect materials for their entire nationwide military installation base. He later moved to doing the same thing for the New York City Transit Authority.
Jon sold that company in 2000, and that's when he began to shift towards blogging.
He'd already had a lot of media experience from interviews in his role as a company founder. When someone in the media world said “why don't you start a blog?”, his first thought was “what's a blog?”.
This was around 2007. By 2009, Block Talk Radio was launched in New York City. With guests from the world of business and procurement, it broadcast a deeper understanding of procurement to an entirely new audience, through an entirely new medium.
Jon jokes that he's always had a face for radio, but he clearly had the talent to match: Some 900 episodes later, the monthly listener base was up to 15,000 a month.
And that eventually dovetailed into where Jon is today with Procurement Insights.
One of the biggest challenges in the procurement world was that the earlier platforms were ERP based. Procurement personnel and professionals weren't involved in the selection process of that technology. That was a Finance decision.
So there was a great deal of frustration with the majority of ERP implementations. Not that ERP doesn't have a vital role to play. But back then the majority of e-procurement initiatives would fail miserably, costing 10s of millions of dollars.
The emergence of the on demand or SaaS software was exciting. Because that started a shift away from a centralised, monolithic approach to automation, to one that was strategically effective and geared towards the procurement people.
The interesting point, as we track this story over the last 10 or 20 years, is the value of human experience. In 2019, a Deloitte CPOE global survey indicated that the majority of CEOs were dissatisfied with the results of their initiative.
Of course, their ERP technology was cumbersome. But ultimately it was the mindset and approach that was at fault. It was how to leverage that technology and implement it.
That inspired the move from Procurement being a function of Finance, to being a key strategic player within the enterprise.
And now we've learned that from the pandemic more so than ever before. It's caused organisations and people to look at the technology through a much different lens.
In other words, you don't throw technology at something and expect it to fix everything. You have to have the right people in place. You have to decide on the right technology and understand how to utilise it effectively. You have to adapt the technology to your processes.
Technology doesn't improve process. Process has to be improved using technology as a tool.
As an example, there was a major service organisation, which gave their tax incentives by the number of service calls they could do in a day. The more service calls you did, the better your score, and the better your compensation.
On the other side, though, they wanted to implement a system whereby on-site technicians could go online to order necessary parts on location. One of the biggest problems, however, is that the technology was cumbersome. It didn't save time, because they couldn't make as many calls if they had to stop at each location to wrestle with cumbersome technology.
So what ended up happening was what's known as sandbagging - where we're there to hold the technology, or hold all the orders until the end of the day.
The problem there is that with indirect materials, especially computer technology, the price in the morning of a particular part may be $100. But by late afternoon, as the geographic time zone of sourcing began to shrink, that price could easily become $800, $900 or $1,000.
The technicians were really doing their job based upon the incentives that were created for them, but in the long run, it drove up the cost of the parts that they needed.
So they had to look at the technology and say wait a second, how are we going to be able to make it easier for technicians to leverage the technology?
And that's why we now see these intuitive, Amazon-like user experiences. That was always the goal – it was just very difficult to get there in the early days.
How do you complement the performance or the requirements of the service technician with the objectives of hitting an SLA but doing it on a cost efficient basis where you were not paying a lot to get these products?
It's a combination of processes, AND you've got to bring those together and collaborate more effectively.
In many organisations this was tough, because procurement was rarely involved with anything strategic, rarely seen as doing more than simply buying at the lowest cost when needed. And so the biggest change is that the procurement and professionals in supply chain are now seen as the leader, rather than a spectator in digital transformation.
The trouble is, when you create all of this freedom to let people become more strategic in their tasks, what exactly does that mean?
For example, with the Department of Defence, they had 21 buyers, 21 people managing contract infrastructure, and it was a large contract. Through the automation process,within 18 months, they went from 21 buyers down to three.
So here's the question - what do you do with the other 18?
It depends on how willing and how capable they are to upskill and adapt. If a procurement professional is willing to move with the times and see the writing on the wall, that headcount and within procurement teams won't necessarily be fewer than today. The roles are just going to look very, very different.
There's a major overhaul happening within the procurement realm.
When we become less functionally driven and more strategically driven, we have to expand to new areas of endeavour.
We have to look at data management, and what we do with that data. Digital transformation is impossible without clean data.
And the fact remains that the majority of organisations (according to IDC) only analyse 5% of the data they have. They're flying blind, even with the automation. So who's going to take the lead on that?
We have to look at factors such as cybersecurity, too. A study in Supply Chain Digest found that 53% of all enterprise breaches occurred through a third party partner or vendor.
Who should own those third party vendor relationships? Should it be finance? Should it be procurement? There's a new role there.
And there's not really anyone better positioned than procurement professionals to understand how to...
