Centralising Procurement Transformation
The challenges of digitalising complex service categories
With Erik Hoek, Supply Chain & Procurement Consultant
00:00:00 - Experiences of centralising procurement operations
00:06:10 - The role and impact of procurement excellence
00:13:20 - Centralised procurement excellence in large organisations
00:16:40 - The role of systems and other stakeholders
00:24:00 - Change management as the key to successful transformation
00:30:30 - Process, ease and automation's importance in adoption of technology
00:37:00 - Specific challenges across complex services categories
00:49:20 - Capturing definition, measurement and performance of intangibles
00:56:00 - Moving procurement towards delivering value
01:03:30 - The holistic centralisation process
Episode Highlights
Transcript
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Jonny Dunning: 0:00 So I’m very pleased to welcome today, Eric Hoek, who is a Senior Procurement Executive, specializing in procurement excellence, but with a really great and very background. And I’m very happy to have you joining me today, Eric. Thank you very much for taking the time. And how are you?
Eric Hoek: 0:17 Hi, thank you. Nice to be in this discussion. And I’m doing fine, actually. I look forward to talk more about procurement today.
Jonny Dunning: 0:27 Excellent stuff. Cool. So the topic that we have lined up for ourselves is all about centralizing procurement transformation and also looking specifically within that digital transformation process, the complexity and the challenges specifically around digitalising the complex services categories. So we can come on to that a bit later. But what I wanted to start with was just having a little bit about your background. So can you just talk us through your kind of procurement journey and the specific areas of expertise and interest that you’ve had within your career so far?
Eric Hoek: 1:03 Sure, I’m happy to do that. Well, I’m from the Netherlands. I live near Rotterdam. And like many people in Rotterdam, I started my career in logistics. And after a couple of years doing consulting in the logistics area, I got more and more involved in procurement, which is an area that caught my attention, because I am also a person who likes to achieve results and to work with people in change management. So that attracted me more and more to procurement. So, over the time, as a consultant, I did many projects, transforming procurement teams from ordering to sourcing, from sourcing more to category management and developing procurement strategies. So, during my time as a consultant, I experienced a whole range of different procurement processes. And then, after some time working in international organization, I was hired by Givaudan, the market leader in flavor and fragrance. They asked me to lead a project for the centralization of their procurement operations into shared service center, which I did for a couple of years. After which I led the regional procurement team in Asia Pacific for Givaudan. So I moved from Geneva to Singapore. And after four years in Singapore working as a procurement leader, I moved back to Geneva to lead the centralization of procurement operations into the in-house shared service team, which is called the GBS in Givaudan. And we centralized not only procurement, but also Finance, IT, HR, supply chain management, so many different functions. And after we completed that project, I transitioned to another organization, which is SGS. And that is where I used to work the last three years until late August. And during that time, I was the head of Procurement Excellence, which meant that we centralized a lot of activities that supported the global and local procurement teams.
Jonny Dunning: 3:43 Wow, that’s brilliant. I really appreciate that. So one thing I have to ask. So at Givaudan, that centralization that you did, it extended beyond just procurement. So that must have been an absolutely massive project. How long did that take?
Eric Hoek: 3:58 That was a massive project. The project continued after I left because procurement was a little bit ahead and we could complete it within two years. That included process design and the transition from the local operations into a centralized team, but it’s also included the transition of an outsourced operation into an insource operation. But for some other functional areas, this was completely new. So, for example, for supply chain management, for HR, for these areas, it was new. So processes had to be developed more from scratch. And it took more time to make the transition. So I think, after all, it was completed in about three years. And in the beginning of the project we were supported by a large team of consultants. And by the end of the project, the project was run only by Givaudan people and also executed by Givaudan people.
Jonny Dunning: 5:15 That’s really interesting. So it sounds like, did the procurement function just move a bit faster or was it that the procurement functions were a bit more mature in terms of their processes and use of technology? Because if it so, that’s not necessarily always the case, is it?
Eric Hoek: 5:31 Before we started this big program, the GBS implementation, we already had five years’ experience with centralizing procurement and finance. And we had an in-house financial service center and an outsourced procurements shared service center. And after five years’ experience, the company decided that it was well qualified to run their own in-house shared service center.
Jonny Dunning: 6:01 Excellent. That’s really interesting. So with the procurement excellence side of things - that’s something that I’ve had some really interesting conversations around, specifically around procurement excellence recently - I’d be very interested to just [know] from your point of view, how would you define and position procurement excellence as a function within procurement?
Eric Hoek: 6:26 On the one hand, I would define procurement excellence as a part of the global organization or it’s a central function, which supports mainly the procurement organization. And the activities of procurements actions run across all categories of procurement and also run across all the different layers of procurement. Say, it can address operational procurement, it can address strategic procurement, but also it can address local plant located operations.
Jonny Dunning: 7:06 And in terms of... If you’re looking at procurement digitalization process, what do you see as the impact of procurement excellence? Is it the thing that makes it happen? Is it supplementary? Is it dependent on how the organization utilizes it? How do you see the impact of procurement excellence on digital transformation?
Eric Hoek: 7:26 I think the procurement excellence role is about change management and implementation. So making digitalization happen is about implementation, the changing behaviors of the people in the procurement organization. So it’s key for procurement excellence to support that transition. I think also the role of procurement excellence is to do the things once instead of to have it done in every category or in every plant. So if there are things that categories or plants are doing double, for example, reporting. If every plant is doing their own procurement report, you might as well centralize it and do it in procurement excellence, and let the plants and the category make their own filters for their own reports. So that’s an example. But in general, I would like to say that these are the kinds of things that procurement excellence can do. They can define the processes. So that not every plant has to define and develop their own processes. And then, of course, when we do digitalization, I believe that processes are leading. And so when you run a process, you need resources, you need human resources to run processes, and you need technical resources to automate your processes and to make them more efficient. So you can only do that if you have defined some kind of process.
Jonny Dunning: 9:07 Yeah, I think that’s a really good point. Because ultimately, if you just take an approach of “we’re going to digitalize stuff”, [and] if you’re taking a bad process and embedding it within a system as a digital bad process, you still have a bad process. So someone said the other day, I heard someone say, “You’re just automating chaos, basically.”
Eric Hoek: 9:29 Yeah, exactly. On the other hand, it can be that there are very good systems that are different than your own processes. And then maybe you need to adjust your process through the system.
Jonny Dunning: 9:41 Yeah, I think from a technology point of view, when we work with customers - specializing in the complex services area that we do - we understand those processes very, very well and we go really deep on those processes. But that doesn’t... So we have a kind of best practice that we’ve learned from customers that we work with within different sectors, different countries that have different ways of approaching it. Having said that, you still need to have a level of configurability because every different company is unique in the way that they do things. Culturally, how the processes work? And depending on what type of business they do, how those processes work? So it feels like there needs to be a middle ground. Your technology might bring some clever ways and sensible ways of doing things. But also in your industry, you’re gonna have worked out processes that are important for you as well.
Eric Hoek: 10:33 Yeah, I think so. And then you need to find probably the technology that supports that process the best. And there is probably not a technology available that 100% supports that process. So then you need to tailor a little bit your process to the technology. And that’s not the problem, because only 20% of the activities deliver 80% of the value, so not all steps in the process are strategic.
Jonny Dunning: 11:03 Yeah, exactly. But as you say, the processes are the leading factor. And I think that’s crucial. That’s a really good point.
Eric Hoek: 11:12 Yeah. And the good thing about having a kind of process in place [is], it doesn’t have to be extremely detailed, like you see, sometimes endless visual charts with minor steps that need to be updated every time, which is, I think, not very effective. It’s better to make the adjustments to the process, so that it suits what kind of system is available.
Jonny Dunning: 11:41 Yeah, so we’ll come on to it in a bit in terms of how people need to choose the right technology, the right solution for their organization. But as you say, it’s finding a good enough match between the specifics of what you’re doing, how your processes work, how the technology approaches it, and finding that right blend where you can, maybe, uplift your processes, but also you can, maybe, configure the system and hopefully get a good match.
Eric Hoek: 12:08 Yes, I think as an organization we don’t know everything and there are always good providers of technical solutions or advisors who have some good ideas that you need to look out for and adapt to.
Jonny Dunning: 12:23 I think that’s very true, I think, particularly where you have kind of best of breed providers, or providers that are maybe slightly younger in the market because they’re constantly adapting to what their clients are doing and they’re constantly learning. Whereas I think with some of the very, very large providers, obviously, they have a high level of best practice already, because they have so much experience in the market. But I think there’s things to be learned from the different types of technology solution. And that’s, I guess, when you’re doing your research of what’s available in the market is going to be an interesting learning process, too.
Eric Hoek: 12:58 Yeah, but I’m not just thinking about best of breed, I’m also thinking about new entrants who are applying new technology to come up with new solutions. And it can be very interesting to see what they come up with.
Jonny Dunning: 13:15 Yeah, definitely, I absolutely agree. So just going back over your description of procurement excellence - I really like that - I think you’ve come up with some very important points around that in the sense that it is a central function and it touches different areas of the business. And you have talked about it accessing all layers of the process. So you’ve got the operational side of it, the strategic side of it, the local side of it. It’s coordinating. It’s coordinating everything [and] making sure everything makes sense. Like you say, making it so that you can do it once and take a considered approach. And obviously, it’s an ongoing process. But you’re taking a considered approach to actually put in something that’s structurally valid and takes into account all different areas of the business. That must mean it’s politically more difficult within an organization, but if you have the buy-in, you’ve got more opportunities to get it right. Would you agree with that?
Eric Hoek: 14:14 Yes, I think it’s partly political. Of course, in a large global multinational organization, you will have many different countries and ways of working depending on culture, depending on the local business that may be different. And so the good thing is that when you define something centrally, you will see that it doesn’t work equally well everywhere and you have to be open to see why does it not work or are there valid reasons why it doesn’t work, because they have a better way of working in the country. Then you definitely need to adapt and identify some - what we call - best practice or pockets of excellence that we can transfer into the rest of the organization. So it’s a balancing act, I would say, between trying to define something that works for all and then adjusted to the ones, the examples that are better or that are improvements to what you have.
Jonny Dunning: 15:29 Yeah. I mean, it’s dealing with a lot of complexity. Just in terms of looking at an overall process, even if you just look at that within one country and you consider the ramifications on other functions within the business outside of procurement together with all the relevant stakeholders that are involved in that process and need to be part of it, then when you layer on other countries, potentially acquisitions, things like that, there’s a lot of thought mapping. It’s quite a technical process in some ways.
Eric Hoek: 16:02 Tactical as well. But it can be very complex. And that’s why I think the role of procurement actions from a central point of view is to simplify as much as possible. So only if we simplify the things, then you can easily communicate and you can more easily train the people, and then you can convey your message more easily, instead of when you try to adapt to everyone, and then it’s going to be a mess.
Jonny Dunning: 16:32 Yeah, absolutely. I totally agree. So one of the things that’s obviously key to this digital transformation in procurement is the use of systems. So that’s one side of it. What are your thoughts and experiences in terms of the process of choosing the right solution and identifying the ways, the different routes that you could take in terms of putting in a digital solution?
Eric Hoek: 17:00 Yeah, I think if you make a change in the organization, there needs to be good alignment between the systems, the process, and the organization and the people. So that needs to work very well together. So it makes sense. If you want to look for a suitable technical solution, you work together with the people and take the process as the starting point. And then look for what kind of functionalities do we need from the systems and try to find the systems that worked best and see who can make the best offer that suits with the process in the organization.
Jonny Dunning: 17:49 So let’s get back into politics again, corporate politics. So within that, obviously, if you have a procurement excellence function within your organization, then there should be a good level of commitment to letting that procurement excellence function do its job and design the process and go through these steps. But obviously, the IT side of the organization are going to want to have a say on it. And quite often we see that Finance have a strong point of view in technology choices and things like that. In your experience, how is that process managed in terms of dealing with those different parts of the organization that may have different opinions and may have different drivers?
Eric Hoek: 18:40 I think when you look at operational procurement, there’s a strong link with Finance and IT especially. When you look at Finance, usually all the accounts payable activities are directly linked to the ordering and receipt of goods and services. And at the same time, I think that part of the transactional process is where actually the value is being transacted and recorded. It is also an area that gives opportunity to high level of automation. So if you do all the pre-work well in the procurement process, then you can easily automate that part of the process. So there I see a very important dependency between Finance, IT and Procurement. If I look at sourcing, I think what is always a challenge to work with Finance is to identify the right way to record the savings and to report them and to get an agreement between Procurement and Finance that the savings are recorded and that they are also tracked in the profit and loss statements of the organization. And I think also, there are quite some tools today in the market that can help strategic sourcing, category management to do good job. So that also requires the support of IT. But I think in a different way, because really IT is supporting the procurement process. And when you look at the transactional process, IT is really key part of the process.
Jonny Dunning: 20:46 Yeah. And from looking at the work that you’ve done, it’s very coordinated. It sounds like a lot of it is... Certainly, procurement and procurement excellence are very involved in driving the process and defining the process and help make that process work for everybody. I have come across many situations where procurement and IT will clash, or even Finance. But IT might say, “We’ve got certain systems already in place and we want to go with a system that directly aligns with those other systems.” Whereas Procurement might be saying, “Well, actually, we want something that’s going to do the job as effectively as it can be done in the way that needs to be done with a procurement first approach.” Is that something that you’ve come across yourself? Or is that something you’ve come across when speaking to other people in the industry in terms of how they manage that where there’s a kind of balance of power but it depends whoever the key owner of the process is? It might be the Chief Financial Officer, for example, whether they say, “Well, you’re making the decision in procurement, or actually IT are making the decision?” Have you seen much of that kind of conflict come up?
Eric Hoek: 22:01 Yeah, I did. It can be quite complex. There are many different standpoints in this area. I think that - and you already mentioned it - we’re talking silos here, where it’s the IT department, the Finance department, the Procurement department. And what I’ve seen - and that is a great example that I mentioned earlier, the shared service organization - in my previous organization, it was an organization where you didn’t have those silos. You had integrated teams of people from IT, Procurement and Finance, who were working closely together to solve the problems in the benefit of the entire organization. But I’ve also come across situation and I heard about situations where these are different functions and they have their own objectives. And sometimes the IT department is already happy when they deliver the technical solution even when nobody is using it, or Finance find it very important that we see the savings in the P&L statement, whereas Procurement has already done working on another project and not interested in it anymore. So these kinds of things require very close cooperation. And therefore I think it’s important that organizations try to - how you say that in a nice way - get rid of the silos in the organization and increase close collaboration and communication between those departments, so that everybody finds a win-win in the end.
Jonny Dunning: 23:46 Like you say, it comes back to decentralization, which is the key theme of what we’re talking about here. So, in terms of choosing the right solution, there are many factors involved with that, there are many different parties involved with that. But procurement excellence, for example, if that function exists within an organization, then they’re in a very good position to be able to centralize that and to take a strategic standpoint to problem solve for the benefit of the whole company taking into account all of the different factors that are there. So that’s one side of it. But then there’s a whole other side of it, which you alluded to it when you were talking about - if a system gets put in and nobody uses it, that’s not a solution. What about the change management side of it? How would you...? It’s a bit of a difficult one to wait really. But do you have a thought in your head as to how much waiting is - with this type of process - going to be choosing the right solution and implementing it versus change management?
Eric Hoek: 24:51 Yeah, I think change management is definitely the most important one. In the end, it’s about using the solution. And I think the differences between many solutions that are today are not that big, although solution can - in one or the other way - support the common procurement processes. So in the end, it’s about making sure that the teams use those solutions in the right way and in the best way for the organization. And that you can only do when you understand how to use the system and how it can be improved. So it’s about working with the people and making sure, on the one hand, that the people do the right behaviors, but at the same time, they can only do the right behaviors if they have the understanding and the capabilities of what is required. So it’s all about working with the people in the end.
Jonny Dunning: 26:02 Yeah. And at what point in the process...? Obviously, it’s going to depend on the specific scenario that you’ll find yourself within an organization and it’s going to depend on that organization. But how much of the...? So you’ve obviously got the process definition side of things, and understanding what’s the as-is scenario, and then obviously leading on to where you want that process to be. But when you look at the change management aspect of it, how much of the conversations around change management have already taken place by the time you need to start looking in the market seriously for the right type of system? Is it something that the two processes will start very much in parallel or is it that you’ll have a lot of process work and a lot of change management discussion before you even start looking at systems?
Eric Hoek: 26:54 I think that depends very much on the situation, but to my experience, I have had similar things. But once that you know you’re going to look for a solution, you already have to think about change management. So probably, that’s the way it goes. You think about certain parts of the process that is not working well or that can be automated. Then you start thinking about a solution, a system or something like that. Then that’s the right time also to start thinking about change management. Because when you get the buy in from the people in the team or account to really work with that solution, that’s already a big game. So if you can involve them already in selecting the right solution or in identifying the issues that they face, then you will have a much better starting point than when you do it from an ivory tower where you sit as a procurement excellence overlooking the procurement organization and you tell them, “Okay, we think this is best.” Usually, that doesn’t work very well. Because then as a procurement excellence department, you’re then too far away from the day-to-day business and the needs of the stakeholders of the procurement organization.
Jonny Dunning: 28:19 Yeah, I think talking about being close to the day-to-day operational considerations and thinking about actual user journeys and what people are doing on a day-to-day basis is extremely important. Because the chief procurement officer is probably going to be very involved in the process sponsoring the process and involved to a certain extent, but in my experience, quite a lot of chief procurement officers wouldn’t necessarily be so close to the day-to-day activity in terms of understanding the things that could be a real headache for people, the things that could get in the way. So I feel like that’s another area where procurement excellence acts as an interface and as a central point to consider the factors from top down and also bottom up in terms of understanding how it all has to fit together.
Eric Hoek: 29:11 I think the buyers and the category managers in the procurement organization understand best how they interact with the business and what are their requirements. So they understand that best. And as a procurement excellence, it’s always important to have a good understanding of that, but I think you’re always a little bit behind the fact compared to the local and global procurement teams.
Jonny Dunning: 29:46 Yeah. And it ties in with something you were talking about earlier when you were talking about defining and positioning procurement excellence. And I think a very valid point you made was the fact that it goes across all categories. And that’s a whole other level of complexity. Again, it depends on the shape of the organization and how things are weighted towards different categories. But there are going to be certain things that every organization is going to be procuring. And those processes are going to be similar. And then there are going to be things that are very specific to the organization that are a bit more, maybe even a bit more, bespoke in the way that they are managed. But there’s a lot of considerations to take in there with that cross-category approach. And when you’re going through this digital transformation, do you often see a start point where different categories...? So like, we were talking about the different locations, maybe different categories are doing things in very, very different ways. And if so, are there ways to bring that together as well?
Eric Hoek: 30:50 Yeah. I think, on the one hand, every category should follow a kind of common process, but because the categories are different and they fit differently, for example, in the Kraljic’s matrix. I don’t know how many people are familiar with the Kraljic’s matrix. But for me, if I recall, there was probably lesson number one in procurement. And it helps to identify how you deal with your categories. And that way, it shows directly that all categories are a little bit different. So yes, there can be a common process for each category, for category management, for sourcing, and so on. But in the end, the way you apply that process is going to be different by category, by definition.
Jonny Dunning: 31:43 Yeah, I agree. And I want to come on to looking at some specific categories around complex services in a second, but just going back to the kind of change management side of things. So obviously, you’re bringing in a system you bringing in a solution. adoption, as you say, is absolutely critical. You look at the budget involved it just in terms of buying the solution, you look at the time cost involved of coordinating all these departments and bring it all together, it’s only really worthwhile if the result is following what has been designed, effectively, and it’s working for people. It’s working for suppliers, and it’s working for the central functions of the organization. Now, I personally believe that how various systems and solutions provide their solution and how their solutions are designed, can have a certain amount and a very important effect. But a certain amount of effect on adoption, the easier something is to use, the more likely people are to use it, if it’s very difficult to use that’s going to provide obstacles for people. But in terms of that adoption pathway, what do you see the balance between how important is a really easy to use system, versus how important is really good training and getting the process right in the first place?
Eric Hoek: 33:06 Well, I Yeah. And also, that depends very much. And generally, I think if you use the system on an ad hoc basis, and not, it’s not really part of the core of your role, it’s really important that it’s user friendly. If for example, if you’re in operational procurement, and you use the system, really as the core of your job on a daily basis, you have to order materials all the time, and you have to follow up and ensure timely delivery, etc., which is actually very happening a lot these days, then, usually, you see that people have invested a lot of time in understanding the system, and they are very much used to well, if you are new to it, it will take quite a long time to understand it. So then, then it doesn’t really matter if you use the system on a daily basis. I think, on the other hand, if, of course, it’s always important that that the system is efficient. There were some times when companies were implementing ERP systems that were not very user friendly, that that requires a lot of separate files, with codes and translations in order to enter the right codes in the right fields. I think I was thinking those days were over. But apparently that still occurs. That’s very inefficient. But that is not really talking about user friendliness, that user friendliness means if you use it on more than Altet ad hoc basis, for example, if there’s an ERP system, and you’re a manager who has to approve something, I think it should be really, really user friendly. Because it’s not something you do On a regular basis, normally. And, of course, all systems have to be efficient. That’s what automation is for, I think generally, automation is there to make processes more efficient, and to remove any human error from the process.
Jonny Dunning: 35:21 Yeah, yeah. And as you said earlier, if you’ve got that process right in the first place, then you can concentrate on making it work as effectively as possible with your chosen solution. And you can endeavor to configure that bearing in mind your process and how your organization works, to make it as easy for people as possible.
Eric Hoek: 35:42 Yes, and then, of course, then it’s much easier to implement people like a system that is user friendly, of course, much more than assistant that’s the user’s enemy.
Jonny Dunning: 35:54 Yeah. And I think when people are adopting, you know, whenever we adopt something new in our personal lives, you know, even if something you know, you something on your phone has to update, and has changed a little bit, sometimes it’s a bit annoying at first, but then you realize the benefits and it’s just, you know, human nature really, isn’t it that people look at change initially and think, oh, I don’t want this, it’s going to be annoying. It might take the people a little while to realize that it’s going to be better. But I guess if you’ve got the right stakeholder engagement, and the right change management approach, upfront, then everyone is bought into the fact that this is going to be better in the long run.
Eric Hoek: 36:30 Yes, not everybody. It’s always if you don’t know how long it takes, before you cross that, that barrier of learning the news system, and so on, until you can see the benefits, then there’s always some resistance to change.
Jonny Dunning: 36:53 I think as I say, That’s just human nature, isn’t it? So, so with procurement excellence, you are taking an overarching view, and you’re looking across categories. So that’s going to be dealing with vastly different things that the organization are buying both goods and materials, and also in terms of services. So I just want to have a look at the services side of things. For a few minutes. That’s obviously an area I’m particularly interested in. From, from our point of view, we always look at complex services across the relevant categories, that applies to their its marketing, legal, IT consulting, etc. And I just want to look at the specific challenges that you have around services. So obviously, there are there are different types of services. When you look across the categories, how do you kind of how does that sit in your head in terms of the different services that your organization might buy?
Eric Hoek: 37:50 I think surfaces are everywhere in the in the crowded matrix, they can be very strategic, they can be bottlenecks, or they can be routine or leverage. So something Yeah, something to consider. Definitely, I think, on the other hand, especially when it’s becomes more strategic, and it’s always a challenge to convince the business or the stakeholders that that there is an area where procurement can add a lot of values. Because generally, comments I get from stakeholders is that they say, Yeah, but procurement doesn’t know exactly what we need. It’s for them already very complex, let alone for procurement on the other end, procurement knows the process in in vendor selection. So they can definitely help a lot and take that effort out of the hands of the of the stakeholders. And on the other hand, when it’s routine, it helps a lot to standardize what we’re buying and make it to make it more transparent and simplify it. For the supplier and for the company, of course.
Jonny Dunning: 39:08 Yeah, I mean, it’s actually what you were saying about the resistance, because that’s how I see I see two types of resistance generally, in conversations that I have one of them is kind of C suite resistance, where it’s very strategic, for example, consulting services, where the procurement doesn’t really have a huge oversight or huge involvement in that. I see that rapidly changing, particularly where organizations are very cost conscious and the current economic, geopolitical climate, and looking at their consulting spend, for example, also looking at things like wanting to understand ESG diversity and other factors within those services categories, rather than just saying we always use consultancy x because we just do so that’s one area that I see resistance but I think it’s been reduced. But it’s interesting what you were saying about it. As with some of the more complex services, business buyers and stakeholders kind of saying you don’t understand it, you don’t know what we what we want to buy. Because I would propose that in a lot of situations, the buyer sometimes doesn’t know exactly what they want to buy either. And I think that is where the complexity of services, and the buying process and the procurement process and the delivery prices around services is very different to buying goods and materials, goods and materials that we people who are very specialist in that they absolutely understand it from a buying perspective. And of course, their suppliers are going to be have areas of real expertise as well. But services are so varied and so vague if we go for the kind of more complex end of it. And they’re harder to define so. So I think there’s a value that procurement can add in terms of let me look at your requirement. But have you defined have you I can’t tell you everything about cybersecurity, for example, but I can help guide you through the process of understanding what it is you want to buy. Would you agree with that?
Eric Hoek: 41:03 Yes, I think that’s exactly what can be the role of procurement is to manage the process and to get the best value out of the process. Stakeholders think that procurement looks at cost and spent, which is something that’s of course caused by the procurement people themselves who focus on that area. But after all, that, that that spent needs to be generated in order to realize value and if, as a procurement organization, you can better understand what is the value that is generated by the organization? How do they generate value, for example, by purchasing that kind of professional service, then you can also as a procurement organization provide a much better support to select, for example, the best professional service provider not from a cost point of view, but from a total value editor point of view?
Jonny Dunning: 42:05 Yeah, and this is where it gets really interesting. Because if you’re just assessing it from a cost point of view, for example, with professional services, and this is where it breaks down into kind of different areas, or different delivery types. If it’s purely looking at time costs of different categories of professional within a consulting firm, for example, then often organizations will look take a lot of notice of rate cards. But I feel like that’s just one factor. Because that doesn’t give the whole story. But I think sometimes it’s sometimes it’s maybe the only thing that for example, procurement have got to go on. Unless that’s a very evolved process.
Eric Hoek: 42:46 You can look at rate cards, but it doesn’t say a lot. Behind those rate cards, there are people of flesh and blood, who have each their own experience, knowledge, and then especially above all the way they can contribute. So rate card doesn’t say a lot. And you cannot to put people into a number.
Jonny Dunning: 43:14 Yeah, I agree. I agree. And also, it depends how your organization is buying, and how those things change. So, so looking across services based categories or categories that have a mix of, of goods and services, even category managers are trying to understand value, it’d be great if they could understand the value that they’re getting. But there’s different flavors of services. So how do you look at the challenges in terms of what you’re buying in terms of the different things that you could be buying, whether it’s an outcome or man hours, etc.?
Eric Hoek: 43:54 Well, I think that that and then depends on where you are in the college matrix, if it’s high risk, and then I would say, generally, it’s difficult to specify you probably end up with a very limited amount of suppliers. And therefore, you need to you need to compare different options from a qualitative point of view, what is the total value that they can add? Well, if you have a service that is very can be more easily specified in the basic areas of facility management, for example, cleaning or security. There are many more standards for those kinds of services so you can more easily compare them and qualify them so that is probably a little bit easier for the for the average procurement person to sit in there. In the chair of the stakeholder and, and decide what would be best for the company? Well, as you know, it’s not easy to specify, and you have to assess it together with a team, then it requires a more leadership role from the procurement person who takes the lead in the process and make sure that the assessments by the different team members are, are going to be used in the final decision, and in the selection of the best candidates and in the selection of the best solution for the company.
Jonny Dunning: 45:37 And obviously, part of that process is also going to involve the supplier input in terms of their specific expertise. And once you’ve defined the requirement to a level that you can start assessing the options in the market, how are they responding? What are they suggesting? What is their approach, and then obviously allowing, you know, internal stakeholders to be able to evaluate that under the guidance of procurement? I feel like that’s potentially quite a valuable part of the process. Because again, that’s where, potentially if you’re buying something like cybersecurity, for example, that’s where the real expertise sits. How much do you see that supplier input feeding into that definition process?
Eric Hoek: 46:21 That’s very important. I think that is where the supplier can, on the one hand, differentiates himself from his competitors. And then it says where they add value to the organization. And I think it’s up to the procurement team, the buyer, but also the users of that service, the stakeholders to define the right criteria on which basis to select them to reduce the amount of chemistry or gut feel. In the selection process, which you cannot reduce entirely, I think if it’s a complex surface that you’re buying, there’s always Yeah, they’re always a good amount of feeling in in the decision that is based on trust, or based on assessment of the of the quality of the team, and so on.
Jonny Dunning: 47:18 Yeah, and I think that that makes sense. As long as the process is structured in the right way, by allowing it to be a competitive process where you can assess different opportunities and different viewpoints. One of the things that that we tend to see quite a lot is that in complex services, an organization or a stakeholder might go out to the people that they always use, and work very closely with them in that kind of pre definition phase. But unfortunately, what that can then lead to is it’s a bit of a self-fulfilling prophecy, whereby the definition has been created with supplier x, and therefore supplier x is going to look like the best fit. How do you how do you navigate? How do you help your stakeholders kind of ensure that the process is not falling into that trap?
Eric Hoek: 48:08 I think yeah, I understand what you mean, I think if you were always with the same people, whether it’s the same supplier or the same team, you will have common blind spots. And I think that’s why it’s important to have diversity in the team to have sometimes a little bit of change in the team. And also when you when you have new contract, that’s why it’s good to explore the markets and to run a proper sourcing process. And some categories, like leverage categories, you will look probably for the lowest total cost of ownership, and then some more complex categories, you need to assess the total value of the of the service for the company, and what value that service will bring and compare it with the cost and then try to make the best choice. But then by comparing alternatives, you can reduce common blind spots.
Jonny Dunning: 49:11 Yeah, I think that’s a really good way to describe it. I mean, within complex services, I see the main areas of difficulty compared to for example, buying goods and materials or very, very simplistic kind of, you know, cookie cutter services, I see that being the definition of what it is that you require. I see it as being the measurement, because the definition the complex service is nuanced. And the definition of that is difficult, by the very nature of that the measurement of it is also difficult. And also that might change along the way. And then there’s then there’s the performance element. So if you can understand clearly what it is you’ve defined and you can capture that. And then if you can understand measuring what’s happening is to how that’s delivered and how it’s changed over the direction of the over the duration of the project, then you can understand looking at the quantitative indicators that you can capture, and also the qualitative assessment of, yes, maybe it took a bit longer, but that was our fault. Or actually, they still really did a really, really good job, then you can understand performance. And that ties back into the beginning of the process when you’re looking at supplier selection and understanding where you should be pushing your workload. But only when you actually capture all of those things really, can you actually I believe, can you actually really define the type of the kind of value, which I think for a lot of organizations in complex services, that’s, I feel like that’s quite difficult for a lot of them to do, because it’s just the intangible nature of these things, trying to capture them sometimes in a top level sorts to pay system, for example, can be quite difficult, whereas they’re very well set up to capture, catalog buying of simple services and also of goods and materials.
Eric Hoek: 51:07 Yeah, I think you’re seeing a lot of things at the moment, that there are quite a lot of things when I when I think about buying a complex service, I think, for example, about management consultant or a lawyer, that, that you hire as a company, or, for example, a construction company that needs to do a big project. And that can also be very complex. You can, it’s always easy to look at the cost of things. And of course, that’s important, we don’t want to throw money over the fence, we want to make sure that we get value for money. But on the other hand, there are a lot of cases, areas where we’re also procurements is really key is in the area of risk management and making sure that we purchased the right quality. And that is something you tend to forget when you always look for cost savings. And it’s really important to go back to that and sometimes you cannot say you cannot see in the books that you hired a very good lawyer who, who avoided a huge risk. And you don’t see that in the books except the cost of the lawyer. And that’s a pity, of course, if we can become better at quantifying visualizing risk, for example, then, yeah, that could be interesting. But apparently that is not sexy enough today, so people will look more at numbers.
Jonny Dunning: 52:48 Well, it’s a very good point, because it comes back again to what are you buying? If you’re buying man hours? That’s something that’s fairly evil, easy to understand? Did you get what you paid for? But if you’re if you’re procuring performance, that might be measured with KPIs, for example, or you’re procuring outcomes or outputs? That’s a bit different. But I think if you’re whatever the milestone or the deliverable is that you’re capturing, that’s why I think it’s critical to understand it from a quantitative point of view, did the supplier do what they say they were going to do, but also the qualitative element of it, of understanding? Did they do a good job? Did I get the result I needed? Because it comes back to what you were saying at the beginning, you were saying that one of the things that, that things that drew you to procurement were the change management side of it, and also the driving towards results. But I think a lot of the time that driving towards results in procurement is as you mentioned, is savings. But do you feel that more procurement organizations are trying to drive towards value now?
Eric Hoek: 54:07 Yes, I think so. I think and also I see that as a huge opportunity for people in the procurement function. There is value is becoming more and more important. The interests of other functions in procurement is increasing and the other function are asking for innovation. They asking for risk management they’re asking for, for sustainability. So it’s obvious that that procurement needs to deliver in that in those areas. So definitely it’s becoming more important. And I see that is yeah, that is what companies are looking for. They’re looking for procurement people can understand how their contributions can bring value. To the business and ultimately to the end, and customer.
Jonny Dunning: 55:05 And how important is the use of technology and the use of digital transformation? How important is that in the goal of capturing more understanding value more effectively?
Eric Hoek: 55:20 Well, on the one hand, I think digitalization can automate certain parts of the process. So that way, procurement people can have more time available to spend with the business to spend with the other functions in order to deliver more value. And on the other hand, they’re, they’re more, there’s more visibility of, of opportunities in the organization, thanks to thanks to the systems that are used in the different departments. So I think that that helps a lot. And data analysis across all the functions is becoming a becoming easier and give more interesting insights. So there’s a lot of room for it. And at the same time, I think, with the systems that we have, we can track how we’re doing in the areas of sustainability, we can benefit from more innovation. So definitely, technology brings a lot of opportunity, and also a lot more work actually.
Jonny Dunning: 56:36 Yeah, I think, you know, the, the whole supply chain is really mobilizing to support the goals that companies have, not just around achieving their business objectives all part of their business objectives might be things like for example, ESG, or very specifically carbon, carbon emissions, carbon output. And so I think suppliers are mobilizing towards supporting that. And where an organization has an effective digital procurement setup, they have visibility of the suppliers that can support those business objectives. But also, I think, technology, certainly kind of the newer breed of procurement technology is very much geared around trying to help procurement organizations understand value more, because it is moving much more in that direction. Of course, cost savings are still important. But I think when you have particularly in difficult economic circumstances, budgets may be being reduced or budgets being addressed. If the value is not taken into consideration, then it would be quite easy for there to be like you said earlier a blind spot where an organization could reduce spend, maybe in a professional services category, but not understand that they are they are cutting something out that is delivering real value in helping them deliver new products, helping them be more efficient affecting their bottom line. So unless they’re assessing value, you could really make some bad decisions, potentially.
Eric Hoek: 58:09 Yes, I think so. The worst decision is, if you want to cut costs, then the best thing is to do nothing, right. But then you also go and don’t make anything. And sometimes I think that procurement organizations are looking too much at just this one deal with the supplier where they want to get the lowest price or the lowest cost and forget about the larger picture. So that is something to watch out for. But on the other hand, of course, we don’t want to pay too much. A supplier normally the deserves to make to make a decent profit. But not more than that. And we don’t want to be the only one that, that that pay too much.
Jonny Dunning: 59:00 Yeah, and it’s also understanding, you know, how suppliers are operating. For example, if you take areas like consulting, where it might be on a day rate, a time element to it, then you might find supplier A has a cheaper rate card, but it always takes them two times as long or there are always many changes. And I think that that change process on the services side is also an important element, which differentiates it. And I think I don’t know about you, but I see a lot of organizations find it quite difficult to really effectively capture how a project can move and change over time. Because you might look at a project and say that overran therefore that supplier has done a bad job. But if you can understand what happened at every point in the change process, then you might see that actually it was delayed because of internal factors, or actually, throughout that process, there was a greater understanding of what needed to be delivered. Is that something that you think organizations struggle with at all?
Eric Hoek: 1:00:00 Yes, I think, I think quite a couple of organization. See that as a challenge? I think it all starts with how well do you prepare? How well do you prepare what you want to achieve, and then it makes sense to put in to put the right resources in place? And if you have, if you don’t have the capabilities in your own organization, then you look for external providers, and maybe you need to find the very expensive consultants to do the job. But as long as you’ve thought through what they need to do, then, and it’s not rocket science, it’s something Well, everyone can do except good consultants will, will use their time more, more efficiently than then the bad consultants, I think, and by, but still, the end responsibility is with the buying, buying company. So you cannot give all the responsibility to the consultants and say, Okay, we don’t know what you’re going to do. But as long as you achieve the results, we pay you a part of the results. And that that’s not going to work. And also, it’s not going to work that you only give them a couple of hours to work, and then that you hope for a nice outcome. So you really have to think about in advance, what is it that you want them to do and what you want them to achieve?
Jonny Dunning: 1:01:34 Yeah, and as you say, I think you have to be realistic. And you can put in as much preparation as possible. But for example, if it’s, if it’s an IT, IT services project, or even a consulting assignment, you won’t necessarily be able to predict all of the factors that will come up during the delivery of that project. And so I think you can plan as much as possible. And it’s very, it’s very important to do that. But also, it’s important to update the plan, update the plan, update the plan, as things change. I can’t remember whose quote it was that around. It’s all very well planning, but plans always change. But I think that has to be taken into consideration as well, that it’s not necessarily a bad thing if plans change. But you have to understand what has changed and why. And take that into consideration when you’re reviewing what you’ve done.
Eric Hoek: 1:02:27 Yeah, there are two simple ways to say that I one, one thing, one quote is a bit similar. I think if you fail to plan, then you plan to fail. So definitely, it’s important to make a plan in advance, you may think about the detail of the plan, because the reality is always different than the plan. That’s another one liner that is there. And indeed, the you have to adapt, and whether you adapt your plan or whether you adapt your behavior to the new situation. We’re all human. So we know we should know when we have to adjust. And we do not just rigorously Follow, follow the plan. So I think that’s important. But if Yeah, it’s definitely essential to be prepared. And then along the way to make sure that you have a governance model in place to adjust how you how you work, and how you adapt the plan, and how you make sure that you will get the best possible results.
Jonny Dunning: 1:03:29 Yeah, absolutely. So just to kind of bring everything together with this conversation. We’ve looked at some interesting different areas, we’ve looked at the impact of procurement excellence, how that’s structured and how it can drive this process within an organization. We’ve looked at the complexity around all the obstacles around dealing with complex services specifically. But I just wanted to kind of touch on the concept of really centralizing this and bringing everything together. What do you see as this as the kind of holistic process that needs to be tied up with a nice ribbon when it’s when it’s all finished?
Eric Hoek: 1:04:10 I think there is a there’s a common process that is in the procurement area and it starts actually with a procurement strategy. And then procurement strategy will be followed by proper category management plans or strategies. And this, of course, should result in projects that can be sourcing projects, but it can also be other projects that deliver value in the in the category across the organization, of course. And then you have the common sourcing process that is following the sourcing plan. And when you have category strategy results into a project plan and you have a sourcing process that results normally in a contract and that’s called interact is, is maintained and followed by the procure to pay process. And of course, that ties into the accounts payable and financial books of the organization which we normally call procure to pay. So I see that as an end to end process, and these steps are usually well linked to each other. So, there are a couple of tools in the market, which I think can be very interesting they that can actually support the entire process. And at the same time, in parallel, of course, you have to be a very good business partner, and that maintains good relationships and demonstrates results to the business and to the business stakeholders. And at the same time, of course, and that’s the key role of procurement is to be a good supplier relationship manager, not only securing the deliveries, but also having good relationship with the with the account managers and make sure that also, not only make sure that the supplier respects you as a customer, but also understand the value that the supply can bring, which is much more than only the materials or the service that you order.
Jonny Dunning: 1:06:26 Yeah, absolutely. And I think as you say, there are there are various systems out there that can that can act holistically to bring all these things together. And it’s very interesting to see the growth of these kinds of source to pay ecosystems that are being developed by some of the larger providers where they’re working with specific vendors and best of breed providers in particular areas and kind of solving the problems around things like integrations, before the customer even has to assess the solution. Is that something you see you can see a growth in that area with regards to these kind of linked ecosystems?
Eric Hoek: 1:07:02 I think so I think there is a lot of opportunity for that, and especially what I mentioned the area, while the different areas of the process require more and more digitalization, especially in the area of procure to pay and source to contract, I still see a lot of manual work. And that is not necessary. And on the other hand, we should see more manual work on developing good category strategies or developing good procurement strategies instead of doing manual spot buys or doing manual orders. So there’s a lot of room for such kind of solution.
Jonny Dunning: 1:07:50 Yeah. And I guess, two things that kind of strike me from that. One is in terms of the kind of manual process or the process that takes up the time of procurement people, absolutely those strategic type activities. But also, as you said, before the supplier relationship side of it, you know, more time can be put into developing those supplier relationships. It ties back into the other point, which struck me from what you just said, which is around automation. I don’t think procurement people should be concerned about automation. Because really, in when you’re automating, you should only be automating the things that it makes sense to automate. And so what you hopefully should be doing is allowing procurement people to use their expertise to drive their time to more strategic activities, more developed insights and intelligence, rather than just transactional activities.
Eric Hoek: 1:08:39 Exactly. Yeah. I think the transactional activities is where the value is realized where you can see it in the books. And when you look at procurement strategy and category management, that is where value is created.
Jonny Dunning: 1:08:54 Yeah, it’s funny when we discuss it like this, it all feels so simple, but very complicated, isn’t it very quickly. I really, really appreciate you taking the time to chat. I’ve really enjoyed that. I think we’ve covered some interesting areas. And you’ve, you’ve got me thinking on a few different sides of it. But also, I like the structure that you bring to what you’re talking about, and obviously how you approach it.
Eric Hoek: 1:09:17 So hopefully that makes it simpler, because that’s all I’m trying to do is I try to make procurement more simple. Recognizing the fact that it can be very complicated. Yeah, there’s so many areas that we can dig into further, but let’s try to keep it simple while we can.
Jonny Dunning: 1:09:34 I like your style. That makes sense to me. Excellent stuff. Well, listen, thank you so much, Eric. I really appreciate it. I really enjoyed that conversation. And yeah, maybe further down the line, we can dive into some other areas that might be of interest as well.
Eric Hoek: 1:09:49 Thank you very much for the conversation. It was very interesting to talk with you.
Jonny Dunning: 1:09:53 Excellent. Thank you.