One of those rare discoveries one makes in life, is that procurement people are (by and large) pretty cool individuals. When you think about it, when you spend your days negotiating deals, scouring for bargains and trade-offs, bonuses and discounts - and proving to your colleagues that you're better at it than they are - having a bit of style about you can go a long way.
However, we did not know all this until we came across one absolute procurement-esque freak-of-nature, who loves to get very deep on sourcing execution issues while having a glass of Absolut Mandarin in one had and spinning some vinyl with the other. Yes, while Turkish-born Alpar Kamber is not shaking it on the dance floor, or doing a few backflips on his snowboard, or mixing Beyoncé with Lady Gaga, his prime love in life is discussing procurement process. (OK, we just made up the bit about Beyoncé and Lady Gaga - Alpar's far too classy for those two...)
While we were having some in-depth discussions with Microsoft's CPO, Tim McBride (don't forget to read our paper "The CPO in 2011: The Toughest Job in the Global 1000"), it became apparent how important niche specialist BPOs, such as Alpar's firm Denali, are to the global sourcing mix for many organizations. So we thought we'd take a few minutes to have a discussion with Alpar about the future of the procurement function and the role of the CPO...
Phil Fersht: Tell me a little about yourself, Alpar, your background, where you’ve lived and worked, and how you’ve winded up in the sourcing business?
Alpar Kamber: I grew up in Istanbul, Turkey and studied management science and accounting in College. I joined Arthur Andersen’s Audit and Business Advisory Group, with hopes to get my feet wet in various industries as quickly as I can. I got a chance to meet and interview almost every function in the company, look into business processes that drove the financial statements and how each impacted companies’ health and financial performance.
Procurement caught my eye as I audited various procurement functions as being very in efficient and lots of room for re-engineering (that was the buzz word in the 90s).
Moved to US to pursue my MBA in Pittsburgh, Carnegie Mellon. A young and upcoming start up company, FreeMarkets, caught my eye as they built and executed reverse auctions for corporations to secure goods and services contracts at true market prices. I decided to spend my summer there creating my first (and my client’s first) online auction for $5M global fasteners procurement. Identified over 30% in savings and got C-level attention at this Fortune 200 Company.
I went back there after business school and have done market making, program management, account management, consulting. Then, I moved on to start Denali Sourcing Services.
Phil Fersht: And based on your interactions with clients today, what are the key business challenges they are facing – and how are these challenges impacting the procurement organization?
Alpar Kamber: Procurement’s operating model is changing: the resource model and channels to reach the audience are becoming customer centric, service oriented.
Transactional procurement aside, companies are forming three major functions within their sourcing function: Relationship Management, Category Management and Execution. What’s missing today in many companies is a focus on execution and having a dedicated approach to solving that problem.
Let’s discuss a few tangible objectives that I see in today’s procurement environment.
A. They would like to increase the reach of their procurement organization – or some call it spend under management. Branded program approach: Very few companies embrace the concept of program management. Successful procurement organizations typically have several program managers running programs, launching new initiatives. Some fail, some have glorious success. Branded program rollouts help accomplish a number of things. It helps energize your audience (be it suppliers, company employees or executives) around your objectives and makes it easier for one to drive change and adoption. This is critical in achieving game changing results.
B. They would like to be as effective as possible in managing the spend that they reach. There are many tools available for procurement organizations. Yet, this abundance is confusing to some and convergence has yet to happen. Software, processes, best practices, methodologies, knowledge, market intelligence are all key elements. Most importantly though, skill set and capabilities are the greatest assets that an organization can have to be effective in how they manage spending.
B. Efficiency – do more with less or limited resources and do things much faster without much waste (reduce procurement waste).Today most procurement organizations ask their resources to wear multiple hats. They want them to build relationships and sell procurements’ value proposition to the organization. They want them to understand their categories, supply base and develop strategies that effectively manage spend globally. And finally they want them to write and execute RFPs, negotiate contracts and manage them. These are all very different tasks by nature. Using Adam Smith’s division of labor principles, it is very difficult to drive an efficient model when one is asked to do tasks that are inherently very different. One needs to separate operational execution tasks from those that are strategic and relationship based, and address them separately.
Phil Fersht: What’s different about the role of procurement today, compared to 10 years ago, and what does the procurement executive need to do, to keep adding value internally? How can procurement develop a stronger presence at the corporate table?
Alpar Kamber: This is a pretty common theme that I discuss with procurement executives at various round tables and occasions. Expanding Procurement’s value… If I look at 10 years ago and today, I don’t think the purpose of procurement as a function has changed. The purpose has always been to help improve company profits. What has changed is the perspective and awareness of this purpose among company executives and the tools and resources available to get the work done. Today procurement certainly takes up its place in executive agenda. I even heard that a few company CPOs are joining their earnings calls with the street and making commitments about taking cost out. This is significant. Ten years ago it was still considered back office. This is changing drastically, and at a fast pace.
As my father told me once, “You make money while you are spending money”. I think that has got to sink in within corporate functions as we continue to influence our spending culture. Everybody that spends money in the organization can have a direct (tangible, quantifiable, one-to-one) impact on the company’s financial health and earnings.
The second part of your question – what should the procurement execs do to add value: They need to take risks. Break away from the status quo and try new ways to create efficiencies and effectiveness. They need to listen to their stakeholders for ways they can add value to them, engage with them and continue to align their objectives with procurement’s even if they are different. Roll out new programs, challenge the status quo, ask tough questions, innovate. Also, tap into the existing wealth of knowledge and experience of service providers --- partner with them to deliver more value. It all boils down to improving reach of procurement, effectiveness and efficiencies.
Phil Fersht: In terms of broader operational strategy, how can procurement proactively support overall governance of outsourcing and shared services initiatives – i.e. once the routine work is outsourced, what are the strategic initiatives that procurement should be involved with to drive continuous innovations and added quality to the organization?
Alpar Kamber: Look, from an outsourcing perspective, procurement should continue to play an increasing role. Some companies created Chief of BPO roles. While I think that’s fine (due to managing sensitivities and organizational disruption) from a focused approach perspective, to me it’s no different than the procurement function at its core. I think we will see BPO becoming one of the core category management functions under Procurement. Procurement is in the business of managing all external resources (similar to how CFOs and CIOs are managing financial and informational resources) including governing these complex supplier relationships and resources.
The next chapter in procurement is figuring out Vendor Management at an enterprise level. I’ve yet to come across mature enterprise-level vendor management organizations. I think this is due to focus and skill set. As an analogy, in sales organizations you see a group of people (hunters) that is tasked with going out and getting new deals signed (contracts). These are then handed off to account managers (farmers) who make sure that contracts are fulfilled and managed to their full potential. Not only that, but also ensure they grow in value to the company. This mentality needs to transfer to procurement. WThey need to be putting in people with a different mindset (farmers) for managing company contracts and vendors, to ensure optimum value is created and retained. We only work with the tip of the iceberg when we put complex deals in place. It is when we start implementing and actively managing our contracts and vendor relationships that we start going deeper in value creation.
Phil Fersht: How can procurement execs receive the training and education they need to drive strategic sourcing initiatives more effectively and proactively – is there a defined curriculum for this, or do they learn it “as they experience it”?
Alpar Kamber: As I mentioned before, procurement executives need to take risks. They need to hire a few good program managers –- generalists that might have a procurement background but know how to effectively design and execute various programs and drive change. There is still lots of legacy to overcome in todays procurement organizations. Procurement needs to take a leap of faith in launching programs towards changing the legacy. Whether the purpose is to educate the internal audience (employees) about why they exist or to streamline their delivery operations. They each need to be managed under programs that have cross-functional teams. They need to think big and act big to get recognized.
The best training is by doing. Certainly this is an investment on everybody’s part but if you put people with the right skill set on the job, most often value is there.
I’ll give you an example of a company we work with. It all started four years ago with an idea, and a courageous executive willing to allocate the resources to try an innovative operating model and see how it could change the value procurement can bring to the organization. Four years later, after touching almost every employee in the organization that is spending money, his program drives the procurement execution at its core, allowing more senior resources to focus on macro-level problems like relationship building and category management, and the execution team to apply macro-level strategies to project spending.
Phil Fersht: So, if you could define the perfect role for the CPO, what, exactly would that look like?
Alpar Kamber: The perfect role for the CPO is to be the coach of a procurement organization. They need to pick good sourcing athletes, train them well through rigorous but challenging activities and goals, and make sure they put the right people in the right job. Also they should not be afraid to make the right transfers from third parties. But most importantly they need to put out the best game strategy out there. From what I’ve experienced, there is no best practice strategy that will work for the masses. Every company is different. Culture is different, bottlenecks/challenges are different, clock speed is different. Procurement executives that are able to drive effective organizations understand these differences and cater a game plan and an operating model that fits the organization, rather than try what made the person next door successful. It is also very important that services providers understand this difference.
Phil Fersht: And finally, what advice would you give to sourcing professionals today, seeking to further their career development? When you look over your career, what would you have done differently?
Alpar Kamber: I was fortunate enough to see procurement from various lenses. I was an auditor, I was a market maker, I was a contractor bidding for my salary in a reverse auction, I was a program manager building global sourcing programs, I was a program manager receiving procurement services from a provider and now building a company that focuses on sourcing execution. A multi-angle experience.
Today’s procurement professionals need to understand their audience and that there are many -- the budget holders, vendors, executives and the company (shareholders). Once they understand the agenda this audience has, they need to think about what is the best way to create net customer value. Value while minimizing waste and effort spent getting there.
And lastly, change. While there has been significant change over the last 10 years within the procurement function, there is still a lot more ahead of us. And the pace is not slowing down. So if you need to be successful in this function, embrace and champion change.
Alpar Kamber is a Managing Partner with Denali Group and the Practice Lead of Denali Sourcing Services. After graduating from Tepper Business School at Carnegie Mellon University, Alpar joined Ariba, formerly FreeMarkets, to build strategic sourcing programs for Fortune 500 companies. You can read more about Alpar and the Denali Group by clicking here.
Download The CPO in 2011: The Toughest Job in the Global 1000
[email-download download_id="1" contact_form_id="2"]
HfS Research will share the information you submit with Denali Group, with which we partnered to produce this valuable research.