10x Impact: Revolutionizing the Role of Procurement

[Transcript]

Jan Griffiths: 00:03

Welcome to the Auto Supply Chain Prophets podcast where we help you prepare for the future in the auto supply chain. I'm Jan Griffiths, your co-host and producer.

Cathy Fisher: 00:13

I'm Cathy Fisher, your podcast host. Our mission is to help automotive manufacturers recognize, prepare for and profit from whatever comes next in the auto supply chain.

Terry Onica: 00:23

I'm Terry Onica. Your podcast host will be giving you best practices and key supply chain insights from industry leaders.

Jan Griffiths: 00:29

Because the auto supply chain is where the money is. Let's dive in.

Jan Griffiths: 00:37

Hello, and welcome to another episode of the Auto Supply Chain Prophets podcast. And with us today is Phil Ideson, Managing Director of The Art of Procurement. Phil, you are on a mission to 10x the impact of procurement. What's up with that? Tell us about that?

Phil Ideson: 00:54

Yes. So, I've been in procurement for all of my career really 20 plus years. We have a couple of challenges. One is the perception of procurement on the outside and the role that procurement can play, but also in how we think ourselves about procurement and the impact that we can have. And so really, these missions to 10x the impact of procurements to help procurement folks’ kind of think outside the box, reimagine the art of the possible, what can they do what they can be thinking about? They had a blank sheet of paper, how would they design their role in the organization, and let's go and make it happen. Right, you know, trying to inspire people to make it happen.

Jan Griffiths: 01:26

I know that you have a broad background covering multiple industries. But today, we're gonna take you back to your automotive roots. Are you ready?

Phil Ideson: 01:38

Those were my favorite days, like you said, I've been in a lot of different industries. But Automotive is where I started. It's probably the single industry I spend the most time in. And there's just something to be said about, you know, the tangible nature of working in automotive and being able to see what you worked on driving down the street. So, I love it.

Cathy Fisher: 01:56

Phil, you mentioned perceptions. And one perception that is kind of ingrained in the automotive supply chain is that procurement is the automotive supply chain. And I was wondering what is your perception of where procurement fits in the automotive supply chain?

Phil Ideson: 02:14

Yeah, I think the procurement in automotive has an impactful a role as in any industry. I think that's because of the cost, you know, margins are pretty tight within the automotive business. And so, the cost of bringing in components is such an important part of that profitability. But procurement plays certainly a much more influential role in automotive as in any other industry that I've been in just in terms of being that connection between the supply markets. And obviously, the automotive company itself, whether it's tier one, tier two, whether you're an OEM, and everything related to cost, quality, everything on time, procurement plays a role in everything. And he's usually the one that gets the car when things go wrong.

Cathy Fisher: 02:55

Yeah, that's absolutely true. You know, one of the things too, we've found is that, oftentimes, when we're talking in the automotive supply chain, about the supply chain itself, there's a focus on quality, there's no doubt about that. There's also measurement of on time delivery, but oftentimes there's not the recognition that on time delivery is part of, let's say, customer service and customer satisfaction. So, how do you encourage procurement professionals to realize that, that procurement, and let's say customer satisfaction in particular is more than just quality?

Phil Ideson: 03:29

Yeah, is this just assumption that on time delivery is a given. And so, if you're not, then it's a problem. But if you if everything works, as it should do, it's kind of forgotten because the machine is working. And probably, COVID shined a light on many things, but one of them was the availability and the delivery issue is that procurement actually helps to support. One of the things I found within the automotive space was, there's so much of a focus on procurement performance related to cost savings, and cost savings was everything. And we can use all kind of game the system to demonstrate that cost savings have been delivered in certain ways, in the way that we structure contracts and all this kind of stuff. But there wasn't necessarily that much focus placed on things like supplier quality and supplier performance in terms of delivery, and innovation, you know, bringing new innovation in from a supply base. And because those things weren't measured, then they weren't focused on from a procurement perspective. There's one of the things that I probably struggled with the most within auto procurement was this just focus every single year 3% savings, 3% savings, 3% savings, and nothing else seemed that mattered.

Cathy Fisher: 04:38

Yeah, I remember those days. Well, for my procurement days in automotive. I'm glad you mentioned COVID, though, because of course, we've been seeing unprecedented disruptions in the automotive supply chain as well as other supply chains. And I'm curious what is procurement’s role relative to managing these disruptions?

Phil Ideson: 04:57

I think that procurement really stepped up and played a leading role in securing supply during COVID. You know, not with 100% success, I would say because there was such big factors and forces, hindering supply chains. But I think that what was interesting is that the rest of the organization suddenly saw procurement in a different light in how they can actually support the business and it wasn't just about cost savings. In fact, right now, it's probably more about cost increase mitigations as opposed to cost savings, but we could play a really leading role in availability of supply. I think what's important for procurement professionals, you know, listening is how do you maintain that position as supply chains become back to some level of normalcy. Now, I think that's going to differ on a commodity-by-commodity basis of what normal looks like. But as you know, as organizations get more complacent, again, about delivery being a given, are they going to then go and put procurement back on the shelf? And say, okay, that was great. You helped me when I was in my hour of greatest need, and I don't need you anymore, or has the procurement team has been able to demonstrate while they had that kind of increased exposure. There's a whole lot more that we can do to support the business than even just maintaining supply and cost management.

Cathy Fisher: 06:13

Yeah, and I think this idea of going back to normal is such a falsehood. We can't live in the status quo anymore, especially with how rapidly things are changing. How do procurement professionals break this thinking of status quo, especially with their executive leaders?

Phil Ideson: 06:31

When you think about how executive leaders are influenced, oftentimes, it's through folks from outside of their own business. And so, when I look at procurement transformations, procurement transformations often happen, because either an executive has picked up some tidbit of information on the outside, or they've spoken with a peer and another business that's had success in leveraging procurement in a certain way, for example, or maybe they've been working with a big consulting firm, and they just finished a finance transformation. Or they just finished operational excellence transformation or something. And their consultants went and said, hey, you know that there's this opportunity in procurement. And that's how change happens. So I think about from what influence do procurement professionals themselves have, it's about showing up every day, it's about being more empathetic with your stakeholders understanding what the true needs are, and focusing on the needs of the stakeholders as opposed to your individual metric driven needs, and demonstrating by doing that's really then how you build advocates who look at procurement and start to look at procurement in a different way. And hearts and minds are changed, you know, when the CEO and the CFO are driving a car together to the next conference, or the next supplier, or customer meeting, and they have a chat about procurement. That's where internally, I think that perception of the change. So that's a big thing for me is just being a lot closer to what the business really needs are my experience in automotive was, you can meet all your savings targets, you can blow them out of the water, and you can get fired because you really upset everybody in the process. You can miss your savings targets. But if everyone on the executive team is going and saying what a wonderful job procurement has done in supporting them, then you know, you're gonna be safe in what you do. And you probably will be asked to do more.

Cathy Fisher: 08:14

Yeah, and I'm curious about what exactly those things are. Because what I've observed from the time that early in my career, I was involved in procurement in the automotive space. And we really strived to build those partnerships with our suppliers. And today when I look at procurement, across automotive, even outside, but especially in automotive, it seems so transactional. So how do we move the procurement function from being viewed and viewing themselves as transactional to being strategic partners for the business and their suppliers?

Phil Ideson: 08:50

Yeah, I think that's a really complex answer to that as well, because a lot of times, the business puts procurement forward to do the dirty work that they don't want to do themselves. How many times have you seen the CPO writing to our suppliers in automotive saying, okay, you're all gonna take a 3% cut across the board in your prices, and we're gonna start paying you in 120 days, you know, rather than 30 days?

Jan Griffiths: 09:14

God. Yes, yes, yes.

Cathy Fisher: 09:19

That just last week, actually, I saw that.

Phil Ideson: 09:22

And so, you know, how that was going to help procurement, build relationships with suppliers. And so we have to help our organizations see the value of, because that happens, because our organizations don't necessarily see the value of strategic relationships with our suppliers, our organizations see those relationships as being transactional. And the bigger company you’re in the bigger brand that you have, you know, on the wall outside the building, the more comfortable you are that you're in this environment where you've got all this leverage, and it's a power game. While the business thinks of that as being a power game, then it's really hard because you go through this cycle where you need to take cost out. So, you start to see all these letters and threats, and we're never going to work with you ever again. And you know, because this is automotive, you've only got a captive audience of three or four customers. So, you have to really, you know, take what you're told to do. When you take money off the table, then they're not going to come when you later on in the cycle, you say, hey, let's have a look at all your great innovations. They're not going to come to you and share their innovations with you. So, I do think that it's a bigger issue than just procurement and procurement probably need to be making the rest of the business aware of these the tradeoffs you're making. I think the other challenge we have though, is that when we go and then ask for money to invest in procurement, we tell the CFO Well, you know, your ROI is going to be tied to cost savings, we're going to save you all this money. And so, when we position our own ROI based on cost savings, then we've only got ourselves to blame when that's the only thing that the organization asks for from us on those that we think that we can do.

Cathy Fisher: 10:51

Yeah, are you seeing a change relative to the new EV players, the Tesla's, the Rivian's, the lucids, etc.

Phil Ideson: 10:59

I think that's one of the challenges of you know, traditional big OEMs is they've got this legacy of how they acted. And some of these companies were the at the forefront of the birth of Strategic Procurement, the GMs and the Fords this world. I was doing things within Ford, and within a company that split from Ford invested on 22 years ago, I see many companies in other industries today in 2023, not doing and not being as advanced. So, these companies really did, you know, bring Strategic Procurement to the fore, but would use power dynamics a lot of the time in how to get what you wanted. And I think for the EV manufacturers, as they started their businesses, they're competing with the big guys, and they're having to prove to they're going to make their case to the suppliers. That’s if a supplier invests in them, then they always have to take a different approach, because that's how they differentiate themselves. So, I think they've got that advantage.

Cathy Fisher: 11:52

So, you talk about thinking outside of the box, this maybe sounds like one of those ingredients of thinking outside the box. What are some other ways that procurement, especially in automotive, can think outside of the box, currently, especially as we're going through this transformation to EV, and even autonomous vehicles?

Phil Ideson: 12:09

Yeah, I mean, I think that when you're looking at EV, and autonomous vehicles, the number one role that procurement can play is around innovation. And its availability of innovation, whether that's, you know, the materials that you need to mind to put into the batteries, versus just standard off the shelf components that are built into EV vehicles. I think that's the biggest role because ultimately, the collective r&d capability of the supply market is many, many, many, many, many times higher than any OEM can ever do themselves, even if you're the biggest OEM in the world. So being that conduit to innovation, I think is the biggest role that we can play.

Jan Griffiths: 12:45

Phil, you cover many different industries, multiple different companies. I mean, you're entrenched in procurement all day long. What industry would you say, has got this strategic partnership thing really nailed down? Where could our automotive audience and what where could they look to for some guidance in, in your opinion, who do does it well?

Phil Ideson: 13:11

So interestingly, I would say, when I think of those organizations who are most advanced right now in procurement, it's those in the telecom space.

Jan Griffiths: 13:21

Ah, that's interesting.

Phil Ideson: 13:23

So, companies like BT, Vodafone, MTN, which is another one, which is mostly in Africa, in the Middle East. Those are really ones that you know, and you look at like the most awarded right now procurement teams, it's all those teams in those areas where, yeah probably because the cost is not the number one focus, but they still recognize the value in having a really strategic procurement team. And so, some of those organizations are actually then looking at procurement as a service, they can use their own procurement teams to be a service that they can then sell into other smaller telecom companies, for example, or even people within their supply base and their suppliers and being a help for their suppliers to leverage the scale that they've got. So, that's really interesting for me, as I see, like, where, who are the companies that are investing in technology and procurement, who are trying new things, who are doing a lot of experiments. That's a lot of telcos. Now, I have some experience in finance, and financial services as well. Financial Services has always been interesting to me. Yes, they have a relatively mature procurement group, but it's all about risk. And so, when you think about risk, that was really eye opening for me working in financial services was that being in an environment where risk management and third-party risk management is a regulatory requirements. It's really interesting to see what they have to do and how they think about risk versus even my automotive days, you know, which, hopefully things have moved on a little bit since then. But when I was there, you know, risk meant running a Dun and Bradstreet report on the financial health of a supplier. And if the credit check wasn't blazing red, then we're good to go. You know, we'll take another look next year, at some of the regulatory requirements can be a little bit cumbersome. So, it's more around looking at financial services regulation, for example, around third-party risk, and just taking good practice, we are thinking, Well, fortunately, we're not regulated, so we'd have to go and do all these things. But what are they doing that we could bring over and replicate?

Cathy Fisher: 15:18

Unfortunately, I remember the days of just looking at the Dun and Bradstreet as well. We are being a little bit more, let's say global and expansive in our thinking today, but there's definitely some opportunity to continue to escalate that. You also mentioned about from the telecoms, the technology. And I'd like to circle back to that and understand what type of technology opportunities do you see procurement can leverage in order to really be able to support the organization and create those partnerships with their supply chain?

Phil Ideson: 15:53

Yeah, it's interesting, as the procurement technology has exploded over the last three or four years, you know, it's gone from a few players to, I think it's there's somewhat overwhelm for a lot of folks in the space not really knowing where to go and what to look at. For me, when you think about it from a direct material side. Really, the best investment in technology right now is in enabling collaboration. It's understanding prices, its understanding cost breakdowns, it's understanding should cost models, doing all those things at scale, because we never really were able to do those things at scale. And there were all kinds of people based, so we can actually understand the cost of what we're doing. But then it's about enabling collaboration, because, you know, you think about in anything procurement, not just automotive, one of our challenges is late involvement, the impact of late involvement, when you're buying a service, you know, maybe in six months’ time, autobahn's time, go back to market, or you can do something which you know, changes things. So, it's not necessarily a negative five years, a decision is going to impact your five years, but you look at early involvement in the automotive space. And if you're not involved in new product development, for example, and you don't involve even at the sell side, when you're starting to build bill of materials to quote, business on, then you've got things that are locked in, before procurement ever got involved. And now that's, you know, it can be a five or a 10-year decision that we never had any chance or opportunity to play a role in. So anything that brings procurement, closer to our stakeholders, and enables more real time collaboration, and kind of the central repository of organizational knowledge, I guess, around all these conversations, I think is a really great place to start.

Cathy Fisher: 17:29

And I love that you bring up collaboration back in early May, I had the opportunity to speak with Dave Andrea from Plante Moran. And of course, they do their work relationships survey each year with the automotive suppliers, their perceptions of OEMs. And I asked Dave, to kind of give me like, what's the one word that is kind of the theme of this year's survey results. And he said to me collaboration, and I was so thrilled to hear that because I don't think it's only collaboration inside of the organization, it really is across the ecosystem, because the types of procurements that the automotive industry is facing now, with the new technology is changing. It's not just mechanical and electrical, it's electronic. Its software, it's integrated systems. So how are those things that we're now obtaining for the new technology of our vehicles, changing the procurement needs, let's say.

Phil Ideson: 18:22

What's really interesting now is how you're driven by some of the factors you talked about, but also sustainability. When we think about sustainability, you know, these are industry wide problems, that if you don't solve as an industry, then every player in the industry is going to suffer. And so actually, you need competitors or former competitors to come together, and actually try and solve some of these problems together, especially around resource availability. It's interesting when you see what Ford and GM have done recently with Tesla and signing up to use the charger supercharging networks. So, Tesla becomes a platform now, they'll probably make more money as being a platform than they ever will being an automotive manufacturer. But they're realizing that to get adoption, everyone has to come together and work in ways that they haven't previously worked. And so for a procurement perspective, that means you'll have dual relationships, you have a relationship with a customer, that customer can also be a supplier, I can't see GM or Ford sending Tesla, the letter that says we're going to, you know, take out 5% cost savings and put your days payable to 120 when they're going to be reliant on their Supercharger network. So, there's just a lot more complex relationships than I think that one we have to think about. But we have to embrace but like, how do you manage that? Because you can't manage those relationships in a traditional way.

Cathy Fisher: 19:38

Yeah, absolutely. We shared with you a little bit of the work that we've been doing for the past several years, and really transforming the thinking of supply chain in automotive from the traditional supply chain, to more of a supply ecosystem. And alongside of that, we realized that there was 24 essential supply chain processes that really needed to be formalized within the OEMs, straight down tier one tier two throughout the supply chain, and viewed more holistically as well. And so, I think we shared those with you and I'm interested to hear your thoughts on our 24 essential supply chain processes and this vision that we have for automotive supply chain going forward.

Phil Ideson: 20:17

Yeah, no, I definitely believe in ecosystems, you know, ecosystems. We see this across, whether it's ecosystems within technology, whether it's ecosystems in our day to day bringing up the App Store on your phone, everything is connected in some way, shape, or form and there's so many unintended consequences, as well. have something that you do in one place the ecosystem and having an effect on somewhere else that we never really identified because every time we're always just operating in silos and looking at things in silos. I think this comes down to cooperation, again, that we just talked about before, is actually, you're no longer as a procurement person, somebody who is focusing on their category of spend, and it's all about, I'm the best person in the world who has ever bought this chip. And so, I know how much it should cost. There's so much more that goes into not just total cost of ownership, but beyond in terms of the full supply chains around risk about optionality that we've never had to think about before that if COVID has taught us anything, it's that you need optionality, you need to have scenario plans, you need to have Plan B, C, D, and E. And you need to figure out how all these things are going to interact within each other.

Cathy Fisher: 21:26

Those are some of the processes that we highlighted and those 24 essential supply chain processes as well. So, what do you see Phil as the future for procurement in particular, in the automotive space?

Phil Ideson: 21:39

I think that procurement is this really interesting fork in the road. My background in automotive procurement as well was actually living in India, running a captive Shared Service Center. This was 15 years ago; I see that technology is the next generation of outsourcing. And, you can either fear it, and if you fear it, then somebody else is going to figure out how your organization can best take make use of that, you're gonna be out of that decision altogether. And most likely, when that happens, you negatively impacted by it, or you can embrace it and say, okay, I gotta figure out how to use generative AI, in the context of my job before somebody else does. Because when I figure it out, I mean, we're figuring out how it can help me rather than how it can replace me. So, I think that there's a lot of conversations going on right now within procurement teams around how can we best leverage all this new technology that we're starting to have access to in a way that helps us not forgetting the the table stakes that we've got to do, which is still cost management, which is on time delivery, which is supplier quality? But how can we use all this information, this data and insights are getting to actually help business make different decisions? And what that looks like, I don't know, like, I wish I had a magic ball to say, okay, in five years, time procurements gonna look like this in 10 years’ time procurement is gonna look like something else. I do believe we'll have much smaller teams, I believe those teams will be more impactful, I believe they'll be working on much more kind of commercial strategy, versus the day to day blocking and tackling. But aside from that, you want to have a general idea of where you think the profession is heading, I feel but without being too, kind of focused on this is the end game. Because I don't think there is an end game, new technology is going to come out. We're going to learn new things. We're going to do things in different ways. It's just about embracing all this change that's going on around us and seeing how can I just translate that into something that supports my business in a better way than I do today?

Jan Griffiths: 23:35

Phil, if there's one thing, one piece of advice that you would give to automotive supply chain procurement leaders out there right now, what's something that they should start thinking about or doing immediately?

Phil Ideson: 23:48

That's a great question. I think the biggest challenge that we hear from CPOs at the moment is digital literacy of their teams. So how can you be helping your teams become more curious, more interested, more open, more literate in terms of the technology that's around them, and the ways they can use that to their advantage? That's a big thing for me. I mean, I can talk about aligning with your stakeholders, and, you know, making sure that you're providing value for them and all those kinds of things. But digital literacy is a big issue for procurement teams right now. So do as much as you can do to help take your teams on that journey, because otherwise, we hear the CPO is that I've invested in all this technology. The teams don't know how to use it, there's no adaptability. Then they look back and say, well, what was the point in buying this technology? Well, it's because your teams didn't necessarily know how to put it into practice, not that there was anything wrong with the technology itself.

Jan Griffiths: 24:40

Yeah. And if our audience wants to learn more about what's happening in the world of procurement broadly, not just in automotive, then they should definitely tune in to your podcast, The Art of Procurement podcast, which has been running for how long now?

Phil Ideson: 24:54

Eight years now.

Jan Griffiths: 24:55

Eight years? Wow!

Phil Ideson: 24:58

We've grown to be the largest procurement podcast in the world. We have 25-30,000 listeners every month, and still going strong.

Jan Griffiths: 25:06

Well, you are on your way to that 10x impact for procurement. Phil Ideson. And thank you very much for joining us today.

Phil Ideson: 25:14

Thanks for inviting me. It's been a pleasure.

Jan Griffiths: 25:20

Are you ready to find the money in your supply chain? Visit www.autosupplychainprophets.com To learn how or click the link in the show notes below.