With Gaurav Sharma, Procurement Excellence, MTN
00:00:00 - What is procurement excellence and its 'value-stack'
00:12:00 - How has procurement excellence evolved beyond a shared service
00:19:00 - Exploring the use-case library
00:25:00 - The strategic opportunity of hyper-automation
00:31:45 - Data-savvy procurement
08:37:20 - Phasing and prioritising transformation
00:45:00 - How do you extract value data from services?
00:57:15 - Unit-based versus value-based scope
01:08:00 - What difference can a procurement excellence bring to an organisation?
Jonny Dunning: 0:00 Let’s get started. So I’m very pleased to welcome Gaurav Sharma to the podcast today. Gaurav, thank you very much for joining me. How are you?
Gaurav Sharma: 0:09 I’m good. Thank you for having me, Jonny.
Jonny Dunning: 0:11 Excellent stuff. So just to give a bit of background on you, you are a senior manager in procurement excellence and data analytics at MTN based out of Dubai, you also have a really interesting podcast, you’re putting some great content out there around the areas of procurement and digital transformation in procurement called Super Negotiate. Before we get started, can you just give a little bit of background for people just on what you do now? How you got there? And also a little bit about the podcast as well?
Gaurav Sharma: 0:46 Absolutely. Again, before I start, thank you for the opportunity. It’s great to speak to you. So I’m in procurement for about 14 years now I started as a Category Manager, where I was doing capex procurement. Then I moved into the raw materials procurement. And then I started with procurement excellence about eight years back. So with my background, I’ve always been curious about the data science element or the machine learning element. I think my machine learning journey started about seven, eight years back. And then I started experimenting with okay, how do I combine two things together, like bringing in procurement experience as a Category Manager, or rather, I should say my frustrations as a Category Manager. And then doing small little experiments with open source libraries in Python and R, etc, etc. So that’s how this whole journey started. And then I get, let’s say, you speak to a lot of people who are like-minded with you, and then just build on it. So that’s how Super Negotiate started. This is basically everything I was looking for when I was starting out how to negotiate? How to do spend analytics? And I was not able to find one single place where I can find these learnings. So that’s my way of giving back to the community. So anyone who just starting out, can probably go out there and then listen to what I have shared as my experience. So this is the two aspects of my job today.
Jonny Dunning: 2:18 Excellent. Yeah, I love it. I think you put out some great content. You know, it’s really detailed. It’s very structured. And I think it also gives a bit of it alludes to your background, which is quite a technical background, isn’t it? So in terms of prior to getting into procurement, it was more of an engineering type background, wasn’t it?
Gaurav Sharma: 2:37 Yeah, I’m a graduate in Mechanical Engineering. So that helped me understanding how capex procurement can have done because a lot of equipments were being procured. So that’s how I got my basics right of should cost modeling, breaking down the components, trying to understand costing according to the complexity of the parts, so that helped me a lot. And then as I said, over a period of time, I get hooked to the power of negotiations in procurement, you are negotiating big size deals. So how do you try to get the best savings and different styles of negotiation? So that’s what got me started with.
Jonny Dunning: 3:17 Yeah, and actually became aware of you first through one of my colleagues passing me on one of your podcasts, which was around Procurement Excellence, which I found super informative, really, really useful. And, since having kind of followed your content and looked at some of the other stuff you’re writing and some of the other stuff in your podcast, I just think you’ve got some really interesting points that you’re putting out there. And it’s really great to see you communicating that in the market. And I thought that some of your viewpoints, the learnings and shared experiences and points of view would be really useful to share with our audience as well. So I’m really, really grateful to you for joining me today. And as we kind of previously laid out, what we’re going to be looking to discuss is around that procurement excellence area, and digital transformation. And in particular, we always take a kind of services procurement slant on things that we’re looking at, just in particular how that relates in a services procurement context. So what would I be really grateful if just as kind of at the start of this conversation here, would you be able to give your definition of what you feel procurement excellence is?
Gaurav Sharma: 4:31 Absolutely. And then thank you for asking because in my view, procurement excellence function is a recent function in the last seven or eight or two years if you see, the companies who are starting with procurement excellence, tend to think as a program management office so it’s particularly a bridge between the procurement and the IT portion. So they are doing program management of esourcing suite rollout or a spend analytics tool rollout. And that’s how usually you would see most of the companies starting their journey, so called in procurement excellence. But as you see after the tool is implemented, right, and that’s where I see procurement excellence stocks contributing a lot, because after you implement the tool, then one, your processes have to be fine-tuned accordingly. So you get the automation or efficiency benefits. Second, you have to ensure the right amount of data analytics is being used. So for example, you would see from your ERP or fusion data, you already have a lot of information on your purchase requisitions, your PO creations, your payables, your shipping. So even if the organization has no plan to let’s say, roll out any contract management module or esourcing suite, then also you have so much benefits or so much insight available in the data set. But the buyers are way too busy to go and do that data analytics. So this is where procurement excellence comes into play. Whenever there are strategic negotiations plan, how to derive the insight, meaningful insight, no buzzwords, no heavy PowerPoint presentations, meaningful insight on, these are the five steps you can take to negotiate better, these are the five weaknesses of your suppliers, to capitalize on bundling volumes, so on and so forth. So I believe the organization who are just starting with have to look beyond procurement excellence, just as a program management office for digital tools rollout, it’s way more than that.
Jonny Dunning: 6:40 Yeah, and in your excellent video podcast on this topic, you talk about the kind of combination of skills that are required. So there’s that background in on the analytical side, then there’s the digital transformation side, and then there’s the operational intelligence side. Can you just expand on that a little bit in terms of the type of skills needed for people to go into that type of role?
Gaurav Sharma: 7:11 Absolutely. And thank you for asking this question, because it kind of puts us at a juncture where we have to think procurement as a function that maximizes the value. So whenever people use the terms of so-call procurement technology stack today, I see a lot of CPOs getting lost in terms of, “Okay, I have 10 tools for each and every function.” A lot of CPOs are now talking the language of a startup technical stack, like when you launch a startup, you will have a tech stack in terms of, “These are my front end layer, this is my back end layer, I have API’s.” And I’m seeing a lot of people doing same for the procurement also, which in my view, doesn’t make much sense. Rather, I should say every CPO should have a value stack, right? “In the next two to three years. This is my value stack. This is from where I will get my cost savings. This is what I’m doing in terms of improving my data quality, this is how my sustainability is getting improved.” So this is a value stack. Now, when you go into that sort of mindset, you quickly realize there are some people who are really good at their specific skill sets such as category managers, right. So you have to maximize their focus in terms of, your job is to just make sure the category buying and strategies are implemented. On the other side. At the end of the day, you need some sort of language translate if I put it this way, between the buyers category strategy. So if I’m a buyer, and I want to develop a new source for my single, let’s say category, there is a monopoly and I want to break it, and I want to develop new sources. Now, what is the potential sources available is something I would rely upon from my marketing intelligence team, right? Or let’s say if I want to compare my competitiveness of my current supplier versus what is out there in the market, I again need some sort of a benchmarking information. Now these are the input streams that I feel can come from one, purely from a marketing intelligence team, you can have a marketing intelligence data analyst who can just capture feeds and provide but it’s not really useful because you have to understand from buyers perspective, what exactly is required? A lot of time people are busy, so they would not reach out to you and they will ask for specific inputs. And that’s where I think the whole function of procurement excellence comes into play. So you need someone in procurement excellence, ideally, who has a category managers mindset, how to prepare category strategies. When should I enable my demand bundling? When let’s say a particular demand for a commodity becomes a hotspot? So you need that buyers mindset. On the second hand, you need someone who has a sense of data usage. And I’m still not saying technical expert or technology geeks, someone who really understands the data. So let’s say if a tool is implemented, what kind of data will I need to implement the category strategies for my Class A or Class B buyers? And this is the profile you’re looking for. So A, to summarize, you need someone with procurement mindset. Second, who can translate the buyers need into the regular data points, and then judge the tools, will I be able to get the data that I need? Or this tool, whatever is being proposed to me will help me get that data or not? So these are the two skill sets that you need, in my view?
Jonny Dunning: 10:53 Yeah, that’s really, really interesting. And I’ve not heard anyone come up with that point before about talking about a technology stack. But actually, what CPOs should be looking at is a value stack. And I think, if you look at a really evolved procurement function, then you can see how that really starts to line up and make complete sense, I think for some procurement functions where they are immature, from a visibility, automation technology point of view. They’re nowhere near value, particularly in areas like services, where it’s difficult to capture the value in some ways compared to goods and materials. And it’s a less solved problem. Because services are more complex. And you’re not just buying a binary product. But absolutely, that’s what it’s all about, it’s about driving towards value. And again, it ties into this evolved discussion around driving value rather than just cost reduction, which is something that I’m extremely passionate about when it comes to the services side of things, because quite often what’s being delivered in services is not very tangible. It’s not effectively captured. And therefore, it’s approached with very much a cost only mindset, which I think, it can be to the detriment of organizations, if they’re cutting costs, in areas where for example, consulting work, or particular service provision, is really driving the business driving the bottom line, new products, whatever it might be. So I think that value stack is a really interesting concept like that. So when you’re looking at the skills needed there, and you mentioned earlier about procurement excellence, kind of being this program management intermediary between the category managers and IT. You’ve spoken in the past about how procurement excellence has evolved. Since its inception over the last kind of seven or so years. How do you feel it has evolved to this point? And what do you feel will be the next evolution of procurement excellence?
Gaurav Sharma: 12:53 Excellent question. In my view, I’m looking at two kinds of teams today. And the difference is really, really staggering. There’s nothing in between. One function, or one kind of a setup is where the team is busy in 80%-90%. Time in the tool implementation, right. And often you would see, it’s multi-year sort of an engagement, they’re busy rolling out the tool. They’re busy doing that change management, they’re busy rolling out the quarterly features that gets released every quarters. And this is where 90% of time is spent, right? And what’s the tool gets implemented? And for such teams, what happens is, suddenly there is a lot of vacuum that becomes available because the tool has been implemented already. So then what will happen is they become more and more of a shared service desk where people are sending them the request of, for example, can you get me this report? Or can you do this analysis for me? It’s sort of an exercise, right. So this is one typical setup. The setup that I really like is in terms of a setup where you program your, for example, use cases two years from now. So we all recommend or I recommend in my podcast, have yourself, use case library defined, sit with your buyers and come up with 20, 30, 40, whatever use cases, classify them in terms of priority and complexity, so that you can choose and lay down your project pipeline accordingly. So once you do that, and lock your resources according to the project pipeline, in this kind of a setup, the tool is only a milestone. So when the tool gets implemented, then you still have the responsibility to make sure you implement that use case. And once that happens, you would see a lot closer sort of a connect between the actual buying team and the procurement and excellence team. So, for example, if you take E-sourcing suite as a case study here. So in first setup, the initiation would start with a program manager responsible to deploy the tool up, let’s say in 10 countries or so and the program ends when the tool is go live in all the 10 countries, then it enters into a business as usual or a maintenance cycle, end of the story. However, in Setup B, you would see after the tool is rolled out, then the procurement excellence manager will become a key aspect or a key member for every negotiation, because then they can see, show me the analysis of last 10 bids the supplier was involved in can you do some sort of a demand management in terms of okay, based upon the seasonality, when am I procuring this material? Is it the right time to issue the RFP? Can you tell me the market conditions? Should I delay my RFP? Or should I push ahead, my RFP, etc, etc? Now, all these data points are existing even today, right. But not many people are able to use them. I don’t know, because of the high involvement in the program management aspect, or the lack of the use case library. And I believe for me, the focus would be as I said, the value stack thing is the kind of teams of the second matter where they begin with the use case, they define what comes after the tool implementation. And then the key member of every strategic negotiation that happens. If you don’t do that, I believe the procurement excellence function becomes just a shared service, which I believe is not really sustainable.
Jonny Dunning: 13:53 Yeah, like you say, if it’s just there for the purpose of implementation and setup, then it almost becomes redundant or becomes kind of, it drifts into a, like you say, almost like a help desk function. So with what you’re talking about in the second scenario, there’s two things with that. There’s more proactive work going on within the procurement excellence team to think ahead and plan ahead. But it sounds like also this potentially more engagement with the actual buyers with systems or more of a kind of self-service type of approach? Would you agree with that?
Gaurav Sharma: 17:29 Absolutely. Yes. Because again, as I said, all the buyers have to, because we are talking in the age of 2023. Now, so you can’t expect to provide certain standard reports to the buyers based upon demand. And that’s not sustainable. But I think a lot of good opportunity that we have found by working with some of the advanced buyer is everyone has the data, everyone has the capability of dicing and slicing the data. So that is a standard one. And I keep on referring to the use case library, because once you tell people that, this is the way you need to analyze the data, take example of tailspin, right? There are so many spin analytics platforms today. And there is hardly any differentiation between the products, maybe the UI portion is different. All of them will say, “My platform classification, accuracy is better, etc, etc.” But the winners in the spend analytics domain are able to guide the users according to the use case. So they don’t force the analysis on top of the users. “This is the dashboard; you will have to use.” No. Rather, it’s the way you should analyze the data. So for example, they can quickly tell them follow steps A, B, C, and D. And at the end of the step D you will have five observations which you can go and negotiate with your suppliers, which is a much more refined approach than just giving a dashboard with 100 outliers and let the buyer figure it out. So most of the advanced use cases are becoming more and more simpler to deal with, of showing just the right amount of specific information. So it’s a fine line between throwing everything at the bias desk and doing a DIY or rather refining it according to your domain knowledge like step A, B, C and D and then throwing it the buyer needs to do the DIY.
Jonny Dunning: 19:32 And so ultimately, that ties in with this use case library concept. So can you give me an example of say within a category, like what might be say three different use cases, just on a very, very simple top level.
Gaurav Sharma: 19:51 Absolutely. So we are talking in 2023 right now, right? Because everyone is finalizing the category strategies. So what I will do if I’m a Category Manager, one, everyone wants to reduce the cost. So, what are the areas where one, I have high leverage available in terms of the volume that are committed? So, I will ask my procurement excellence guy, “Can you look into historical data and tell me which am I buying months of peak activity? Is it October is it January is it February?” Once I compile that data, I will speak to my stakeholders to say, “Can I confirm my 50% of the demand? Are you expecting some demand reductions or not, right?” So get a feeler of in terms of, this is the demand that I can commit no matter what. And then I combined with how many suppliers I have. So wherever I have a combination of let’s say, confirm demand that I can come in, and high number of suppliers, this becomes my high leverage negotiation opportunity. So that’s my use case one. Second, I would ask my, again, procurement excellence team, that these are my direct commodities A, B, C and D. And I want you to tell me, what is the best time for me to let’s say issue the RFP, and what my procurement excellence team will do is based upon okay, you are buying, the buyer B is also buying, the buyer C is also buying, they will try to make a range. So if you all can agree to let’s say plus minus two weeks, you can actually bundle your demand and issue onto the market. We can also look into the parameters of for example, the external feedbacks, look into the commodity pricing. So if commodity pricing is easing down, so my excellence team can tell the buyer that, “Don’t commit all the demand in one go rather spread your buying because the prices are going to decrease or agree upon a formula based pricing rather than a spot pricing, because you would want to capitalize the price the agreement that happens always,” some sort of cost modeling that can happen. So one as I told you the high negotiation leverage categories, so that I can get benefit of better unit pricing. Second in terms of looking to the cost models, if I have a fixed price model, can I move to a formula based pricing if it is happening, and third, which is most important is, if I have a lock in today, what I define as locking is where I have no choice to go, I have to buy it no matter what from one particular supplier, right? Where my negotiation leverage is absolutely zero. So, can I do something today sitting in 2020 to identify can I diversify or develop a new supplier or agree with my supplier, some gain pain share model? What do I mean by gain pain share? Like I can commit some quantity upfront, but I can agree upon if the price increases, you will only give me 50% of the impact and 50% we will share. But if the price decreases, I will do the same. So these are the three use cases and there are tons of use cases available. But as I said, it’s important for us to analyze the situation correctly. So 2023, everyone is expecting a bit more challenging economic scenario. So the pressure would be not on the sales because everyone expects the sales to go down to but to maintain the same profitability, procurement as to cut the costs, right. So either you can become a table banger shouting on your suppliers, or other take a bit more matured approach of preparing yourself and then agree upon some of these game pinscher models to begin with. And this is the kind of relationship I say, we don’t expect, or we should not expect buyers to do this job. Right. They should be responsible for making things happen for the strategic activities. And all these data analytics use cases is where procurement excellence setups come into play, which is the advanced procurement setup I talked about.
Jonny Dunning: 23:57 Yeah, absolutely. I think it’s fascinating. I just the opportunities within procurement, I just feel it’s so vast, we talk about procurement excellence being a relatively new function, to look at it on a much longer timescale. In some ways procurement is a relatively new function compared to some other functions within organizations. And I just feel that with through COVID and the changes we’ve had over the last few years, I think the importance of procurement has been highlighted, particularly in the current economic circumstances, the importance of procurement is highlighted. And there is this opportunity to really increase that kind of stature of procurement around in the C suite, around the board table. But it ties back to data, because procurement are at the junction of so much data, internal data, supplier data, also the informed opinion of suppliers on what’s happening internally with their business and also the informed opinion of internal stakeholders on what suppliers are doing. All of that information can sit with procurement. But I think I would argue that to a certain extent within the procurement of goods and materials, a lot of that information is captured quite effectively and can be utilized. Where obviously we’re operating in the market is where we see there’s a gap, which is around when you’re procuring services, in the sense of, that data just is not captured by most organizations. And so there’s a huge, even bigger opportunity and services, but across procurement as a whole, is this giant opportunity to leverage data effectively and then be able to make these predictive analytics and actually, you say, add value rather than just looking at cost reduction. So one of the things that I’ve also heard you talk about is what you termed kind of hyper automation. And I think sometimes procurement teams or procurement functions can be a little bit wary of automation, in the sense of kind of thinking, is this going to put me out of a job? What is the purpose of this automation? I liked the way you described it, because you talked about bringing the focus back to strategic activities. What’s your kind of broader view on that side of things in terms of what automation is appropriate and most effective?
Gaurav Sharma: 26:23 It’s really good question, because it kind of debunks a lot, which has been, let’s say, presented today by many solution providers. So I always tend to draw the line, what gets digitized, doesn’t mean it’s efficient. So especially when you look at the things today, so for example, I could be running a very really efficient process in Excel. But when I moved that to a new digitized platform, I will have to do 100 clicks to get the job same. So anything that is getting digitized, doesn’t mean it’s more efficient. And if you evaluate the new tools using this principle, so for example, when you’re procuring an E-sourcing solution, for the first time, you would see there’s a lot of resistance from the buyers, because one, they might be sending something directly to their suppliers or email to begin with, or comparing their pricing offers in Excel. But now they are forced to replicate that using 100 clicks on a platform, so they’re still filling the forms on the platform. And clicking here and there. So both buyers and suppliers have to struggle through a let’s say, filling out that form. Now, if it is 10 line items, it’s fine. But what I request to the CPOs, make sure you understand what kind of procurement you’re doing before going into a jumping into this, “Okay, I’ll get our platform or throw money at the problem and expect that to be solved,” sort of an approach. So take example of CapEx procurement, right? So a CapEx procurement or equipment purchase procurement can have hundreds of line items. Right. And if you don’t realize that, if you’re most of the procurement activity contains hundreds of line items, and you implement an E-sourcing solution without thinking of this aspect, your buyers will spend significant amount of time doing admin job of creating 700 line items, every time they are issuing the RFQ process. And your suppliers will be frustrated because they have to now input 700 items. And this is what I was talking in terms of understand your operation and processes first, rather than throwing money at the problem and expect to be solved. And this is what I call as hyper automation. So even if you have a tool today, and you find out that your buyers are still struggling to feed the information manually on a digital platform, this is what you should be solving first in terms of hyper automation. Use the RPA, make sure your templates are uploaded automatically. And the notion of trying to correct is even if you implement a tool there are still many manual activities that breaks the workflow of your buyers, be it about launching the event, be it about comparing the BOQ’s, be it about preparing the presentations, or making sure your comparisons technical evaluations are baseline are accurate, etc, etc. There are tons of manual activities even till today. So before buy any new platform, make sure you reallocate the budget to make sure your one tool whichever you’re using is 100% digitized. The only thing why should be made responsible is negotiation. Not anything else.
Jonny Dunning: 30:02 Yeah, absolutely, I think, you draw a clear distinction there between, well, not all digitization, or digitalization, is created equal in the sense that you can have an extremely inefficient process. And just because it is captured within a system rather than an Excel, it doesn’t mean that it’s, it could be a far less efficient process. And that’s where you get the problems with adoption, particularly with some of the legacy systems, we see that a lot. And I think, as a technology provider, as a systems provider in the procure tech sector, that’s why user interface is incredibly important. And that’s why, platforms, like ourselves, spent a lot of time and a lot of effort trying to get out of the way. And to make things simple, and some of that is making your process as simple as intuitive as possible. But it’s a little bit like what you were saying, with regards to dashboards, don’t just give everyone a giant form with a million fields on it, allow people to build things up, that matches their workflows. And that part of that is configurations when you’re actually implementing the software solution for a customer. But part of it is making it an intuitive way of using a system that doesn’t just get you to effectively duplicate manual activity, and extremely time consuming way. So that the hybrid automation side of things. And so obviously, if procurement functions are able to automate the things that should be automated, then that allows them to move away from more of a transactional focus. And if you’re doing this right, then it means they can focus more on the strategic activities that you talk a lot about. And that then puts them in a position where they can focus more on what you describe as data savvy procurement, which I think is an incredibly important area at the moment. And it should be front of mind for large organizations when they’re looking at this because it’s all about the data and the summit data they can potentially be capturing and they should be capturing. So in terms of that data savvy procurement, can you just outline your thoughts on that a little bit and just talk about what how this helps organizations and what it brings to the table.
Gaurav Sharma: 32:14 And I guess this is the big thing that will differentiate average procurement setups from let’s say, a meaningful advance procurement setup immediately in 2023 onwards. So everyone talks about data and procurement, I guess everyone is talking about data since 2015, 2016, data is the new oil, etc, etc. But no one talks about how the data is getting used, or what you will do with that data once the platform is implemented, etc, etc. So, as I said, in 2023, onwards, everyone will have a clear methodology of what kind of one, leverages I have to reduce the costs, second, sustainability becomes a really good leverage to have as a differentiator in 2023, all your risks, because the supply chain is still very volatile. We are facing new risks, every now and then it’s more frequent now. So how will you do the risk management? So if you start with these three areas to begin with, there are lots and lots of opportunities available? For example, what’s the most susceptible to shipping risk lane you have, for example, from China to let’s say, South Africa, or China or India etc, etc? Are you able to detect those risks earlier in the process? Do you have early ship and alerts? Do you do some sort of a data exchange information with your suppliers? Somehow build this early warning system so that you don’t have to rely or respond to the shocks to begin with. Now, these are very conceptual things, but when you try to break it down, when I say risks, what do you mean? So this could be you running out of the stock, so that means you have to do active inventory management. So you break it down, right? And then when you say active inventory management, you think in terms of what’s your cycle time of filling order it, what’s your average transit time, so on and so forth? Similarly, if your supplier risk is getting high in terms of big example of supplier management, which of your suppliers are really dependent upon order inflow from your factory, so, if you don’t give orders to them, it’s likely that your suppliers will run out. Now, why am I talking about this is the risk of bankruptcies will increase and you see the recession looms coming into play, right. So again, it becomes part of the risk management. So any data savvy approach put mean compare your supplies, revenue and cash flows with let’s say the order information or invoices you have done and whenever this ratio threshold is high, you should be putting them in active monitoring in place, etc, etc. Other aspects could be if you have a huge demand coming in already, like contracts that are due for renewal, can you pre pawn them in your next bidding cycle, and commit the volume to get the leverage to discount etc, etc, the example that we spoke of earlier, the all these things are really, really data dependent, right? And that’s what I mean by data savvy procurement. Usually people would rely upon God in the old setup, where they would say, “Okay, I think this is pulling the number out there. Let’s commit to that, let’s commit to that.” But when a data savvy procurement comes into play, I know my specific risks. I know my specific opportunities, granular because it’s backed by the transactions in my for example, E-sourcing system or spend analytics system, etc, etc. So I think this is where I’ve seen most advanced in performing really well. Another example could be the category strategies. So everyone should start preparing category strategies already if they have not done it. So when you see the examples of category strategy, you would see four or five [Unclear], some sort of ready pretty presentations, which never gets really translated into, the highly effective category strategies that I’ve seen are hardly one or two pager, which are like list of initiatives and what benefit I’m going to achieve, and how will I do it? And the whole exercise behind putting together that two pager category strategy, as I said, in terms of risk management, in terms of cost containment, or in terms of the leverage of volumes, is where the whole data analytics comes in. So I’ve seen category managers working with procurement excellence managers hand-in-hand, like in one team, and then over a week period, they will finish this two pager category strategy document, which is then published globally, and then gets tracked every quarter, how many initiatives have achieved? What are the blockers, etc, etc, etc? So these are the very practical examples that I’ve seen working in a data driven procurement.
Jonny Dunning: 37:03 So basically, it’s allowing the organization to focus on the actual value, rather than just looking at it from a transactional basis. So moving on to how organizations can address the issues that they’ve got. So in terms of applying cost management, transformation, and basically, improvement, or that path towards procurement excellence? How in your view, should organizations be prioritizing areas to specifically apply that cost management and transformation to?
Gaurav Sharma: 37:41 A follow a structure honestly, like, I always would start with, I’m very tool agnostic, I would never start my journey with having a tool in my mind. So my first step would be assess your processes today as it was to be. So that should be a three-day exercise, not really complicated. So you understand what are my blockers today, then you define a use case library, I always lay a very, very highly amount of influence on my use case library, and then prioritize the use cases in terms of, these are the five use cases that I want to implement it. And once you do that, then you move to the stage of hyper automation. As I said, get rid of the processes. Before you buy any fancy tool that you want to, once you do the hyper automation, then you define, then you look back into the use case library and then see, “Okay, this is the tool, let’s say for example, E-sourcing, to I want to implement,” and then imagine the case, after I received the tool, what am I going to do how I’m gonna try my category strategies to it? So this is phase one. So the organization that has no procurement excellence function exists today. This is the part that I will do first, the second portion is, wherever the tools are there, our procurement excellence team is already there, I would start with in terms of setting the priorities for 2023 and beyond like cost containment. So if I have to decrease my cost by 5%, what are the categories that I can target, leverages that I can pull, how many negotiations can apply in advance, etc? So that’s where the value stack comes into play. So in the first phase, it is all about hyper automation use case library, and in the second phase is about the value stack that comes into the play.
Jonny Dunning: 39:24 And so if you take that and apply it across different categories, where would you see? So obviously, it depends how much you’re spending in different categories as to where the most potential value lies, which depends on which industry sector that organizations operating in, how its structured, etc? But if you look at it as it from a category point of view, or I sometimes take a goods versus services point of view, but ultimately, it’s all about categories. Do you think there’s a difference in the potential to drive this value in a goods and materials environment versus a services environment?
Gaurav Sharma: 40:09 Yeah, I think it’s a good question. Because if I compare the like to like comparison capability in three kinds of procurement, so it will be the easiest when I’m buying raw materials, because I have a minimum level of specification. And above that is just an apple to apple comparison. The level two in terms of higher difficulty would be CapEx, because you have to line the bill of materials and specifications. And it’s usually more complex, because you have so many line items to deal with. But when you compare that it’s like and like and then you can actually go ahead and negotiate. I think the service is the third level difficulty or other the most complex one, because one, your scope cannot be compared apple to apple, because you will always have that quality of service sort of argument around it. And the second in terms of whenever the services are getting consumed, because in most of the cases, you would see when I’m buying the raw material, or when I’m buying CapEx, I would see the item has been received in physical form, or it’s damaged, hence, return. So as a Category Manager, I have full visibility in terms of I ordered 10, and I received nine, one is pending. So it’s very binary. What happens in terms of services, if I pull my standard analytics data, and I see services category, and I see, I’ve issued 10 POs to you, I have no way of telling whether those 10 POs had the same scope, or a different scope. So I cannot really use, for example, previous historical information from my spend analytics solution, or E-sourcing solution to compare, then all the buyers would rely upon their own way of storing that information go into the unitary price comparisons, right. So that’s where the need of organizing the data in the right form, for services becomes a really nice opportunity area, because you cannot store that in the E-sourcing system. Other than storing some PDF attachments, etc, which again, is a manual activity, or from your ERP system, where you only see PO line item, and then the final payment, right. So most of the buyers would compile their own Excel sheet, store it somewhere centrally, and then they will try to compare this is the last unit price rate. This is the combination, for example 10 different people came and work on this project with different designations, different mandates, etc, etc. So all this analysis is sitting outside the tools, which makes this extremely difficult. So that’s the part of the problem at the buyer side. On the second side, however, if you have a service that runs into six months or more, and you have, for example, different payment terms, let’s say I have to do monthly payments to you throughout that six-month period, you would only see good receipt process in terms of decimals like .3, .6, .9, etc, etc, I will have no way of judging whether the quality is accurate or not, or whether the work has been performed or not until the last stage. And the disconnect between buyers. And the final service receiver in case of services is the biggest. So I can very well pick up my warehouse guy and ask him, “Have you received these 10 pots?” And he will say, “Yes.” “No.” But I cannot do the same for my services category. Because it’s always the feedback is judgmental. I can’t rely upon solely the word of my warehouse guy. What says the service provider because there’s always a disconnect. So there’s a lot of inefficiency today in how services are received and provided and delivered.
Jonny Dunning: 44:08 Yeah, and I think it ties into the fundamental nature of services versus goods and materials. As you say, if you’re buying raw materials, it’s very binary, it is a thing. Is it the right way? Is it the right quantity? Is it the right quality? But obviously, you can have a huge amount of complexity around the supply chain in that area, which is an area that I feel technology has sold pretty well in terms of ERP, and E sourcing tools even tying in with the data analytics. With services, I always kind of consider it to be almost the opposite in the sense that there’s generally a much simpler supply chain involved in the delivery of the service. But the service itself is much more difficult to define. It can be quite vague; it can be quite intangible in some cases. And if you’re looking at project based activity consulting, professional services, that sort of thing. Again, it’s something that can be very difficult to catalog, very difficult to define, because every project might be different. And I think it ties into the next kind of question I was going to ask you, which was about how organizations can go about measuring cost and value, and ultimately, performance in services. This is the kind of key area that we’re addressing in the market, as it from a technology point of view is, how do you actually take that whole process and extract the value out of it? Yes, you’re not going to be able to extract the value from your ERP system or your source to pay system because generally, you might be able to catch us, for example, a source the contract type of journey, and that contract may well be a PDF that again, sits in a contract repository somewhere. But then does it capture real deliverables? Does it capture milestones? And then you get into the delivery of that work? And that’s where it can really get away from people in the sense that have those things change? Have there been additional milestones added? Have milestones been delayed? Have they been changed as the project goes through its different phases? And in terms of performance, it’s not just about the quantitative information around, what milestones were there, or what deliverables were there, whether their blocks of consulting time, or their sprints in an agile development process, or whatever they might be or KPIs in an ongoing service? It’s not just the quantitative on time on budget to scope, is the qualitative aspect of it off, are they doing a good job? What’s your overall satisfaction level? Because a project, a consulting firm could be doing a piece of work, and it could look like they’ve got a significant cost overrun, or a time overrun. But actually, it might be the problem with the internal stakeholders, the project might have turned out to be much bigger than they originally thought it was going to be. So all these things can be brought into an area where they do become useful data. What’s your view on how organizations can kind of move towards making kind of real comparisons between suppliers and actual gaining a better understanding of the value of the services that they’re buying?
Gaurav Sharma: 47:13 I’ll try my best because I don’t have all the answers yet. But I can point out some of the problems that I’ve seen from my execution level. Let’s start with the number one, which is the master data management, most of the organization will not have a unique service code, they would rather have one generic code of services where they will have a free text to begin with. And I’m not blaming them, because there could be many different services. So how to define or categorize them properly, so that the comparison at least becomes apples to apples. That’s the start of the problem. So if you club all the services under one generic material called cost services, your spend analytics goes out of the window. That’s from where the problem starts. So from there, let’s move to the buyer side as a Category Manager. So when someone would send me a request to procure services, I will try to draw out how much I have paid historically on that, right. And that’s my problem statement to start with, I will look into the quotation that the supplier might have provided for that particular service. And I would then screen my E-sourcing system to see can I get some like to like comparisons. And if my E sorting system doesn’t have the information in right granular detail, like line items, resource wise, which I guess I have never seen, I have only seen people putting PDFs into the play. So whole comparison of how much have I paid previously becomes a really cumbersome exercise. So availability of the right like to like comparison data becomes a really good opportunity, how we’re solving it today, because we try to divide it in terms of two aspects. One, the quantities so for example, if it is a mandate, sort of a project, time and money, I would say in terms of how many days are required, right. And the second, which I guess is more important is in terms of the unitary prices. Now, ideally, my E-sourcing system should allow me to capture the unit prices of all my services in a very structured form, but that doesn’t happen. Most of the tools either don’t offer this functionality, or most of the buyers won’t use it according to that because it’s very cumbersome to invite quotations in that manner. So from buyers perspective, if we can get them an access to the unitary prices of the similar service procured historically, that would be a huge win, because it offers me straight up like to like comparisons aspect. Moving on to the third aspect in terms of how the service is being received. is again a very big area of improvement because there are two kinds of organization that I have seen, one, who would stop the purchase if the service scope is increasing. And that’s usually I’ve seen in small setups where the buyers and the requesters are very tightly connected. So they would immediately phone up the buyer, “I did a mistake, the scope has increased, or the supplier did a mistake, the scope has increased, can you negotiate etc, etc?” However, in big organization, the gap or the communication gap between the buyers and the repressor is quite big. And that’s where you would see all the revisions in scope, not reaching up to the buyers desk. And that’s where many service providers come in, really competitive to begin with. And then later, they would ask for 20% scope increment, not the price improvement, scope improvement, so that they are again moved to a higher bracket at the end of the day. And because this feedback loop is either delayed or doesn’t exist, the buyers won’t be able to see that. And another operational aspect is if there is a scope in overrun, like you put it or a scope increment, you will never be able to see on the E-sourcing system, you can only see that in spend analytics or they are ERP system. And then then for buyer, someone would have to do either both the analysis together, E-sourcing system analysis and spend analysis to really understand the full picture, which normally doesn’t happen because of the other priorities. So this is where procurement excellence team comes into the place. So we would always recommend to advance into have a dashboard or monitoring mechanisms for cost overruns in services are specifically using the let’s say, some of the algorithms and scripts running on the your ERP system. So whenever you see a new scope amendment being issued, just put that which supplier or which period, etc, etc. It’s still not very effective because of the material code generalization and pure description generalization. But yes, I think monitoring the cost overruns in service is again, a very big opportunity, which often gets missed.
Jonny Dunning: 52:17 Yeah, it’s cost overruns. Because unit truth price can also be misleading. Because one, if Consultancy A is offering a lower unitary price, but if you’ve got the data, you can see that 70% of their projects have a significant cost overrun or duration overrun, then maybe they’re quoting a cheaper price, but they’re taking longer to do it. And they’re just doing it that way. You can see when ratios and things like that if you’re capturing the information at source. But I think it’s really interesting what you said about the kind of generic codes, because anything, any tool that’s being used to manage services, you know, if it’s nested within the STP suite, if it’s best of breed, like for example, the way that we approach it, is still needs to inform the category strategy. And I think there’s a real opportunity to inform that category strategy, because the way that services are being procured, for example, under a Statement of Work type arrangement, that can apply across multiple categories. But actually, in that best of breed scenario, you can really start to categorize your suppliers effectively. And even if they’re working on different types of projects. If you’re capturing all of the information, you can see things like on time, percentage, on budget, how much scope change? How many cost overruns, average win ratios, performance scores based on quantitative metrics, and qualitative performance delivery, and actually bring together suppliers from across the organization? Because in services, that tends to be quite disparate as well, in the sense that, they’ll have a master record on the source to pay platform, for example. But they might not really be going through procurement as such, in each individual transaction. So I think there’s an opportunity there to support that category strategy. Because, crucially, within services, it’s gonna go across multiple categories. It’s not just one thing. But yeah, I mean, I think it’s a huge area of opportunity, because as you say...
Gaurav Sharma: 54:17 Sorry, I think you mentioned really great point, I just want to build on it, the whole aspect of how do you negotiate for services? It is a super interesting one, right? Because A, if you don’t have the right comparisons to begin with, how do you propose a 10% discount or 20% discount? Usually you would see whenever a consulting project is being pitched, the whole combination of resources drives the cost, if you invite 10 directors and 20 managers in a project, of course, you will have a higher cost versus two directors and let’s say 18 managers and that will have a lower cost. Now both the suppliers will be able to come in to the deliverables, right. But how do you enable that today becomes a really manual exercise, again, as I said, because you would see only two bids in the system. And you will never be able to understand why it is becoming cheaper because you can’t align scope to scope comparisons in E-sourcing today. So hence you download that. And then you try to analyze the information, or this guy has used 10 directors, that’s why the cost is higher. And often when the decision is done for the award, this analysis is lost in the Excel files. And this is where I guess the opportunity come into play. Rather than, we should be publishing this information or Intel to a common repo, where I can say, this is my finalize a baud rate for this supplier, this supplier has this mandate of this particular designation for this particular location, because you can change the location and services, for example, and rate of consultants and your price base may change, right? So the whole report of consolidating these mandate rates or unitary prices, according to the category, according to the win ratio, like you said, according to the change of cost location based, again, is a very good opportunity. And I guess buyers would love it to have such a reference of next time I’m walking into a negotiation, I can just take a bare minimum BOQ. In my estimate, it will be two directors and for example, 10 managers from this particular location, based on my historical reference, this is the last cost. And this should be my target price. So it’s something like a should cost modeling but for services.
Jonny Dunning: 56:37 Yeah, it’s really interesting. So at the moment, some organizations should be able to look at how much they’ve spent with different suppliers. And in some circumstances, they might be able to look at budget versus performance on a level potentially with for example, where it’s man days or that type of unitary cost. And I think the thing that comes to like cost overruns is also either that’s going to be as you said, a delayed process, or it’s not going to there’s going to be no visibility of it at all. What’s your opinion on the kind of split when it comes to services between unit cost based work versus more kind of like milestone based deliverables, in the sense that I, being kind of embedded in the services side of things, we’re seeing more and more emphasis towards true milestones, rather than more of a kind of time and expenses approach, where an organization is saying, I’m going to pay you A to know that B has been done? If I’m paying you unitary hours or unitary days? In some ways, that’s much easier for that to just the scope of that and the cost of actors to spread. How do you see that lining up in terms of the way that organizations are buying services?
Gaurav Sharma: 57:59 I think I’ve seen a bit of both. And I do see these will continue, because it really depends upon how mature your scope is. So if you’re able to lock down the scope, then I guess the fixed pricing kept pricing model makes sense that, “I will not pay you more than this.” And that becomes a pure milestone based approach. That’s what I’ve seen today. And then wherever let’s say the requirement is more. “I don’t have a fixed scope. This is high level principle. All I need is resources who can adjust according to the work that I have given.” So it’s more resource based approach, then you will see a unitary price comparison. But from a procurement perspective, Jonny, I would, again, you analyze the unit price anyway, because you might be overcharging me even if I have a fixed scope and your overall cost design, I would still compare your unit price with let’s say my variable scope component. So from procurement perspective, I will see unit prices anyway. But from a contractual model, I guess, depending upon, am I able to fix down my scope? That’s one factor. Second, for how long the service would run. So for example, if it’s a six-month clause, no matter if but if it’s a multi-year clause, you might want to bring in some cost adjustments according to let’s say the price increases because the salaries goes up, etc, etc. So a lot depends upon I guess how your business requirement is framing. But from a cost comparison perspective, I think it will be unit price comparisons for either of the cases.
Jonny Dunning: 59:41 Yeah, and I guess so, one thing about that is whether you’re measuring, you know, days delivered, and against when that’s happening, or whether you’re measuring deliverable milestones, if you’re actually measuring it and you’re actually capturing that effect. effectively, then you are able to look at trying to prevent those cost overruns, or actually be alerted in real time to when cost overruns are, there’s a risk of that, or it’s actually already happening, procurement and the buyer and the supplier can be made aware of that in kind of real time. And I think the other thing that you mentioned, which was quite interesting was how well can you nail down the scope? And I think that’s where there’s some really interesting use of AI within the market starting to come out now to look at helping buyers and stakeholders actually defined scope in the first place, and actually also collaborate with suppliers, with groups of suppliers to actually refine that scope, because the buyer is not necessarily going to be a subject matter expert on the particular service that they’re buying. That’s a really fascinating area, because the more you can define it, the more you can measure it. The more you know, up front, the more you can price it effectively. But there’s also that kind of incremental approach where almost like Sprint’s where we see a lot of project work, might even go through a scoping phase initially, before the rest of the project is built out from that. So it feels like whatever happens with services, there’s always going to need to be a level of flexibility.
Gaurav Sharma: 1:01:11 Absolutely. I mean, for me, the Sprint’s approach makes sense, not seeing the AI based solution that will be first for me if that happens, because services scope is actually really tricky to baseline. But the Sprint’s approach makes great sense to me, just a caveat though in terms of as a buyer, I would always expect for me not to be exposed towards any cost increments. So I’ve seen some suppliers saying, “I can run X amount of Sprint’s for Y amount of money, etc, etc,” which is not, let’s say a true output based approach. So at the end of the day, I just want my work done. If you take 10, sprints or 20, Sprint’s, that’s up to you, but for me, at least the scope that I’m providing you, you should be able to deliver that scope in and how many Sprint’s you want. So I’ve seen some suppliers transferring the risk, because if I put it this way, the whole risk management aspect, we shouldn’t be offloading that to the buyers completely, because otherwise, then the suppliers just have no skin in the game to play with.
Jonny Dunning: 1:02:22 Yeah, I guess, that makes logical sense. If you’re saying, however you do, or however long you take to do, it doesn’t matter, this is the scope, you give me a quotation against that scope, the scope can still change. So that’s where it kind of ties into the flexibility within the delivery of that service. Because the buyer might be unaware of stuff that’s going to come up later, the unknown unknowns, that then extend the project, change the scope, broaden the scope, reduce the scope, whatever it might be. So I think that’s where the simplicity within the process of engaging in a statement of work type engagement, of defining what it is that’s going to be delivered, capturing that and getting everybody’s agreement on it, and then ensuring that the delivery is measured against what was promised, that can just be applied to the flexibility in the scope, in a sense that, okay, the scope change is fine. Recapture it, now everyone is aware of what the latest thing is, and the price associated with that, and the time duration that can then go and be measured against the updated scope. So I think there are ways to move with the flexibility required for services. And obviously, services cover such a huge range. But the simple concept of a milestone being achieved, still ties in whether that’s a KPI milestone, whether it’s a sprint, whether it’s a pure deliverable, whether it’s actually a block of time and expenses, man, man days, man hours, whatever it might be, so that the principles still apply, and the changes to those metrics, still at loop up at the end of it. So I think when you’ve got this huge amount of complexity, breaking it down to that simplistic level of measuring things that were said to be going to be delivered, that then allows you to actually compare suppliers, not just within categories, where there may be delivering similar types of projects, but actually across categories, where you may have some large suppliers that are delivering into different categories. And you might say, “Well, why are we using this large consultancy in marketing, we’re using them in finance as well?” And the answer might be, “Well, they’re just one of our big suppliers.” But actually, if you look at the information, it might be that they’re your best supplier in finance, which is their core area, but you’re spending millions a year with them in marketing, just because they’re one of your big suppliers, whereas actually, you’ve got other suppliers across the organization that could be more effective in that specific area. So I think there’s huge value to be gained by addressing it. There’s complexities but they can be kind of boiled down if you’re capturing them specifically.
Gaurav Sharma: 1:04:56 And that’s what excites me because you see the tools today, I’m largely driver on the indirect spend procurement, really simple self-service style, etc, etc. But now I’m seeing a lot more maturity in going more specific. For example, how do you source CapEx procurement platform? And I guess you’re solving, how do you solve the service procurement? And now I guess a few exception players are able to realize, hold on a minute, the way we procure services is vastly different on the way you will search and indirect procurement. It’s not about filling the forms is about looking, how do you compare? It’s about how you provide the right entail? How do you size? It’s also about how do you protect yourself of cost overruns? So all these packages that the buyers are solving today manually, if it can be pre-packaged in terms of Step A, B, C, D, right? So how do I negotiate with a service supplier today? Step A, do your analysis, I have done it for you. These are your top suppliers of services. And these are the typical issues with those suppliers, cost overruns, high unity prices, here’s the analysis that I did for you in terms of given the scope that you have, estimated using a should cost model, this is how it should likely cost at your Step B. Step C, you go into terms of let’s try to negotiate with the supplier agree upon some price escalation, because this is a multi-year contract. So these are the top five key negotiation areas. And then Step D is the final. This is how you put performance measurement in the contract. Every month, you review the deliverables, or let’s say you review how much GRS has been done, et cetera, et cetera. So all these guidance frameworks would come into the play. So it’s a really big opportunity.
Jonny Dunning: 1:06:47 Yeah, definitely. And it’s something that, there’s always future potential, but organizations need to have the capacity to actually take this on. So for example, as we’re talking about in the way that services go across different categories, and they go across direct and indirect, you’re still potentially going to be buying some services within your direct spend. It’s the lifecycle and the workflow of buying and measurement of buying services, versus buying goods materials that is different. So, I’ve kind of philosophy is a services solution needs to be able to work across multiple categories, in which case, it needs to maybe just embed within, for example, the source to pay framework, or within the ERP framework, because you’re just solving a specific workflow, that information might still need to feed into a central spend analytics tool. And obviously, you’re going to be doing your core functions and have your master data still stored within, for example, the source to pay platform, you might be enriching that data with other elements of that source to pay ecosystem. But the fundamental workflows should be adaptable to sit across different categories, and different areas of services spend, but you’re still buying a service, the fundamental principles of that still remain. So yeah, a hugely exciting area. So one of the thing I was going to ask you about was just in terms of what kind of is it? Is it like a 2x or 5x or 10x? What difference do you think having a procurement excellence function can make to an organization in terms of how it impacts their digital transformation?
Gaurav Sharma: 1:08:25 If you want to become, let’s say, tool agnostic, then I believe you can directly contribute to the EBITDA margins, I don’t do X or 5x, or 10x, I would want to be a 10x, that should be the aim. Because I think the value would come in from the direct categories and services. And indirect would be should be 100% automated. That’s how you should frame your procurement excellent. So I shared couple of benchmarks that I would want to achieve, supplier onboarding in hours, strategic negotiation in couple of weeks time indirect spend, to release in couple of words, so on and so forth. The governance aspect should become truly digital so that we don’t have to perform audits on people, rather, all the non-compliances are automatically alerted on a recommendation system sort of thing. So for me, a true procurement, excellent works really hand in hand with the category managers in the background. And that’s a 10x improvement, I would want to have. But if it is just about tool rollouts, and let’s say becoming a shared service desk, I don’t see the lifespan of such procurement functions in the next five years or so because it’s a cost overhead. They will find it increasingly difficult to justify the number of resources versus as you said, why can’t we automate or outsource it?
Jonny Dunning: 1:10:00 Yeah, that’s really interesting. So obviously, you’re very much at the sharp end, the leading edge of this market. And for some organizations, they’re nowhere near having this kind of procurement excellence function embedded within their teams as yet, maybe they’re too small or that they’re not evolved enough to do that. But even then, you’re talking about the evolution five years from now, as you say, if it’s a kind of, again, goes towards this transactional versus strategic argument, because if it’s just transactional, have just set the technology, the tech stack or the value stack in place, and then you’re redundant after that, versus actually build the capability. And then, continue to facilitate that capability and build it further and further and further in the sense that the more data, the more insights, the more advanced it gets, the more that process can be built upon. So I think it’s really interesting looking forward in that way. As ever, it’s so interesting to chat to you. I really appreciate your time. And in terms of people being able to find you online and find your content. What’s the best way for people to find you?
Gaurav Sharma: 1:11:14 I am available on LinkedIn, and YouTube with the handle of Super Negotiate.
Jonny Dunning: 1:11:19 Excellent stuff, I have no doubt you’ll have some interesting new content coming out for people soon.
Gaurav Sharma: 1:11:25 Absolutely, yes. I’m looking forward to roll out the negotiation program again, and some spend analytics.
Jonny Dunning: 1:11:31 Excellent stuff. Well, listen, I really enjoyed our conversation. Thank you again, so much. I feel like there may well be things that in the future, we can revisit and look at and other areas of topics that might be useful to discuss. But thank you so much for giving your opinions and your experience and putting across your very interesting arguments. I’ve really enjoyed this conversation and it’s very much appreciated.
Gaurav Sharma: 1:11:54 Thank you so much. It was wonderful speaking to you and thank you for the opportunity, Jonny.