Common procurement challenges for companies

Intro | 00:03.29
Welcome to the Procurement Unplugged podcast, the podcast for procurement professionals. Great to have you with us today.

Fabian | 00:10.45

Welcome to another episode of Procurement Unplugged. We are very delighted to have today Pauline King as a guest. Pauline has more than 20 years' experience in procurement and has seen both sides, in the US as well as in Europe, and even wrote a very respected white paper about certain challenges we still face today in procurement. So, Pauline, we are very happy to have you here today.

Pauline | 00:41.45
Great to be here, Fabian.

Fabian | 00:43.31
So, maybe you can quickly introduce yourself and let our audience know how you kind of found your way into procurement.

Pauline | 00:52.67
Right. Well, I'm American, but I've been living in Europe for over 30 years now. My start in procurement was by chance. I was working at UBS, doing an NT rollout, and one of my clients was corporate sourcing. I ended up taking a job in corporate sourcing back in the late 90s at UBS, and that was how I started my journey into procurement.

After that, I spent a few years at Accenture selling procurement services. Then I was head of indirect procurement at Syngenta for several years, where we did a transformation. In the last five years, I’ve been an independent consultant specializing in indirect procurement and focusing on finance processes around procurement and bringing savings to P&L.

Fabian | 01:47.47
It sounds like a truly amazing journey. So over all those years and all those different stops of your career. How has procurement changed over those two, three decades?

The Evolution of Indirect Procurement

Pauline | 02:01.52
Well, if you look at indirect procurement, one of the interesting things about it as a function is that, 20 years ago, it was still a very accounts payable, receivable administrative job, which then evolved into what was called strategic sourcing for a while. Staying in the indirect area, it has now evolved into what we call procurement and sourcing, among other terms.

So, some of the shift has been moving into this more strategic aspect. However, in other ways, it hasn’t changed much from its early days—it was more of an AT Kearney concept back then. Some aspects remain the same. It really depends on the company; some are still very immature, while others are quite sophisticated and mature in how they go to market.

Fabian | 02:53.29
So you would say even after 25, 30 years, indirect procurement still has not that kind of prestige or signaling like direct procurement?

Challenges in Indirect Procurement vs. Direct Procurement

Pauline | 03:06.48
I think it really depends on the industry and the company. But yes, so, you know, it is still an area which is sometimes under underestimated, which is, of course, crazy because it's so much money from a company. So you do have the big companies do have a more sophisticated approach, more from manufacturing side and services, banks are still, I would say, less mature in that area.

But one thing we were talking about was one white paper that I've kept since 2000 when I wrote it at UBS. And this was about marketplaces and changes there. And in some ways, not much has changed. So there have been steps forward.

Fabian | 03:52.01
You know, it’s always funny to go backwards and look at these things and see what has not changed yet. Maybe you could elaborate a bit on what the topic of your white paper was, the findings, and how things have changed—or not changed—in the last 20 years since 2001.

Pauline | 04:14.46
Well, you know, what we were looking at with that paper was more around the goods part of the indirect portfolio. The concept was to take the buying power—a big bank of the bank—and make that available as a platform to other clients. So, it was kind of a mix between a B2B and a B2C marketplace. And, you know, now you do have some big marketplaces that are working.

But, for example, if you look at more complex categories, really there’s not much out there. There are some tools around electronic RFI and RFP processes, which work somewhat but aren’t easy to use. And I think, so far, the promise is not really there yet.

Fabian | 05:04.54
I mean, it’s very interesting that not much development has been happening in that area. But if we further look into the key challenges, what do you think are the key challenges and obstacles of indirect procurement? I mean, you’ve seen various huge organizations and different industries, so I think it would be super interesting to touch on that.

Pauline | 05:38.286
Yeah. I mean, I think the big challenge of indirect procurement is always one of the key things is around the savings. And so, you know, the procurement teams say we have achieved savings and then it's not reflected from a financial perspective in the P&L.

And the big The gap there is simply there's no automatic link between cost center and whatever your financial reporting might be around the savings. So it's not like COGS. And I think this is one of the big challenges that remains because it's a manual process between procurement, finance and the cost center owner. And making that work is actually more of a management process. And I think that's why people find it challenging.

So you need to be able to baseline projects, which procurement goes on and on about cost avoidance, which people actually don't care about from a financial number. It's not a financial number. And so there needs to be a shift in procurement to adopt the language of finance. There needs to be a change in the relationship between finance, procurement, and the business, talking about numbers and making that relevant to the P&L. And that becomes a virtuous circle.

When you can really show the impact, there's often an aha effect for senior management, which then opens doors, which allows you then to also go into projects which are perhaps more, shall we say, not controversial, but which touch the business more. So the minute you start getting into complex categories, it's touching on a more strategic side of the company. And so then you get more resistance. Nobody cares about pens. but they care about creative agencies for marketing, for example.

So this is a little bit the dilemma that indirect procurement finds itself in. And then I think the other big thing is they don't do enough selling. So a big part of success in indirect procurement is managing all your stakeholders and basically doing selling internally on the value, also on projects that are not financial projects, risk reduction, etc. You need to tell and communicate the story.

Fabian | 07:57.67
Which procurement doesn't do, or needs to do better on, let's say that basically, you're saying like a huge challenge is the collaboration with the stakeholders. Yeah, I mean, yes. Now, are there any tools, or have you seen in your, like, 20–30 years of procurement history any tools? Or is the collaboration, what you’re emphasizing on, still pretty much offline and analog?

Pauline | 08:26.18
Very much offline and analog. There are tools out there in theory for collaboration, but when you kind of drill into it, they are hard to use. So, you have things like gathering supplier feedback, feedback on suppliers. In theory, you can do that; there are solutions for it. But in reality, when you’re actually trying to roll it out and get people to use it, it’s hard. It’s not intuitive, so people don’t use it. Then you’re back to email and exchanging things like that. I mean, this is what happens.

Fabian | 08:59.055
So like along with the collaboration, a lot of manual and tedious work, even like in 2021.

Pauline | 09:08.303
Yes, yes. I had a client recently, and that was exactly it. So they had spent a lot of money on a big technical rollout. And there was the desire to make everything more, you know, less email driven. And it was a total, just didn't work. You know, there was issues around, you know, master data and collaboration and ease of use. And actually, it was easier to use email than to use the tool, so they didn't use it.

Fabian | 09:39.377
And would you say that's predominantly a challenge? Would you say that's predominantly a challenge of indirect procurement? Or also you see that behavior or that kind of challenges in direct procurement?

Pauline | 09:52.132
I think that's actually a general challenge, especially in terms of supply relationship management. So I don't think that's especially an indirect challenge. It's a cross. I would say that's a cross, to be honest.

Fabian | 10:06.303
So the unique thing about indirect is that kind of selling job with regards to the collaboration with the end user.

Pauline | 10:14.208
Yes, so it requires sophisticated stakeholder skills, engagement skills, but also communication skills, etc. So there's lots of collaboration tools out there, I'm not talking about that in the general, but a lot of the things out there just don't live up.

Fabian | 10:36.087
Yeah, I mean, that's also very interesting.

Pauline | 10:38.987
Very cynical view, maybe.

Comparing Skills in Procurement: Then vs. Now

Fabian | 10:41.688
If we speak about the skills, I think if you look like 20 years back, I think the skills required from a purchaser were also different than the skills someone needs now. Or how do you see that kind of expected skills from a procurement person or how they have changed over the last two or three decades?

Pauline | 11:05.923
Yeah. I mean, you know, if you look way back, you know, that's clearly a completely different role profile, actually. So here you're really talking about, you know, the very, you know, pay the invoices, you know, bookkeeping type of type of profile. So today, you know, the, you know, the sophisticated category managers, that's a completely different type of person.

You know, these are different kind of educational background, et cetera. So the function has changed dramatically and the kinds of people are really different. You know, I do remember at the beginning of my journey in indirect, you still had a lot of conversations with the bookkeeping people. That's over. You know, that's just part of P2P processes and things around sourcing is a completely different field, person, etc.

Fabian | 12:03.114
Yeah. Totally. I mean, also our world has changed a lot. I mean, previously you mentioned that certain organizations, they still operate to a certain degree immature or like indirect procurement in particular is immature in like many organizations also depending on the industry. I mean, like given that you've seen and advised so many companies, what would you advise those companies?

Pauline | 12:30.567
Well, the very first thing, you know, depending on where a company is at, but honestly, the very first thing is to look at the money. And so if they don't have their kind of more or less their spend under control and the kind of where is the flow of the money? Do they have savings baselines? Do they have a pipeline? You know, are they forward thinking at all? You know, how is the relationship with finance? So I always start on that. core pipeline? Is their pipeline maximized? Are they working on stuff they shouldn't be working on?

A lot of times you go in and you have expensive resources working on stuff, which is, you know, the savings is going to be $1,000. You're like, why are you working on that? So sometimes it's a maximizing of the portfolio, what you should not be doing, what you're doing more intensively, and then projects that they haven't tackled because of internal politics or they're afraid to, more controversial projects. So that's one side.

And then the other side is the measurement and getting those savings captured into the budget cycle is essentially what the game is about. And that's the core of what you have to do first. And, you know, a lot of times companies are focused very, I don't know, they're focused on. putting in sophisticated tools where they don't even have the basics in place yet. So these, you have to address the whole portfolio of what you do in indirect, but that's the first core step that I always recommend.

That's where the money is. And when you show the money, that increases your credibility with senior management, this gives you more, you know, more space for maneuverability, et cetera. So it's a positive, it's a way to make a positive circle.

Fabian | 14:22.471
Very interesting. That makes completely sense. And I mean, if you talk about the more mature organizations who use already like certain procurement systems, you were saying earlier on the key challenges were the collaboration, the selling aspect and the manual work along the sourcing process. So, I mean, do you have any solutions or ideas how to overcome those challenges?

Pauline | 14:44.145
Yeah. Yeah. I mean, the minute you sort of have the basics and then you're getting into more complex categories. You know, then it's always, then it is about what projects do you go for? How do you engage with your stakeholders? So some is very basic, you know, stakeholder engagement, stakeholder mapping, communication planning, and really doing that. you know, in a, you know, in the German word, consequent way, which people just don't do.

I don't know why, you know, and then, you know, do, are people using the collaboration in the best way? Are they doing everything by email? Are there other ways to do it? But there is a kind of a core of how do you, you know, how do you for very complex things like a creative agency, how do you break that down? So this is a dilemma, which is why it's more difficult. So you have highly specialized categories with highly specialized levers.

And what are all the things in there? And how do you break that down? That's, let's say, the big challenge that's out there, which is all one can break.

Fabian | 15:57.034
Yeah. And yeah, I mean, if we then look further into the future, I mean, What would be the vision for you with regards to procurement and also in particular with regards to indirect procurement?

Future Vision for Indirect Procurement

Pauline | 16:15.023
I mean, I really think this game, this endless topic of what is the really value added things? How can you how can you break down categories and really looking at what are the things which really need brains, brainpower? and what are the things which are repetitive which can be done in a different way. I think this is this is always what's going forward and you know i'm not an expert in ai and all these things but there's the promise and the hope of that that maybe that improves on that side, but i think this is always the game you know what are the spaces um you know looking at the low-end spend why who's doing it maybe that needs to be automated.

So there's a lot of things that can be simplified and automated which just need to happen so sometimes it's more an organization is clinging to projects which are low value um when they should just stop doing that and do it in a different way you know if it makes sense sounds very that's very you know generic but

Fabian | 17:26.761
You know this is uh this is what you find people are really invested in working on stuff which is not value adding yeah i mean we've heard we've heard a lot about like um autonomous buying um and so on is that also something you can envision in the future that in in indirect procurement we can enable the end user to do autonomous buying

Pauline | 17:52.117
You know, I don't know how far that can go, but for sure more than what it does today. You know, for example, if you look at marketing and you look at creative agencies, you can break that down. There are parts of that which are actually repetitive. You know, in theory, should be able to be automate, automized, get the right word, automated, be a mix.

And, you know, and I think there are other areas which are more qualitative. which perhaps don't lend themselves to automation. But yeah, there should be more. And I think people have a tendency to mix the things which are qualitative with the things which can be more quantitative, perhaps. And perhaps splitting those two things out helps to look at, okay, this part we can automate. And this part, no, not yet, if that makes sense.

Fabian | 18:48.628
Yeah. I mean, no, I think that makes a lot of sense. I mean, basically what you are saying and advising our audience is like to really break things down, not shoot for the big vision, because we never know if that vision of autonomous buying really scales and works for all the categories and then see in what category we can automate certain things. And maybe with the more complex categories, we just automize certain steps. So I think that's a very smart. but also tangible and an achievable approach. Yes,

Pauline | 19:21.986
Exactly. It's more practical. Yes, I absolutely 100% agree with that.

Fabian | 19:29.688
Yeah, we've already reached the end of our little podcast session. It was a true pleasure to have you here to talk about the development of indirect procurement over the last 25, 30 years and how you were seeing the challenge of the lack of... B2B platforms already like exactly 20 years ago. So very, very interesting insights. Thanks a lot.

Pauline | 19:54.255
Thanks a lot.

Final | 19:57.436
This was the Procurement Unplugged podcast. Thanks for tuning in today. For more podcasts and expert content, visit us at procurementunplugged.com.