Fabian Heinrich: Hello everyone, and welcome to procurement unplugged, another episode, and the first one in English. We are very happy to welcome James Meads today.
And as you may hear also with new and professional equipment, so we improve episode by episode, welcome James.
James Meads: Fabian, thank you for inviting me. It's a pleasure to be on your podcast.
Fabian Heinrich: So James has a wide range of experiences within the field of procurement over the last two decades. He has been consulting a magnitude of large enterprises, and predominantly, he started in manufacturing.
But also, he has a wide knowledge about BPOs, where we will also talk about the haste bend of services. We touched upon that topic in our last episode with Marseille Former, and we are really happy to continue the conversation here with another true expert.
So James, how did you end up in procurement? And maybe you can tell us a bit more about your last two decades in the field.
James Meads: Sure. Everyone's always got a funny story about how they end up in procurement, right? Because nobody really goes through university saying when I leave, I want to be a buyer.
So my story was I spent just before my final year at university, I spent a summer working in a purchasing department of a local automotive gearbox manufacturing company.
And they needed someone to help them for two months for a new contract that they had won with Ford, to get all of the new suppliers and all of the new customers set up for this contract that they'd won.
And I, up until then, had no idea what purchasing or what procurement was; it was something that was completely unknown to me. And through that summer job, I was just grateful for not having to do some crappy job working on a production line all summer, and instead, I could, you know, go and do an office job, and something that required a bit of thought.
So from that really, that gave me the curiosity to think well; I wasn't really sure; I was 21 at the time, I wasn't really sure what I wanted to do career-wise. And so that gave me some food for thought, you know purchasing would be quite an interesting thing to try out.
And then, after I graduated, I worked a couple of jobs after that and then applied to go on the graduate training scheme at Jaguar Landrover. And that's where ultimately I started my career in procurement.
So in the automotive industry, and then after I worked for JLR, I worked for a couple of tier-one suppliers in the auto industry. Until the big recession came at the end of 2008, with the financial crisis, which made me realize that I would quite like to be in an industry that's a little bit more recession-proof.
So when the economy picked up again, I went to go and work for a company that makes toilet paper, and we all know from 2020 how important a commodity toilet paper can be given all of the capacity in the supply chain that we experienced last year.
So yes, the last sort of eight years of my career before I set myself up with my own business was in the consumer goods industry, which is very fast-paced, a lot of change. And also very multidisciplinary in terms of you've got spend on pretty much everything in that environment, from both production through to things like professional services.
Fabian Heinrich: Very interesting. I mean, you just mentioned the buzzword change. I mean, we hear that from various experts that a lot of things have been changing over the last ten years, especially in procurement.
What do you think are the three biggest changes you've encountered over the last years, or maybe over the last decade?
James Meads: The first one would be the emergence of talent pools in emerging markets. You know, when I started my career, procurement as a profession was pretty much the domain of North America and Western Europe.
And it was around about 2006-2007 in the automotive industry when we started hiring low-cost country sourcing experts in places like China and Eastern Europe, and Mexico. And the professional buyers in the U.S. and in Europe really had to train those guys.
And now it's pretty much if a company wants to hire a category manager from a perspective of experience, it doesn't really matter whether they're located in Asia, in the middle east, in Latin America or in Europe or in North America, you've got that pool of talent right across the board now.
I think the second one is procurement has definitely moved from being more of a reactionary function to more of a strategic function. I mean, that certainly was already in play sort of 15 years ago, but it's gathered a lot more pace certainly over the past five to ten years.
And the third one, which I guess we'll talk a little bit about today, given what Mercanus does, is just the emergence and the increasing importance of software.
Both from an automation perspective of repetitive tasks, but also in terms of being able to improve, and really take to the next level the data, and the interface, and the way that you can manage suppliers, and then put together a negotiation or a sourcing event, and manage a category that just weren't available to us when we were really relying on just SAP and Oracle ad Microsoft excel.
Fabian Heinrich: Yes, makes total sense. So basically, over the last ten years, you're saying that the talent pool has become more widespread across like regions and borders, and markets. And then also the pace, but along with the pace, the importance of procurement as a strategic function player has emerged.
Because back then, as you were saying, it was rather an administrative function to a certain degree. And of course, software and automation has come and playing a huge role in the current day scenario.
I mean another topic we've been observing over the last decade is the kind of the change from materials and goods towards services. If you look now on a European union GDP level, two-thirds of the European Union GDP are services. I think you started your career at; I think you mentioned Landrover in the U.K., which was, I think back then, quite a material and product driven procurement.
So how did you observe certain changes with regards to service procurement over the last years?
James Meads: Yes. I first experienced it when I moved into the FMCG industry, actually. And there was a lot of spend in the services area that was not under management and really didn't have any kind of process around how it was purchased. And if you think about something.
Fabian Heinrich: If I may interrupt you, I mean that's a very interesting topic. Because I hear that from so many companies, the service spend is not under management, we may have a 50/50 ratio or 60/40 ratio between materials and goods, and then on the other side services, but it's not under management.
Because I think like in services, the mentality to look beyond budget has not arrived. Do you think it is changing? And the second question will be, do you think COVID-19 is driving a bigger change here, to get more procurement mentality into the service spend?
James Meads: I mean, I think Fabian, to answer the question, it's definitely changing. And that's probably stating the obvious, but I guess in what way is it changing is probably the better way to approach this.
And if you go on LinkedIn and do a job search for procurement category managers, I mean I don't have the statistics, but I would guess just from looking at it, with the naked eye, that probably two-thirds of those job descriptions will be for marketing and I.T. procurement managers. And that's an area both of those areas of spend that traditionally procurement just haven't touched.
And I think from a marketing perspective, good contacts of mine lady called Sarah Scott based in the U.S. talked about this on my podcast a year ago when I interviewed her. What she said is that marketing leaders generally don't want anything to do with procurement because they see procurement as being an organization that just goes after the lowest price.
And marketing, perhaps unlike factory operations, marketing have a very close ear of the CEO because it's such an important function for a bit, especially a consumer goods business which is all about advertising and reaching customers in a very competitive market.
If you're thinking detergent or toilet paper or baby diapers or something like that, there's lots of competition out there. I think with I.T., on the other hand, there just haven't been the procurement skills historically.
Because there's such a lot of technical knowledge required, technical people typically, it's a bit of a, maybe a little bit of a stereotype, but technical people, I.T. people generally tend to be more introverted and less sort of confident in the negotiation scenario.
Whereas procurement people generally obviously very commercially astute, but wouldn't necessarily have the technical skills to understand how can we negotiate software, because A we don't understand what the software does.
And B, we're not lawyers, and we don't have the complexity from a contract management perspective to be able to attack that, because someone like SAP or Microsoft or Google, they've got an army of lawyers that can write a contract that's very much one-sided on their terms, because they, in some cases, effectively have monopolies. So I think they're probably the two biggest areas that I've seen the changes.
Fabian Heinrich: That's a very interesting point that you're making. So do you think the challenges and the transparency in service procurement comes from one certain reason? Because like what you're explaining, I see a multitude of different layers.
I think on one side, you mentioned that I mean the marketing leaders or I.T. leaders are not necessarily welcoming you as a procurement person. So I think it's to certain degree my answer is a bit of a cultural transformation.
The other thing I see, unlike in material procurement, you need to be even more a domain expert in the service procurement categories.
And last but not least, I also feel like current software's has been historically more shaped around materials and products, and not necessarily for that kind of, like field of service procurement where you need to interact a lot with the stakeholders, in order to have a successful sourcing case.
So what is it really, in your opinion, what makes it so difficult? Or is it really that multitude of different challenges? Or is there like one reason more striking out?
James Meads: I think if we're looking at software to manage how we procure services, it's fundamentally different to how you would go out and procure raw materials.
Because I mean, let's take three things, you've got raw materials purchasing, you've got services purchasing or procurement, and then you've got buying all of the other goods that are not raw materials, but are sort of non-production materials that go into the manufacturing process, or into the process of managing a company.
Things like office stationery, for example, is probably the first one that you would think of. There are three different strategies for those. So if you're buying raw material, essentially, your strategy is pretty straightforward.
You want to beat the market in terms of commodity pricing, or at least not do worse than the market. And you need to make sure that you have security of supply.
And now, obviously, as modern procurement evolves, we're looking now more into things like supply chain traceability and ESG, and diversity, all of that type of thing, but ten years ago, that wasn't really there.
With non-production materials and services, with non-production materials, sorry, that's essentially tail spend. So you've got a very high volume of purchase orders for what is a relatively low spend product. So that's the classic make it easy for the end-user to be able to buy it themselves according to a strategy or to a preferred supplier, put it on a catalogue. Give them a nice user interface to purchase it through, rather than an ERP system, which has an interface from the 1990s.
And in most cases, you can offload a lot of that day-to-day requisitioning and purchasing onto to the stakeholder, and he or she is in most cases pretty happy because it means that they can do what they want to do without having to call someone in purchasing or procurement to go out and buy something for them. With services, the focus is more on two things.
A, if it's a one-time spend for a big service or project that you need to buy something for, you're probably not going to know the providers out there. So there's an element of being able to scout the market and be able to figure out who's out there, who can provide it.
Which I guess you would also have for materials in some instances if you're a company making build toward a product. But the big one with services is around lifetime contract cycle management, and how do you go about managing that.
Because the classic thing that happens in services procurement is that someone in a corporate procurement department talks to a vendor, negotiates, does a deal, and then says they're our global vendor, there you go, all of our satellite locations, go out and execute the terms of that contract.
And what happens, I would say seven or eight times out of ten in companies that don't have a very top-down hierarchy and organizational structure is that contract gets shoved in a draw, or gets put or gets put onto SharePoint, and nobody in locations outside of head office knows that it exists, or knows the real terms of the contracts.
Or, what's more important, they don't measure the performance of that vendor. So having software that can do that, and that can do life cycle performance management, and measuring the performance of service providers over the lifetime of the agreement that they're supplying you, is it's a bit like having supplier relationship management for raw materials suppliers to work on innovations and KPIs, and what's it called order fill rate.
I forget the acronym. But it's a similar sort of concept that that is vital to a long-term strategic relationship with a vendor. And if we look at services vendors, particularly now if we're looking at software, and I will caveat this with I am not an I.T. procurement expert, I've never bought I.T.
But in a lot of cases, I wouldn't say they're in a monopolistic position. But they're in a very strong position in the sense that it would take you a lot of time, and a lot of pain, and a lot of effort to be able to move from one provider to the next. Once SAP sells you their software, realistically, you're never going to move away from it, right?
Or if you are, it's going to be like a three or four-year I.T. project with an army of consultants. So I think managing that supplier performance is critical, bearing in mind that you have very little influence over price.
And to some extent, depending on how powerful the vendor is, relatively little influence over the terms and conditions that you sign up to.
Fabian Heinrich: I mean, you would think that SRM is a topic which we talked about since 20 years, that it shouldn't be that much of a new thing when it comes to vendors and service providers.
But I feel like what you're saying that the point is that it hasn't really reached, so there hasn't really been a software which can also integrate the stakeholders and the end-user, to really drive that holistically.
As you were saying, with the share points and the documents being lost in a central point or somewhere. So is that kind of the reason?
James Meads: Yes, I think so. I think just accessibility of the data and the performance metrics in one space that is easy to access.
I certainly think is a factor; I mean, if I cast my mind back to when would this be, about 2012 when I was trying to put together a pan-European strategy and KPIs around measuring the performance of a fleet of Forklift trucks in 37 different plants across Europe. It took me six months to get the data.
And when I got the data, half of it was rubbish. So having one central point of reference, a single source of truth where that data can be uploaded to.
I mean like Forklift truck fleets probably isn't classic service in the sense of what Mercanus does, but it's the same example of accessibility of data, and having data in somewhere that's trusted, and measuring things that everyone is aligned upon.
If you can get to that point, then in the words of the great philosopher John Bon Jovi, we're halfway there.
Fabian Heinrich: Yes. I mean regarding another halfway thing, I mean I feel like, on one side, the truth is really in that holistic supplier management, because you're talking about a huge umbrella contracts and very strategic suppliers.
And on the other side, within a department, with the end-user, a lot of tail spend is happening what you also mentioned. And like in the pre-chat we had, you also mentioned the concept of BPOs.
Maybe who can quickly explain to the listeners the concept of BPOs, and like how BPOs are still heavily involved in huge organizations to drive service tail spend. Given that these days, a lot of the taste been in materials and products is managed through catalogs.
James Meads: Yes. The BPO stands for business process outsourcing, just to clear up the acronym. So a BPO essentially can be used in a multitude of different ways, but my experience of working with a BPO provider in one of my previous employers was that they were responsible from doing the purchase requisition to purchase order creation.
And then they were also responsible for, in the case of goods, expediting any of the goods that were non-production materials. So anything that was not a raw material that was used in the production process.
Part of that, or a big part of that, involved purchasing, as you mentioned, a lot of tail spend. And the characteristics of tail spend typically are very high transaction volumes, a very high number of purchase orders, but a relatively low average value of the order.
So there's a lot of spadework involved in doing it, but the added value that process drives compared to strategic procurement and top 20% offenders is relatively low. So what the policy there was, was that anything that was under $20,000, so someone in corporate procurement would not typically get involved in, unless there was a legal or a commercial issue.
If there was a price increase or something like that, or contract terms or payment terms issue, we would get involved. But generally speaking, our external buying departments, who were located in Eastern Europe at the time, were responsible for doing the day-to-day transactional procurement.
And had responsibility if they wanted to go out and negotiate it, to try and negotiate a better price. But they didn't have to go out and get the typical three bids and a buy for anything under that threshold of spend.
What happened was that for goods, it's quite easy to benchmark them. If you want to buy an off-the-shelf spare part, then you can go out and get three quotes quite easily.
But if you're trying to buy services for a factory or for a corporate office, it's very difficult for a business process outsourcing company to challenge why a certain stakeholder wants to buy that service from a supplier.
Fabian Heinrich: Yes, it makes total sense because I mean it's so tough to compare. But like since you also wanted to talk about the future of procurement, do you think in future years, BPOs can be disrupted to a certain degree with like approaches like self-service procurement, or even like autonomous procurement?
So do you see even like in the tail spend, like a certain area for disruption? Because also, we talked about in our past conversations a lot that procurement like will move more and more from transactions to strategic procurement. So how's your thoughts about that?
James Meads: Yes. Well, I mean, I think this will affect both BPOs and native procurement departments within corporations. But I think the general trend, and I don't think it takes a genius to work this out. But the general trend will be that there will be less and less operational or tactical transactional procurement roles in the future because a lot of that work will be, or a lot of the processes in that work will be automated.
You will still need people to manage the workflow; you'll still need people to watch over it. And you'll still need humans to make decisions when something goes wrong in that process. I mean, if the supplier comes back and says that they want to change payment terms.
Or if there's a quality problem with the material or something like that, there will always need to be human intervention.
But a lot of these administrative repetitive processes now that yes, BPOs do a lot of it, but shockingly, there are still a lot of businesses in places like Germany and the UK that are paying people in those countries to do what is essentially a 15 to 20 euro an hour admin task that you could go on Upwork and hire someone to do if you train them for a couple of days.
And so, I do think that those roles are going to diminish. You know, will that have a big impact on BPOs? I think it will have an impact on the type of work that they do.
I think somebody like an Infosys or a Gen Pacter are that big that it's not going to destroy them, assuming that they've got some strategic foresight, and they're not going to behave like Kodak or Nokia, then, I think they will survive it.
But certainly, the work that they will do in the future, I think, will be vastly different to what they're doing now.
Fabian Heinrich: I mean, apart from BPOs in the tail spend, what's your vision for the future of procurement in the grand scheme of things?
James Meads: I think procurement is going to move more away from being measured on year-on-year annual savings because if you take that to its logical conclusion, then at some point, you'll be buying materials for free.
Well, it sounds stupid, but if procurement is targeted each year to get a five percent cost down on everything that they buy, there's only a certain amount that they can get before the supplier starts making a loss.
So I think, in reality, a lot of procurement teams have fudged those numbers for a lot of years. Because they know, and we all know, any smart mathematician knows that it's impossible to do that year on year.
And for the supplier to still make a profit in something that's largely commodity-driven if we're talking materials. I think there'll be much more of a drive and much more of a shift towards procurement as being a total contributor towards added value, and certainly, some of the smarter businesses have already been doing that for a number of years.
I mean, certainly casting my mind back to my corporate days, procurement would be credited for helping manufacturing excellence with energy-saving products, for example.
And I think, especially now with climate change and the push for organizations to spend more time on reducing co2, I think the procurement will be more and more involved in sustainability initiatives that also happen to drive the bottom line as well. The classic win-win.
Because while it may not be a material cost-saving or a supplier negotiation saving, it impacts the P&L. I think the one where it's more difficult to measure, but where it's definitely an area that procurement spends a lot of time on and drives a lot of value is on cost avoidance, and on crisis management.
I think that's very difficult to measure, and it's still going to take a while before procurement really gets the recognition for the work that they do in that area.
Fabian Heinrich: And then talking about savings, that's probably the one where you can do the biggest savings, like especially in services. Cost avoidance, and it's probably the one where you have the biggest level, that's interesting one, yes.
James Meads: Yes, especially if you're looking at any service that involves labor. If you're looking at facility facilities management, then typically, especially in a country like Germany where the unions are very strong, the price of labor goes up every year.
So if you're managing a contract for catering or cleaning, one of the strongest ways that you can impact that is by minimizing or eliminating the pass-through that the supplier gives you each year for rising wages.
But yet, the average CFO would not recognize that as a saving because he can't see it on his P&L., So I do think there needs to be a mindset shift in the way that finance professionals view contribution from procurement in that sense. And we're not there yet, but it is slowly starting to change.
Fabian Heinrich: Yes, very exciting vision. Like procurement moving from savings driver to a value driver, and yes, one of the levers could be definitely cost avoidance, but also, of course, sustainability.
Yes, James, thanks a lot for the very interesting conversation; it was a pleasure to have you here. And we are looking forward to more episodes in the coming weeks. So thanks a lot for your time.
James Meads: Thank you, Fabian, great to be part of it.