Procurement Unplugged and Mercanis present the big Procurement Review 2021, with Prof Dr Christoph Bode (University of Mannheim) and Dr Marcell Vollmer (Boston Consulting Group) answering questions from our founder and Managing Director Fabian Heinrich.
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Fabian | 00:02.52
Welcome to Procurement Unplugged, the podcast with procurement experts for the procurement world. Thank you for tuning in. Welcome to another edition of Procurement Unplugged, the German procurement podcast. Today with Professor Christoph Bode and Marcel Vollmer, the year in review 2021. It has been a very eventful year for procurement experts. And I'm delighted to be reviewing the year with this illustrious panel today. And I'm handing the floor over to Marcel. Marcel, I'm delighted to have you back on the podcast and look forward to your opening statement.
Marcel | 00:45.76
Thank you very much, Fabian. It's a great pleasure to be here today. And to be here with good friends like Christoph and to review the year a bit. I mean... I wish we didn't have Covid on the agenda again, but we've seen what that means and that we're still struggling with Covid. Fortunately, the economy is doing relatively well. That means we have more of a problem that we have some challenges in the supply chain because of the planning that has been done, or rather not done. We have seen what the chip crisis currently means.
We've seen what a ship can do if it gets wedged in the Suez Canal, like the Evergreen, and now of course we have to see that we can hopefully eliminate many of these problems in 2022. And I am very confident that we will not get rid of Covid completely, but with the vaccinations, the booster vaccinations, as it is now called, then hopefully also a vaccine against the Omikron variant, that we can then fully focus on this business again, that the semi-contact active will be overcome, and enable us to shape the future, especially in the area of proxy supply chain, where we can see that we have quite a few challenges and are also very dependent on the supply chain, transport and logistics working.
We have seen what the absence of lorry drivers can mean in the UK and hope that we can then look forward to a prosperous 2022.
Fabian | 02:24.23
Thank you very much, Christoph, to you.
Christoph | 02:27.41
Yes, so thank you very much for the invitation, Fabian, and for always discussing the topics with you, with Marcel. I would honestly say that it was a very good year for purchasing, because it wasn't meant cynically against the backdrop of coronavirus, but it simply put us as a... profession as a purchasing function at the centre of attention. I really enjoy reading the Economist. I don't think I've ever seen a single year where the term supply chain is used so often. You may also have seen it here on the Daily Show with Trevor Noah on the Christmas jumper this time Supply Chain Issues.
So... In this respect, it's actually been a good year for us because we've focussed on the important issues. And if we go through them, as Marcel mentioned, security of supply, sustainability and digitalisation. And I don't just mean the digitalisation of procurement, but simply the digitalisation of business models. Procurement plays a huge role in all of these areas and this year has shown that on a massive scale. And we can actually... carry on next year and continue to bring procurement without.
Fabian | 03:58.17
So I think you're showing both sides of the purchasing issue. On the one hand, we are slipping from one crisis to the next, from the semiconductor crisis to the Brexit crisis, to the Suez Canal crisis and we have constant supply problems. On the other hand, procurement is of course getting the attention it deserves in global companies for the first time and is being recognised as important. Now, let me put it this way, heretically speaking, this review or these statements also feel as if they were a review of 2020 a year ago.
So you could also speak of a lost year for procurement, because we actually had exactly the same issues in 2020. I mean, this supply chain topic also came up at the beginning of Covid and the importance of the supply chain, as well as from one crisis to the next, so it was more or less an extension of 2020. 2021 is just an extension of 2020 and we're actually back where we were a year ago with the same hopes and expectations.
Marcel | 05:00.51
I almost don't think so, because for me 2020 was initially characterised by an event that nobody expected, that the Covid crisis would really make itself so strongly present in our everyday lives right up to the lockdown. We then saw that inverted risk management procurement suddenly became extremely important in 2020. But I think it was more like crisis management, a clear focus on resilience procurement. I think that was the year 2020. Even a year ago, we didn't know whether the vaccine would work out so well.
So I know it had already been developed by then and there was already talk about it. Vaccination for the high-risk groups started at the end of December. Annalena? It was not yet foreseeable how this would develop. In 2021, i.e. this year, we saw that the supply chain was actually too cautious and thought that the economy would be more affected and fewer materials would be needed.
This is also a reason for the semiconductor circles, the computer chips that are not available. About 14 million fewer cars will be sold this year than would be possible because there are simply too few chips. Interestingly, if you now look at what the effects are, you would initially think that fewer chips mean that companies are not doing so well. However, it is also becoming apparent that most companies have come through the crisis relatively well because they had already adapted more strongly to the resilience supply chain in 2021, which will now continue in 2022.
And interestingly enough... If you look at, I also mentioned Wähler-Distributor as an example, these companies have made record profits. Why? Because you don't give any more discounts and therefore the profit increases accordingly. So fewer cars, less profit, which has been achieved. These are the effects that you can see in the way some companies are dealing with it. So far, of course, we've also seen that for the Christmas business, hopefully everyone, especially the children, will get what they need. So... We have computer chips in almost all devices these days, at least electronic devices. So I think we'll be facing different challenges and a completely different situation in 2021.
Christoph | 07:40.29
Yes, I would join you directly. So I also think that the last... The beginning of this corona period was mainly characterised by reactive risk management, putting out a lot of fires. And now this year, my impression was that a lot of companies are already doing their homework and learning. Of course, perhaps we can even transfer this from the medical field, a kind of long-Covid effect, in that many things are still going on. But now we also have opportunities to think strategically about the topic, long-term adjustments.
I've read several articles recently about the regionalisation of supply chains, that it may make sense to regionalise more strongly again for reasons of uncertainty, but also for other reasons, such as access to markets and possibly even cost advantages. I don't believe that there is a general recommendation, but that it may be possible to take a closer look at this before the new situation arises. Including, of course, technical substitutions, i.e. thinking about how you can possibly manage without magnesium or how you can perhaps avoid some rare earths in order to still offer the products in a way that you believe you can do on the market. So from that point of view... I wouldn't say it's a lost year.
Incidentally, Fabian, I also believe that we are learning a lot when it comes to supplier management, simply with the new situation, if we look at the negotiations that are now taking place digitally, the relationship management, which is taking place in a completely different way than corona, in other words this new way of working, not only in our own operating model, but also in cooperation in the supply chain.
Fabian | 09:40.45
Yes, very exciting. In other words, 2020 was the year of reacting, of putting out fires, and 2021 will actually be the year of acting in terms of supply chain innovation, but also digital working along the entire supply chain. And I found the approach of repositioning ourselves with regard to the scarcity of resources very exciting.
After all, very innovative companies have been talking about supplier-driven innovation for some time now. The whole thing would then take the next step and, so to speak, innovation through resource scarcity. So how can I replace something or how can I develop further? Because that's how a Knab is, the way you make it sound.
Christoph | 10:25.075
Absolutely. I think that's where we see the strength of the market mechanism. In the public debate, I don't want to drag this into the political arena, but we do have a whole range of critics of the free market. And I think, if you think about it, this also shows the strength of the market mechanism, because it allows companies to gravitate supply chains back to the economic optimum.
And if we can utilise this market mechanism in a targeted way when it comes to sustainability, for example, then it will also show us where we can find the best ways to avoid CO2 and which also make economic sense at the same time. I think this is actually a plea in favour of free markets and also in favour of the strength of the coordination capability of markets.
Fabian | 11:23.55
Yes, I mean, we've now looked at the whole issue from a macroeconomic perspective. Marcel, you talk to large companies every day. What does the operational side look like? In your opinion, what have been the main learnings in operations in 2021?
Marcel | 11:42.41
I believe that companies are currently simply facing the challenge of thinking about how to define the right strategy and what the priorities are for the future. Christoph has already mentioned the topic of sustainability twice, and I can only agree. We are currently seeing very strong tendencies for companies to do much, much more in this area. And COP26 in Glasgow, the climate conference, is an example of the fact that politics... will now be stepping up the pressure on regulations. The EU is also likely to introduce a CO2 price for Europe for all imports. As Christoph has already mentioned, supply chains are becoming more regionalised because the price is also changing.
This product, which will stabilise, will of course be triggered. Add that to the CO2 prices, and the price difference between production in Asia and production that perhaps takes place in Europe, Eastern Europe or Southern Europe is no longer so great. If you then add in components such as risk considerations, it can also quickly happen that you suddenly realise that it is worth moving closer to the sales markets again in an even more automated and digitalised world. And digitalisation is a different topic. I'm in the start-up sector and Fabian, you founded one yourself. According to estimates I've seen, around 30 billion is currently being invested in the procurement sector in start-ups that are driving forward digitalisation of all kinds. Incidentally, that doesn't even include sustainability.
In other words, there are a whole range of other start-ups that are tackling these problems that we have, such as moderate CO2, for example, Scope 1, Scope 2, Scope 3, i.e. also what comes into the supply chain at the front, what suppliers bring in, what is then delivered to the end customers at the back, what Scope 3 looks at from both sides, but also what the companies themselves naturally consume in terms of energy and resources, so that everything is also made more transferable. So from that point of view, I am also very clear and the microeconomic level now, so... company level. These are precisely the questions that continue to drive companies.
How do I bring sustainability into my supply chain? How can I continue to ensure resilience? What are the digitalisation issues that I can continue to drive forward for end-to-end processes? And I also believe the topic of what are the business models of the future? Taking innovation and collaboration with suppliers to another level. It's no longer just a case of waiting for the supplier for a quarter and then talking about the price, but also really thinking about how we can work together with the innovations and the topics that the supplier is developing to create the next business model or the next product.
My favourite example is always what we all use, the smartphone, where we have a good example of a Chief Supply Chain Officer, which is what Tim Cook was back then as Steve Jobs. When he was CEO of Apple, he developed Gorilla Glass together with Corning. And I think topics like this are moving more to the forefront. We're seeing the electric cars that are further... the market length now new innovations are needed and many, many other areas. And I think that's exactly what the companies are dealing with now, at least in the conversations I've had with the companies that Lonnard is talking to - large and medium-sized companies, but also some smaller ones - that are active in this entire spectrum.
Christoph | 15:37.53
Marcel, perhaps I can point this out from a university perspective. That was just like the topics you mentioned, that of course you need the right skills and the right employees and the best talents, which of course exist in Mannheim, but also at other companies. And we did a big survey with you this year, Marcel, where we also looked at this construct of entrepreneurial orientation and exactly the things that Marcel has just said.
It turns out that purchasing organisations that cultivate an entrepreneurial spirit among their buyers tend to be much stronger when it comes to these innovation topics. And I believe that when we talk about the operating model, we must somehow also discuss the topic of capability building, skills for the future. And then I think that's really important, talent and the... Simply the mindset and the entrepreneurial mindset of the buyers.
Fabian | 16:48.49
Yes, I think it's very exciting, if you look at it as lessons learned, then on the one hand, I think you have these macroeconomic effects, but on the other hand you also have this major effect in the operating model, that you say, okay, supplier-driven innovation, innovation through scarcity of resources, but also the regionalisation of these supply chains, that's also a big... change from the pre-Covid era, where you had very complex supply chains all over the world and are now very, very close to the sales markets.
And that's probably a bit of a change in the skillset of employees, but then there's the whole issue of the new way of working, that you're suddenly operating completely digitally across the end tiers of the supply chain, Zoom teams and so on. This will probably also change the image of the employee. of the buyer in 2022 or in the future? Is there perhaps already a skillset from the research side that says this is what the buyer should look like, or I think there was a talk about this at the BME recently, the AI buyer?
Christoph | 17:58.25
Well, we always show that... The Ernie from the Capitol Insurance in Stromberg in the old world and in the future the Iron Man completely digitally enabled. So I think there's a lot of hot air and a lot of heavy breathing involved. Of course, we're not going to completely change the purchasing skills. And the skills we have there will of course also be important in the future.
But I think that skills in the digital field are increasingly indispensable. We are now also teaching analytics skills much, much more at our university, so that our business students can also programme Python, or at least know how they can use these tools for themselves if they want to. And I think we will see that in the future. I think that's in addition to the classic analytical skills and language skills, of course. I've just seen a video of our new Foreign Minister speaking English in Brussels.
So there is still a lot of potential for improvement, I think, in terms of language skills in many areas. From that point of view. From my point of view, that would be the status quo.
Marcel | 19:34.13
Exciting topics. We also see that companies are currently considering how to set up a purchasing organisation, a target operating model. If you look at it, some of the buyers today are already working in the strategic area, but a large proportion are still in the operational area. If you now consider all these trends, driving innovation, sustainability, resilience in the supply chain, you simply need new skills, such as analytical skills, programming skills. So I sometimes ask at conferences how many people actually already have programmers in their procurement teams and you can see that a few of them have, are now starting to do so, but these are trends that are developing.
The purchasing organisation as a whole will also become smaller. So if you look at the 100 per cent strategic... operationally, the operational part will continue to be automated through digitalisation, but on the other hand, and this is a very valid point that Christoph made, you also need talented students who are interested and willing to go shopping and contribute their skills and thus naturally support and further develop purchasing. Because the purchasing of the future will look different with all these automations, tools and marketing sites that need to be connected. You have to understand sustainability, you have to be able to programme.
You also need to understand how the supply chain is connected. Purchasing is an integral part of the supply chain. The supply chain is currently very much in the process of breaking new ground with connected devices, 5G technology and self-driving vehicles in order to optimise the end-to-end process. Purchasing is right in the middle of this and of course has to see that it can work with it. So this is a very exciting journey that Procurement has ahead of it. And next year... certainly a very strong transformation that will be driven forward. And we will certainly also see that Procurement can then take the next step in terms of importance.
It is already in a very, very prominent position due to the crisis or now due to the new topics. It will certainly become even more important in the future. Our trends are also from goods to services, where people are no longer buying in goods as much as they want a ready-made solution for a product. These are of course very, very exciting trends that we are currently seeing and which will of course also challenge procurement, but will also enable us to take this next step, as I said, to increase the value contribution.
Fabian | 22:15.22
Yes, I mean, Marcel, you've already gone from individual buyers and their requirements to entire purchasing organisations and teams. Christoph, maybe something exciting to hear from your side. In your opinion, what are the top 3 or top 5 recommendations for action that you would give purchasing organisations for the year 2022?
Christoph | 22:37.90
Yes, so I would first of all emphasise the major topics that we have just touched on, which will certainly also be at the forefront next year. Security of supply, resilience, the second major topic of sustainability. We haven't even talked about the Supply Chain Act yet, so simply the requirements that need to be addressed there and the homework that needs to be done. And the third point is digitalisation or digital transformation. By that I don't just mean procurement with the tools it wants to use, but also supporting the digitalisation of business models, products and services.
So the three big points remain. When I look at the major recommendations in addition to these three topics that need to be supported and managed, the first one, procurement, must now seize this opportunity. We simply have the great topics here. And perhaps we can now utilise this opportunity even more to make them more attractive. Marcel mentioned that. We need good talent here. And you can find them outside, of course, but you can also find them within the company. And you have to keep them. So how do you manage to make purchasing the place to go, the place to be, the place to stay, as we always have the slogan? So I think this is now an opportunity that can be utilised.
Then I would say you should take another close look at your supplier base. We are currently conducting a major study with the Klaas company, where we believe we are taking a big step forward in terms of relationship measurement and these relationship quality assessments. And we have a very strong gut feeling that good relationships have a positive effect in many dimensions, especially when it comes to the important things for innovation. In other words, you have to take a closer look at which suppliers you want to work with and how. And then perhaps also issues such as long-term adjustments to supply chains. So perhaps regionalisation should be looked at to what extent this could make sense. Perhaps we have the last point, the operating model. I'm sure you're all familiar with these discussions about more agility in procurement.
In my view, this is primarily due to the change in business models and products. We are seeing that more and more software is being incorporated into products and that software is no longer being developed in the traditional waterfall manner, but is instead based on other development projects and philosophies. And what I can perhaps also think about as a purchaser is whether the classic sourcing process as we know it, somewhere there is a specification and at the end of the day there is somewhere a shakehand with a supplier and that's it.
So that you take a closer look at whether this is in... In some reminder groups, this will continue to be the normal case, but perhaps we can reconsider whether we should be more agile, and I don't mean that as a buzzword, I'm sure some people listening now will say, God's sake, I can't hear it any more. But if you separate yourself from all this heavy breathing around the term, there are some really good ideas, right up to performance measurement. So what is actually our... value contribution when it's no longer just about costs, but perhaps also about speed, which then pays off at the end of the day with total cost.
Fabian | 26:47.29
Yes, I mean, I could talk to you for another very, very exciting hour, but I mean, we also want to make it entertaining for the listener, so to my last question, what is your wish for procurement for 2022? I mean, we mentioned at the beginning that, on the one hand, the last two years have been positive with the attention that procurement has received.
On the other hand, we have of course been sliding from one crisis to the next for two years now. So what would you like to see in Purchasing next year? Marcel, feel free to start.
Marcel | 27:22.73
Gladly. So I hope that procurement really succeeds in using the transformation, digital transformation to the next level, to really recover the value contribution, to drive forward the current challenges such as resilience, sustainability, innovation, agility. And yes, really then also have a firm place in the organisation through the value contribution that it makes. So I am very confident that this can be achieved and I believe that we are all helping to ensure that this can be implemented accordingly. But one thing has to be said in all fairness, predictions are difficult, especially when they concern the future, such as what has been achieved here. It is a Churchill, Niels Mark Twain, to whom this act is attributed.
We just don't know what's coming. We didn't know what to expect in 2019 and 2020. We didn't expect 2021 to continue now. So we also need this agility to really prepare ourselves and then hopefully be properly positioned with a powerful organisation, supported with the right tools, to drive the value proposition for procurement even in still uncertain times with high volatility ahead of us. So let's hope for the best for procurement, for all of us, for the economy, that things continue accordingly.
Christoph | 28:58.14
Yes, I would say, perhaps only afterwards, I agree with everyone, afterwards perhaps that we don't lose the fun, despite all the challenges that await us again, then next year, whether it's lockdown or home office again or... another product group with supply bottlenecks. I think the topics are fun. I enjoy being in the field and teaching and researching. And if we don't forget next year that this is actually a great area to work in and enjoy, then I think it will be good.
Fabian | 29:38.69
Thank you very much, it was a very exciting round. I think what we can say is that it won't be boring in procurement. There will be further challenges, both macroeconomic and microeconomic. So here's to a challenging but eventful and hopefully fun year in 2022.
Marcel | 30:00.94
Let's hope for the best.
Christoph | 30:02.68
Thank you. Absolutely. Thank you very much.
Final | 30:08.12
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