Procurement maturity: Reflections of an ex-CPO

January 16, 2016 Tradeshift Editorial Team

In 2014, Tradeshift welcomed Rasmus Kaae Bauer to lead the European Customer Success team on the heels of a seven-year stint as chief procurement officer (CPO) at the Technical University of Denmark, DTU. Rasmus has been working for more than 10 years in the procurement field.

In this interview, Rasmus shares his views on the state of procurement and sourcing, including insights that any procurement team can use as they make the journey to a mature, data-driven, and collaborative contributor to business.

CJ:  Supporting academic researchers sounds like a difficult task given the sophistication of resources and equipment that they require. Share with us highlights of procuring a wind tunnel, supercomputers, gold, and other unusual scientific paraphernalia for DTU.  

In short, you could say that any type of purchase would go into the same framework and had to follow our source-to-pay process. What differed from one product category to another was complexity, business impact, and difficulty in obtaining supply. The people involved on the sourcing projects internally and on the supplier side also differed greatly. As one of the leading technical universities in Europe, we were selected regularly to do research projects on cutting edge technology on behalf of many different organizations. Therefore, we had many exciting sourcing projects with lots of exciting people. Many times the products were new to us, our researchers and even our suppliers.

The main success criteria in most large scale research equipment projects was maximizing performance for a given budget. In those cases, we would do a reverse RFP with a fixed or capped price and then award the contract to the suppliers offering highest performance for that price. In this way, the researchers would get the best conditions possible within budget to carry out their research and give back maximum value to the funding partner.

CJ: Seven years at the helm of procurement at a university is not a short time. What was the main game changer that helped turn your team into a powerhouse for sourcing, tender management, and P2P excellence?

The game changer was the day we started focusing truly on understanding the “big picture” and our role as a procurement department in technical university. It did not make sense to merely focus on price reductions on indirect goods and services. What really mattered was reducing the total costs of the university’s procurement transactions and maximizing performance on a budget. We were at constant risk of setting up procurement goals that were misaligned with the overall objectives of the organization. In my case, I started to realize that savings on products and services (whether that was indirect or direct spend) was not as interesting as maximizing value for the budget available. So I had to choose to either fight this approach (as an old procurement professional) or support it. Furthermore, I realized that two thirds of all costs at the university were wages to researchers and administrative staff. This meant that procurement routines and transaction cost in the procure-to-pay process were also worth paying attention to rather than only looking at the actual procurement spend.

CJ:  How did you go about setting up your organization, processes, and technology to work in harmony? What were the top challenges you had to overcome to get there?

First, I made a three-year strategy and had it approved by the top management. As I gained more and more transparency into existing procurement behaviors, we adjusted goals and targets, re-prioritized and then added new objectives. Starting out in 2007 as the only resource in procurement, most of my efforts were centered around building capabilities within category management and building a contract portfolio for indirect spend that could be used by all business units. Gradually, procurement resources started to be moved from the university’s local business units to my department. And I even got a budget to hire more people as results started to show. I got approval on a business case for a procure-to-pay solution and additional resources to do project management, configure and support the solution. This was a big turning point for the department and we suddenly grew to 10 people.

Working intensely with the solution and process design for the procure-to-pay process and system, I got more deeply involved with finance and accounting routines and started building insights and opinions on how bottlenecks in the procure-to-pay process could be removed. Eventually, this lead to a decision to move accounts payable to my department and later  — as processes, organization and systems matured — we also decided that accounting administrative staff working with the procure-to-pay process in finance should be moved to procurement. By September 2014, the procurement department had grown to a total of 42 procurement and accounting professionals supporting the full source-to-pay process.

CJ: What were some of your team’s smartest buying decisions or negotiations that didn’t end up in a zero-sum game between the university and supplier(s)?

We used seven generic levers when interacting with our suppliers in order to generate new ideas for cost reductions and add value to relationships: supplier management, bundling, best-cost sourcing, demand management, process optimization, redesign and standardization, and make or buy:

DTU_7Layers

For example, we’d reduce logistics costs for a supplier by having weekly instead of daily deliveries, which would open opportunity for the supplier to reduce price. Or we’d work to optimize the ordering and invoice process and speed up processing time. This would open opportunity to improve payment terms and negotiate dynamic discounts. Yet another and more advanced approach was working with design to a specific cost cap, such as how we could maximize performance of a supercomputer for the budget given. All seven levers would address different cost elements in the TCO picture.

CJ: How did you manage your strategic suppliers and was it possible to achieve savings from them year over year?

As a rule of thumb, there was always potential to improve existing conditions in any given strategic supplier relationship. By working with the seven levers in close collaboration with suppliers, we were often able to identify new opportunities. That would go for all product categories. However, in the big picture, it was also important to prioritize resources across product categories in order to make sure that we were allocating resources to those product categories with the biggest potentials.

CJ: What do you think is the future of the procurement discipline? Is procurement and overall supply management becoming more important to organizational strategy?

The role of procurement will become even more cross-functional. Procurement will need to build capabilities in handling big data and a growing number of stakeholders. Full source-to-pay process ownership including accounting and accounts payables tasks will likely be an integral part of the chief procurement officer responsibility. Accounting and accounts payable departments might merge and join the procurement team making cross-functional alignment easier.

Data warehouses with data from multiple system sources will become increasingly important in order to navigate efficiently in the procurement universe. And there will be increasing focus on automated reporting and dashboards to direction and progress in procurement objectives. Automated reporting will be targeted to different procurement stakeholders, such as internal business units as well as suppliers. Easy to use self-service data retrieval tools will be necessary to stay ahead of the game and to proactively keep everyone on track and only focus on exemptions. Resources can then be allocated to handle only the cases that actually requires a human interaction.

CJ: Why did you chose to join Tradeshift?

I have to admit that I bought into the mission of Tradeshift – connecting all businesses in the world sounds awesome. On top of this goes the customer and supplier-centrism that Tradeshift is built upon. Having user friendly products would seem pretty basic nowadays. However, this is not the case in the procure-to-pay realm today. I believe that Tradeshift is bringing in a new and fresh approach to business document exchange. Another important thing that convinced me was that our platform is based on open standards and technology. And, as a former CPO, I was also drawn by the opportunity to work with other procurement, accounting and IT specialists from a variety of customers and share valuable experiences that they can use to optimally design procure-to-pay organization, processes and technology.

At the end of the day, the key success criteria for any procurement, accounts payables and accounting department is to bring as much value back to their core business as possible by working as smart and efficiently as possible. Being a front-runner in utilizing new technology is a must in order to for any organization to be competitive and ready to move into new opportunities for further optimization.

CJ: Thank you.

About the Author

Tradeshift connects buyers, suppliers, and all their processes in one global network. We help you transform the way you work with suppliers today – and adapt to whatever the future brings.

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