Ariba LIVE

This week, the US celebrated it's birthday. So, it seems fitting to quote one of the nation's Founding Fathers, Benjamin Franklin, who once said, 'In this world nothing can be said to be certain, except death and taxes."

He was certainly 1/2 right. But as I recently found out talking with some of the people from Ryan - a tax strategy firm - a combination of technology, savvy professionals and strategic thinking can have a big impact on the latter part of Ben Franklin's supposed certainties.

Below, three members of Ryan's team share their insights into the opportunity, risks and solutions that play a part in complex global taxation of the supply chain.

Ariba was honored to host the 2010 CPO Summit at Ariba LIVE in Orlando.  CPO's from Fortune 500 companies came together for a day to share best practices, strategies and approaches to dealing with the New Normal. 

While this was a wide-ranging conversation, there were four key themes that pervaded the entire discussion. 

1. Adapting      procurement to a new normal coming out of the economic crisis
2. Dealing      with multiple ongoing risks in the supply base
3. Managing      the needs of a diverse set of internal and external stakeholders
4. The      future is in moving from Cost Savings to Value Creation (while still keeping      savings rates high)

See more below and get yourself lined up for the next discussion!

Procurement and Supply Chain leaders highlight challenges, strategies and future direction for Business Commerce at Ariba 2010 CPO Summit

At Ariba LIVE 2010 in Orlando, Chief Procurement and Supply Chain Officers from more than a dozen Fortune 500 companies sat down at the 2010 CPO Summit to compare notes, share best practices, and discuss the impact that the recent economic climate had on their organizations both now and going forward.  To paraphrase one participant, “we’ve all been through the same challenges

Even with agenda topics as diverse as Working Capital, Supply Risk, there were several consistent themes throughout the day-long session:

1. Adapting      procurement to a new normal coming out of the economic crisis
2. Dealing      with multiple ongoing risks in the supply base
3. Managing      the needs of a diverse set of internal and external stakeholders
4. The      future is in moving from Cost Savings to Value Creation (while still keeping      savings rates high)

Regardless of their industry or geography, the procurement and supply chain executives present were all dealing with these four challenges in some form.

1.  Adapting to the New Normal

Without exception, the participants said that the role of procurement has fundamentally changed as a result of the economic crisis.  And they don’t expect it to change back any time soon. 

According to one CPO, “Take the crisis to your advantage: crisis means change and change creates opportunities.”

This has been driven by two factors:

• Procurement      drove much of the cost-cutting efforts taken during the downturn and, in      general, created a substantial amount of value to help the organization      weather the economic storm
• In the      process of participating in these board- and C-level cost-cutting      initiatives, procurement was brought into many more and diverse      discussions than typical (e.g. M&A, new product development, financial      risk, etc)

The result is a much higher profile for Procurement than in the past and an opportunity for a stronger level of influence at the corporate level going forward.

This was reflected in the comments from the participants:

•          Tyco – Procurement created margin improvements during the recession through cost reductions.  The challenge now is how to stay popular.  Need to find things besides short-term costs savings. 

•          BofA - Only crisis brings about true change, or at least the opportunity for it.  In banking, top-line growth is harder than ever so need to look elsewhere and that happens “below the line”. 

•          Sodexo – the New Normal is about volatility.  Procurement has been invited to the strategic table and is now a strategic advisor on making pricing and top-line decisions based on volatile market dynamics. 

•          TPG – Companies cut so aggressively during the tough economic times that they now don't need to get a full revenue recovery to get back to their pre-crisis EBITDA levels.  But of course the key is to not let the costs creep back in.

•          Novant – Procurement increasingly getting pulled into broader conversations and impacting business strategy (e.g. M&A).  Better processes currently used by Procurement are now moving out through the organization. 

However, with increased influence and exposure comes added responsibility.  In the words of one CPO, “We can also screw this up by running out of product now that the market’s turning around and capacity is getting tighter”. 

This all needs to be done with fewer resources.  Multiple CPOs mentioned that they were going to be relying more heavily on automation tools going forward, both to streamline processes and accelerate productivity.

2.  Managing new stakeholders means Procurement is Sales

In the words of one CPO, “The era of the sacred cow is over”.  The need for immediate and dramatic cost-cutting during the downturn opened many doors for procurement departments that had previously been firmly closed. 

•          Cox – Need to take a partnership approach both inside and outside the organization to understand the goals of the different groups

•          Kohl’s – Opened many doors and improved their processes;  made many connections (e.g. new store construction talking to facilities)

•          McDonald’s - Culture plays a huge role in getting other departments to take part;  need to understand their goals and ways of doing business

•          JM Huber – Used the downturn to open door to understand business owners’ problems and act as an advisor.  Challenge now is to institutionalize the connection

The key to keeping these doors open lies in providing value to the stakeholders beyond the cost-cutting efforts. This involves providing support for stakeholders initiatives, instituting best practices, and aligning procurements goals with those of the stakeholder and the overall organization. 

Everyone’s in sales.  The group was nearly unanimous in emphasizing that being successful as a procurement organization means being good at internal selling of the value that Procurement can bring to the various stakeholders.  One popular strategy was to both hire from, and rotate into, other departments in the organization in order to get talent that understands the different areas. 

3.  Risk didn’t disappear with the end of the Recession

Supply risk was a substantial topic of concern across the group.  While the risks from imminent supplier bankruptcies may be diminishing (albeit not disappearing) with the prospect of economic growth, other risks remain.  In fact, a majority of the CPOs present said that many of the risks have actually increased in recent months. 

Chief among these was commodity risk, both availability and volatility. 

•          Sodexo – Worried about supply (i.e. capacity) that’s been pulled off the market and the ability to respond quickly to changes in demand

•          JM Huber – Problems loom on basic commodities; concerned in particular about China both as a source of supply and a competitor for resources

•          Suntrust  - Risk stratified through supplier segmentation and monitored through periodic performance and relationship reviews.  Contracts put in place into Supplier Relationship Management system monitors mitigation plans

•          Multiple - Procurement need better competencies across the board, especially in non-typical areas such as stakeholder management, strategic planning and financial analysis

•          Johnson & Johnson – Risk continues to be a huge issue, especially in highly-regulated environments and with longer supply chains (i.e. more tiers)

•          JM Huber - Increase visibility enough to ask the right questions and avoid the “table stakes”; schedule time to review on a regular basis with the commodity-specific managers

•          Multiple - Very limited visibility to any risks embedded in tiers further down the supply chain, but they know they’re there

•          Getting others to sign off on contracts and expectations. 

Of course, that doesn’t mean that supplier viability is a dead issue.  Many organizations were continuing to deal with struggling suppliers. 

•          McDonalds – Suppliers are still at risk and need a better way to keep them on track, especially when your company represents a substantial portion of the supplier’s business. 

•          Multiple - There is risk in managing all suppliers.  A strong new supplier development programs is key to mitigating risk going forward

Overall, risk ranked in the top four “top of mind” topics for most of the CPOs in the room.

4.  Value is the new goal, but savings are still king

One of the most prominent themes throughout the session was re-positioning Procurement to be a value center in addition to its traditional role in driving cost savings.  The challenge is in both defining and delivering new types of value while maintaining a sharp focus on cost control.

Key among the new value levers being explored is working capital and collaborative finance management.  While many organizations extended supplier payment terms during the economic downturn, most understood that this could place their supply base in financial difficulty. 

•          Suntrust - Procurement needs to resist the urge to instant gratification but instead focus on value.  More intense focus on creating value, and that gets the attention

•          Suntrust – Next value wave will come from better supplier relationship management and collaboration

•          Novant – Based on structural changes in the medical industry, there’s an imperative to continue to take costs out of the system to survive

•          Multiple - Value is both top-line growth and operating costs.  Getting involved earlier on in product development, specification and supplier selection, and product mixes are key to making a top-line impact

•          TPG - Cash is king in private organizations. Being engaged to CFO is an increasingly important part of procurement activities.

•          JM Huber - Payment terms (net 10 instead of 30) is used in ad hoc situations, adopted to lower cost of capital.  There has been a focus on payment terms: procurement is helping finance on keeping better visibility to payment status

•          Sodexo - Customer terms are shorter than suppliers’, but had to equalize this process, otherwise suppliers could have gone out of business

Generating value also means looking to new areas of the organization that haven’t previously been addressed.  Among the top “vote-getters” were:

•          Marketing and Legal – These need to be approached with a different tone, but they need to be approached. Find other tools that could work in developing a partnership with these departments. Find domain experts and speak their language

•          Energy – Especially the introduction of sustainability as a value lever and key initiative

•          Advertising – Proactive planning and assessing is a must to gain better prices, visibility and value

•          Leases - Companies have gone out of business or reduced their office space, so there is a lot of unused real estate…you can get great deals if you look into it or ask to revise current contract

•          Other areas included outside processing services and enterprise software

These new areas are the real payoff from all the proactive stakeholder management efforts taken during the recession. 

At the end of the day, this group of executives was able to find substantial common ground and learn much from their peers.  In the words of one participant, “We’re here to learn, share best practices, and even commiserate a bit. It’s almost like group therapy.”