This week we caught up with Jon Hansen, renowned speaker, writer, and host of the popular PI Window on Business blog talk show. Hansen has more than two decades of expertise in all areas of procurement and supply chain management and logistics, among other topics.
We had a great discussion with Hansen about the evolving state of procurement professionals, and how the supply chain landscape is changing for industries.
How do you view the current landscape of the procurement industry? What key issues are you tracking?
It all centres around one thing for me. I think the mindset of procurement professionals has to expand beyond the traditional view of the profession. It is no longer a game of cost avoidance or cost savings. This has been proven by studies in the last few years.
Only 20% of CFOs feel the CPOs (Chief Procurement Officers), and their departments, offer any value, from a competitive standpoint, for the company.
Less than 50% feel that purchasing makes any tangible bottom line contribution.
So, I think the biggest thing is that procurement professionals are starting to remove those functional silos. We have to understand our extended influence across the enterprise as a whole. How does what we do ripple out and affect the end result? How do we strategically benefit the corporation with whom we are dealing? And, I believe that’s coming.
CFOs and CIOs are also going through a major upheaval and redefinition of their roles as well. Finance has been making change to procurement. So, it is happening. The profession and the benefits of procurement are being realized, but the professionals haven’t necessarily kept up with that.
Is that why changes in procurement take such a long time? Is the re-definition of roles inherently not a quick process?
I think it is a generational element. A few years ago, I could stand in front of an audience of 10 or 400 and ask how many of the people in the room chose to be in purchasing. Back then, if I got a couple of hands that was lucky. If it was more than 10% of the audience, that would have been surprising.
Today, procurement people are choosing the profession. They are choosing the field, going to university and getting degrees in supply chain. And the younger generation is more militant, in a way. They know their value and they have broadened their scope of education and curriculum to understand the bigger picture, the holistic view of the enterprise.
So what has happened is that there has been a generational drag – some have been very slow to come around and recognize that there is more to this profession than just buying something.
There is more to this than just getting the best price for something, or the best delivery option. I don’t know if you can say it is happening but slowly, but the situation is definitely one where it is happening in tandem with an overall shift in responsibility. There is a different mindset, any drag is from an old mindset about what purchasing is about.
What can procurement do better? Where are professionals in the field dropping the ball?
I just wrote about this, actually. The example I gave was Supply Chain Finance. Supply chain finance is one of the hot topics of the day, along with the implications of slow payment to suppliers and how it affects an enterprise.
If you look at it, far too many procurement professionals are operating in this buyer bubble. They look at supply chain finance and the answers you get, especially from some professional associations, is that supply chain has to be strong because and it is important because suppliers have to be strong financially. Otherwise, buyers are in trouble. Now, that is an old way of looking at it.
The new way of looking at it is working with suppliers to ensure they are not put in a difficult situation. That is the key. Older generations, the main idea here was due diligence and making sure your suppliers are financially sound. New thinking is realizing that you have a role to play in the financial well-being of your suppliers.
Managing suppliers is tricky. What does the buyer/supplier relationship look like to you? How does it work?
It now changes the overall picture. It begins with a relationship view, and we’re dealing in generalities here, there are certainly elements such as indirect materials where you do not need to have the depth of relationship, but you have to have the tools to engage the broadest number of suppliers.
When you look at a supply chain, like in the auto industry, the big three manufacturers in the U.S. are getting horrible scores from their suppliers and one of the reasons is the payment process. There is bottleneck there. In the past, procurement professionals would have said it had nothing to do with them. They had negotiated the contract, and they expect delivery. If a supplier couldn’t deliver then they would be reprimanded. They don’t understand the depth of the relationship beyond traditional function. If you don’t understand the impact beyond your narrowly defined role, you are going to take measures – penalizing suppliers – but why has there been a delay? What has caused the problem? That is key. Far too often buyers, at least older generations, look at this is a narrow scope.
Is the evolution of procurement towards the boardroom a good thing? Does that evolution promote the holistic view you are discussing?
It’s interesting. Toyota, for example, promoted their former head of supply chain to CEO. That shows that we are finally getting our place at the table.
We, as an industry, have often talked about whether we have that seat at the table. Unfortunately, the approach to that question has often been a Rodney Dangerfield “I don’t get no respect” kind of thing. The reality is, though, to get a seat at the executive table you have to have a broader understanding of your impact across the enterprise itself.
You have to look beyond the delivery of the product to understand what that delivery means to the organization. You have to broaden your scope of interest, you have to expand your scope of understanding and realize where your impact is in terms of the role that your play. I think that is one of the biggest challenges in terms of the disconnect between wanting to be at the executive table and actually being there. You have to think like a CFO. You have to think like a CIO and understand and act like that and be part of the equation.
What do you see as the near- and mid-term success stories for the procurement field? What do you see as things the industry can accomplish?
I think first and foremost it is thinking about the enterprise as a whole. Unless you understand what you do in the outcome of the enterprise, you are going to operate on the outside. So the biggest check mark is how procurement changes its vision to understand the broader scope.
Now, within that change in vision, there are a few key tenets. One is relational contracting, as opposed to transactional contracting. Far too often, because we have kept a narrow idea of what savings are and what success in procurement is, we have had a transactional mindset. But what is our role in managing stakeholders, both within and external to the enterprise? And how do you set the governance within those relationships to ensure you are always meeting the best outcome.
There is always change.
What brought you to the procurement world? How did you get started?
You know, it was an interesting thing. I was called in to a problem with the Department of National Defense where there was a major contract supporting their IT infrastructure, MRO and direct material product. They had a next day delivery requirement to support their network, and they were operating around 52%.
So, they needed to know what was going on. So, my approach was looking at some of the logical elements and we started to find factors of influence such as time of day orders replaced on delivery and cost, structures, we eventually introduced technology to the equation – utilizing advanced algorithms so we could reduce inventory levels substantially.
We solved the problem for the DND, they went from 52% next day delivery to 98% next day delivery over a 3-month period. Then we reduced their cost over a 7-year period, 27% year over year. Then, we expanded to work with other organizations.
These days, more than anything else, I’m more of a journalist and public speaker. The blog, Procurement Insights, its core readership is over 20,000. We launched an Eu blog one year ago and it has more than 16,000 core subscribers. And I lecture all over the world, and my radio show.
I think what you would call us is consultive journalism, because what we do is provide our demographics with insights and perspective that they can’t get anywhere else.