Pushing for Procurement
How can Procurement support a culture of containment? And why should your CFO love you for this?
Vendor management is going to continue to be a huge push, says Webster Bank’s head of Procurement, Anders Lillevik. The next step will be to leverage systems and data sources to gain a succinct view of suppliers, understanding touch points as well as the risk and the cost of each supplier to the organization. Having all this data in one place is really going to help CFOs manage risk.
Interview with Anders Lillevik, Chief Procurement Officer, Webster Bank [also speaking at the 6th Annual Shared Services Exchange] about the benefits of closely aligning the procurement functions with the finance organization.
SSON: What were the key factors that allowed Webster Bank to achieve its targets for cost containment?
Anders Lillevik: When we first were brought in, or I was brought in, to build the procurement organization, the first thing I looked for – and the most important key to success – was organizational alignment and buy-in, in other words: that the organization was ready for a procurement initiative. From there it was important to create a common division for the end state of procurement and what that should look like. When I first came in, it was very clear that we needed all aspects of procurement, tactical as well as strategic, and once you build that vision for the end-state and you get the buy-in for it, it is key to continue to track and celebrate success and communicate the benefits of what you are doing to build organizational alignment and buy-in.
Another key factor is obviously talent management, to make sure you have the right people in the procurement organization and, within procurement, that you have many different kinds of talent. Certainly the sourcing people that cut deals everyday need to be able to work with internal stakeholders, negotiate hard with vendors, and deal with executives as we are presenting the benefits and the pitfalls of the deals that we are pushing through. That is very different to the folks that do transactions everyday, working with purchase orders, and dealing with the internal users that are using procurement on a day-to-day perspective. So, making sure you understand which players you need in your organization and making sure that you have the right people and the right heads, with the right skill sets and the right personalities, is very important.
The last thing that I really focus on is this: There are certain strengths inherent in any organization, and having worked for a bank we certainly have very good processes around how we screen and prospect commercial clients. So, as we were building our vendor management department here at the bank, we needed a way to screen companies for financial stability. Rather than creating a process internally within my group to do that, we tapped the commercial underwriting group and leveraged the process that was already in place; and so, with minimal amounts of adjustments to what they already do, we were able to use that as a very strong way of determining the financial stability of some of our largest suppliers. So, utilizing the inherent strengths in the organization rather than re-inventing the wheel is absolutely key, and I think you will get a lot more play in terms of organizational support if you recognize other teams that are best at doing certain things, and asking for help.
In your experience of aligning the procurement function with the finance organization, what are the differences of having procurement aligned inside or outside the organization?
There are a couple of schools of thought about where the organization should be aligned, and a lot of folks like to be aligned where the spending is being done. So, for example, being aligned with IT or being aligned with corporate real-estate or some other function, depending on the organization that you are in; being more closely aligned with the business spending the money, rather than aligning with the finance organization. I have been on both sides, and the biggest difference in being aligned with the finance organization I am finding, is that there is much greater emphasis on P&L impacts to the procurement organization than if you sit outside it. I am not saying that it is not important if you sit outside Finance, but then you are dealing more with ‘how do you develop a project? how do you make sure that client satisfaction is top of the house and that everything runs smoothly?
That being said, we need to make sure that training and hiring is done in accordance, so we have folks that understand the P&L – folks that can preach the gospel, if you will, on cost containment. Also, we need to make sure we capture the savings. So that is having a much more focused view on the DLs and the P&L to make sure that, as we cut deals, the money does not leak out somewhere else.
The other thing is, when we are aligned with the Finance organization, we are looking at a much broader scale than if we are aligned with the business, so we tend to look at the entire book of business rather than smaller pockets of it, and you tend to get more ideas for cost containment. The other thing that really benefits us from being aligned with Finance is that we are much more closely-aligned with accounts payable, and the finance groups within Finance. That is very synergistic as we are building systems, so we are utilizing the same system or the same workflow for expensive claims, purchase orders and for other things that need hierarchical approval. It also helps us with clearer reporting and we are less likely to ‘drop the ball’ as we continue to enhance our operations.
The last thing, that is an interesting takeaway, is how much more number focused the finance organization is. I always like to say that it is moving from liberal arts to science. When you present to executives they really like pretty graphs, and shiny slides, whereas the finance organization wants to look at the actual numbers and understand them in much greater detail. So if I give my CFO a graph, he refers to that as liberal arts; he really wants to see the actual numbers and what goes on behind them – and that is a big shift, the need for detail being driven by the Finance organization.
You played an instrumental role in transitioning procurement into shared services. I think the experience you gained is significant. What are the top three lessons that you could share with others heading in the same direction?
Well, first and foremost, stakeholder management is key with any large change initiative. First and foremost you need to make sure that everybody on the procurement team understands the direction you are heading in. You have a team of people that can preach the gospel, and if they all sing them from the same hymn note as you do, that is a very powerful thing.
Secondly, you need to manage senior management to ensure that they are on board if there are controversial sourcing deals that are happening, so that these are supported from the top down. Internal clients need to be managed appropriately, as well as vendors. A lot of vendors do not like to have the scrutiny of procurement as it means less revenue for them potentially. So it is absolutely key to have a clear understanding of how the stakeholders talk to each other, not just to you. Managing them as a group, having a strategy for stakeholder management, is very important if you are planning on doing something like this.
Third, you need to have a very clear end-state vision. The first thing I did when I joined the organization was to do an assessment of all the different functions within my group, and make sure I understood the good, the bad, and the ugly. So as we were communicating with office management and also within my own team, we had clear parameters about where we were, where we needed to be, and how to get there. Having that end-state vision in mind all along, as you continue to hammer the message through both internally and externally, is key.
And I would add one more thing: Do not be afraid to ask for help when you need it; that means if you need capital purchases for a procurement system or vendor management system, spend analytics or any of those things, you have to be able to ask for help, but also justify why you need it and what the pay-back is. And when you actually need expertise or extra bandwidth, ask for help via a consultant’s perspective, rather than trying to do it alone. Recognize that you may not have all the horsepower that you need internally, and that is not necessarily a bad thing, you just need to make sure that you ask appropriately and for a limited amount of time. Obviously, if we are in cost-containment mode here, consultants could be viewed as a bad thing, but as needed, and as appropriate they are valuable.
What do you think the outlook in trends will be for 2012-2013?
As the business continues to evolve in the banking sector as well as in other regulated sectors, I think vendor management is going to continue to be a huge push; and a lot of banks right now are in the process of developing their vendor management systems and their vendor management processes. Within my organization, we have made a very big push in that direction, and I think the next steps in this particular development will be to start leveraging systems and data sources to have a very succinct view of suppliers within the organization. So, understanding all the different ways the vendors touch the organization and also understanding how many different ways your organization touch vendors. There are probably four or five different touch points for any vendor within your organization; understanding what they do and how they do it, and making sure these get tracked and monitored, is key. Also, you need to completely understand the risk and the cost of each supplier to the organization. Having all this data in one place is really going to help us do that.
Finally, you need to be able to map out any reliance your organization has to any one supplier, for continued operation. So if that vendor goes down, or the vendor’s subcontractor goes down, what does that mean for your continued operations? Having a consolidated view is really going to help you mine the data for cost-saving opportunities. I think having systems and sources that support all that is what is going to drive success for chief procurement officers in the financial services sector.
Thank you, Anders.