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Contents
002
EDITORIAL STAFF CPO priorities
Director of content and community Agility and talent are the keys to driving
Steve Hall
digitalisation and unlocking the power of
PLQ editor
Tim Burt
the function
Contributing journalist
Richard Edwards 006
Production manager ThinkZone
Peter Ellender
Thought leadership from our partners
Art director
Salvatore Spagnuolo
Sub editor 008
Vanessa Tsai
Doing it with data
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PROCUREMENT PROSPECTS | Page 001

Locked onto digital
Procurement has to overturn traditional structures by developing agile practices and building
specialised teams of talent to drive digitalisation, writes Richard Edwards
“Digital is everywhere, it’s ingrained, it’s
part of everyday life - and that’s why it’s
imperative for procurement organisations to
get their digital strategies absolutely right.”
Those are the words of Matt Deem,
senior manager and digital procurement
lead at Mondelēz International, which sum
up just how critical digitalisation is for the
function.
According to the Procurement Leaders’
CPO challenger guide 2019, digitalisation
will be the most important strategic
priority – behind cost savings – for
leaders of the function in the coming
year. That tallies with the thoughts of
digital procurement leaders who attended
Procurement Leaders’ Data, Intelligence
and Technology Forum in November 2018,
88% whom said their function is working
on a digitalisation strategy or initiative. A
further 62% said they had a digitalisation
roadmap in place.
Errol Rasit, chief innovation and product
officer at Procurement Leaders, says the
rationale for procurement teams to take
such action is clear.
88%
“Procurement has a unique vantage
point – a 360-degree view of the entire
value chain: the customer, the business
and the supply chain. Procurement chiefs
have the opportunity to be the connection
Say their function that allows collaboration in the value
is working on chain, enabling parties within it to learn
a digitalisation from each other and build better products,
strategy or experiences and engagement.”
initiative Talent is a key aspect of this, says Rasit.
Source: Procurement Leaders’ “Improving the function’s digital literacy
Data, Intelligence and Technology will allow procurement executives to
Forum survey, 2018
systemise and scale these efforts and turn
PROCUREMENT PROSPECTS | 002
behaviours, skills and talent into new
digitalised business processes.”
Procurement chiefs appear to be
taking note. According to Procurement
Leaders’ CPO challenger guide 2019, up
to 22% of respondents say they plan to
hire data analysts or scientists during
the year ahead. For a function that has
traditionally been perceived to be behind
the technology curve, this is a clear
indication procurement is readying itself
for something approaching a revolution.
BRIDGING THE GAP
At life sciences giant, Bayer, for example,
CPO Thomas Udesen is intent on
challenging people to consistently question
the way they use technology. He also
believes that to maximise technology’s
potential, it is incumbent on procurement
to open its mind when it comes to hiring.
“Technologists, analysts, mathematicians
and data scientists will supplement the
heartland procurement skills,” he told
Procurement Leaders earlier this year.
That viewpoint provides further
evidence of the determination of
companies such as Bayer to make digital
an integral component of their future
strategy as they look to capitalise on the
advantages it can hand the function.
Getting the right people in the right role is
a major consideration.
With that in mind, there is a groundswell
of opinion to suggest procurement’s future
relationship with IT will be one of the most
critical across the business.
Mondelēz International’s Deem says
there is a growing acceptance that

an intermediary is required between
both functions.
That person would act as the conduit
between both and would have a
background in IT (Deem himself is a
former Microsoft employee) and a deep
knowledge of the type of technology
that can make a real difference to the
procurement function.
“We will see that role become more
popular and more important,” he said.
“There’s no doubt that procurement
needs this type of person to be the bridge
between the two functions – someone who
speaks the language of both.”
Collaboration with functions such as
IT is not the only thing that is crucial. It
is also vital that procurement ensures
suppliers are fully integrated into the
digital process.
PROCUREMENT PROSPECTS | 003
“Technologists,
analysts,
mathematicians
and data scientists
will supplement
the heartland
procurement skills”
“The whole basis of the next generation
of ‘touch-less’ transacting - which is
great for everyone because you can focus
on bringing value elsewhere – can only
be achieved with a networked solution,”
says André Le Lerre, former CPO of
Ericsson, who has worked on three high-
profile digital transformations in the past
18 months.
“You need to be able to flick from the
requisition down to the invoice on the
same data in the cloud. The supplier must
buy into that way of doing business and be
a part of that solution.”
A successful digital implementation
could leave the procurement organisation
of tomorrow looking very different
from its current self. The introduction
and implementation of a coherent and
comprehensive digital strategy not only
“Procurement chiefs have the opportunity to be the connection that allows
collaboration in the value chain, enabling parties within it to learn from each other”
has the potential to streamline working
practices, it also enables employees within
the procurement organisation to focus
their attention and time on areas that add
true value.
With the function able to use that
additional capacity to work at a greater
pace and with increased responsiveness,
procurement will find itself better placed
to become the agile organisation that the
modern-day business requires.
HEARTS AND MINDSETS
It is vital for CPOs to make that switch
as easy as possible and to ensure agility
brings long-term benefits, not just to
procurement but to the business at large.
Procurement Leaders research,
published in Monitor, has found
organisations are three times as likely
to experience challenges related to the
introduction of agile practices than those
related to changing people’s mindsets.
The findings suggest many businesses also
attempt to implement agile techniques
before they are ready to do so.
“Agile challenges existing belief
systems and processes,” says Markus Vogg,
senior manager at Capgemini, where he
leads a team that advises clients on agile
transformations.
“Companies are turning to it because
traditional organisational structures
cannot cope with the pace of change in
today’s environment.”
That explains why more companies are
intent in becoming more agile but few
can truly claim to have implemented agile
strategies on any kind of scale – for the
moment, at least.
The challenges that face organisations
attempting to do so are myriad, from a
lack of investment, resistance to change,
PROCUREMENT PROSPECTS | 004
as well as barriers caused by hierarchical
management and organisation boundaries.
If those can be overcome, however, the
rewards can be huge.
“With its external reach, procurement
can make the organisation more agile,
capable and innovative,” said one
sourcing director in the manufacturing
sector, quoted in the CPO challenger
guide 2019. “I consider those to be the
main value-adding activities beyond
cost savings.”
Agility, however, is less about skill sets
and more about temperament – with
people who are at ease in unfamiliar
situations coming to the fore. At IBM, for
example, staff are challenged and given
greater decision-making responsibility;
part of what Justin McBryan, delivery
project executive, IBM, describes as
‘lowering the centre of gravity’ of the
decision-making process.
That enables those within the function,
as well as the function itself, to follow the
business more closely when it changes
direction – alignment and agility in a
perfect package.
RAPID DEPLOYMENT
If agility represents the future, then
the age-old adage that a procurement
function is only ever as good as the
people that work within it still holds true
as 2019 looms. The way those teams are
structured, though, should be an area that
CPOs closely examine.
A growing number of procurement teams
are collaborating with suppliers through
a series of networks and ecosystems –
and that trend could extend into more
procurement teams in the near future.
The days of rigid business structures and
individuals specialising in one specific area

are nearing an end. They will be replaced
instead by individuals with a broad range
of skills and knowledge who are capable of
playing a full role in procurement projects
across the board.
At Bayer, for example, the company
has formed a ‘rapid deployment
team’ – effectively an international task
force of approximately 30 people – that
can be brought in to projects as and
when required.
The team includes a mixture of category
experts as well as generalists with project
management expertise.
“We think of the rapid deployment
team as internal consultants, so
we measure project feedback and
stakeholder satisfaction scores,” says
Udesen. “This is a very attractive team –
it is highly sought after within the
line organisation.”
Not only is this an agile team, it is also
providing an excellent talent incubator
for some of procurement’s brightest
young talent, says Udesen. Graduates
from Bayer’s international procurement
22%
management trainee programme often
join the rapid deployment team after
completing their MBA.
It is a method of working that others
would do well to replicate in 2019 Of CPOs plan to
and beyond. hire data analysts
or scientists during
THE NEW GENERATION
the year ahead
If procurement can build a team of
Source: Procurement Leaders CPO
specialised talent, and also embrace challenger guide 2019
agile working methods and the benefits
of digitalisation, it could find itself well-
placed to be a genuine force for change. As
younger professionals come through the
function, that change could become even
more pronounced.
“Generation Z are full digital natives
and expect multiple access routes to
information they need for their work,”
said a recent report by PWC. “They feel
at ease only communicating through
digital tools.”
Dealing with these priorities will be the
key to procurement’s future success – and
the onus is on CPOs to deliver. Perhaps
now more than ever. n

CASE STUDY: ADOPTING AGILITY AT BARCLAYS

Phil Thomas, managing director, head of global
sourcing at Barclays, has assumed responsibility for
agility since arriving at the company in October 2017.
“The challenge is that, in most organisations,
individual members of the procurement team are
responsible for solely running deals from start to
finish in a serial manner. This requires them to have
a breadth of skills,” he says.
Although this has manifest advantages, it also,
he argues, creates a team that lacks individuals
with their own specialisms. In addition, it fails to
support true agility because deals are dependent on
one person – which makes it difficult for others to
assume responsibility if that person takes time off
or changes role.
That is something that Thomas has tackled head-
on. “We are creating small agile teams, called ‘pods’,
to split the sourcing work up in a different way,” he
says. “It’s about getting the right resources involved
with the right deals at the right time.”
Rather than each pod running one deal from start
to finish, they work as a collective – with each pod,
some of which are based in different countries,
working on multiple deals. Daily meetings then
ensure alignment of priorities and discussion around
potential roadblocks.
“This structure promotes individual specialisms
and helps build a clearer career path,” he says. It also
delivers the agility that Barclays demands.
“We can better protect the business from changes
or unpredictable occurrences, and reduce cycle times
by doing this,” Thomas adds.

PROCUREMENT PROSPECTS | 005

 ThinkZone:
Thought leadership by our partners
Procurement braced for increased
economic turbulence in 2019
Against an increasingly uncertain global economic backdrop, Wayne Clark, VP global delivery at
GEP, shares his predictions – and warnings – for the year ahead
The storm clouds of macroeconomic
uncertainty have been gathering
throughout 2018 and the forecast for
the year ahead offers little respite for
procurement professionals across key
vertical sectors.
Wayne Clark, VP, global delivery
at consulting and technology firm
GEP, tells Procurement Leaders that,
unsurprisingly, the most significant
danger looming over global supply
chains comes from trade and political
tensions between the US and China.
These have grown steadily since the US
announced plans in September 2018 to
impose an estimated $20bn of tariffs
on a range of Chinese imports.
“In terms of imminent risks, we
are all focusing on US-China trade
relations. The lingering and ongoing
uncertainly is really what’s putting
pressure on procurement. There is
a risk of tit-for-tat escalations that
is still quite real. It is already hurting
some key sectors including agriculture
and high-steel consumers such as
aerospace and automotive,” he warns.
“Cyclically speaking, in terms of
the global economy, we are living on
borrowed time. Our best guess is that
across the world economy, things are
going to cool off in 2019. The US has
come off a short-lived spike based on
its tax cuts and it now faces the dual
PROCUREMENT PROSPECTS | Page 006
Wayne Clark
VP global delivery
GEP
challenges of rising interest rates and
a growing deficit. China’s efforts to
transition to a more consumption-
driven model based on its fast-growing
middle class is still a work in progress.”
ECONOMIC AND POLITICAL RISKS
Europe, meanwhile, is looking
“completely hobbled” – a state that
is not solely attributed to the fallout
over Brexit. Clark says the region is
still feeling pain and suffering from the
last downturn. Rising nationalism and
populism is also identified as a danger
that is leading to more protectionism
and therefore more supply chain risk.
Clark cautions that these global
political and economic tensions risk
spreading across multiple regions as
slowing growth further exposes more
nations to economic uncertainty. This
instability is already rippling into many
emerging markets, including South
Africa and Argentina, with other areas
set to feel similar or worse pain in the
short term.
According to Clark, there is a
chance this ongoing insecurity
will delay investments and the
resultant contraction of spending
will exacerbate any downturn. These
issues run the risk of stalling an already
faltering world economy. Against this
backdrop organisations are forced to
take a wait-and-see attitude, which
may impact their ability to execute
strategic initiatives.
However, Clark says these
storm clouds could have a silver
lining: “Looking at the big picture,
procurement realises that when the
economy starts to slow down this
heightens focus on cost reduction
internally. Companies are no longer
seeing top-line growth so the focus
shifts naturally to cost reduction and
cost containment. So, after this period
of relatively healthy years the trend is
moving towards looking at operations
and streamlining supply chains. And so
procurement comes to the fore.”
THE DIGITISATION AGENDA
Enterprise procurement professionals
looking to improve efficiency and
return on investment in supply chains
and operations will make digitisation
a top priority, according to GEP. Clark
reports seeing many global enterprises
already stepping up the pace of digital

transformation initiatives. He notes
businesses are undertaking such
projects to improve productivity while
preserving and enhancing margins.
“Digitisation covers the gamut of
everything from smart automated
factories that are largely without
workers, driverless trucks, artificial
intelligence/machine learning and
the introduction of the Internet of
Things. We are well along the digital
transformation roadmap now and
many technologies are no longer
‘emerging’ – indeed, some are prime-
time now,” Clark says.
“Everyone is working to figure out
how to digitally streamline operations
and create new competitive advantage
by leveraging these technologies.
Automation of very transactional
PROCUREMENT PROSPECTS | Page 007
work is now pervading virtually
every function of the business. We
find it in spades in procurement
sphere, particularly in the procure-to-
pay space.”
Clark cautions, however, that
procurement chiefs need to proceed
carefully when embracing digital
technologies, notably blockchain:
“While digitisation is generally taking
hold, we remain cautious in our
forecasting for blockchain. Very few
people understand it fully; it’s still
more hype than reality and, right now,
we are only seeing very small testing
implementations. This is not to say
large companies should not be running
some tests or pilots with suppliers to
see how crypto-based systems can be
leveraged to add commercial value.”
As an example of such a pilot, Clark
points to a large international bank,
which is a GEP customer. This institution
has been partnering with key suppliers
around smart contracts underpinned by
blockchain for the rollout of IT services
across multiple sites. Traditionally
this would have been a painstaking
process, with purchase orders raised
for servicing each individual site,
but new solution centres on crypto-
managed smart contracts that trigger
payments automatically when each site
deployment is completed.
TAKE A NEW APPROACH
Clark says procurement professionals
need to move beyond their traditional
cost-focused role and take a more
central role in developing enterprise-
wide strategy.
“Amid a decelerating global economy
and escalating geopolitical tensions, it
will be up to procurement leaders to
boost levels of strategic partnering
and address the risks that are already
starting to hamper some industries.
Supply chain decision-makers need to
demonstrate how they can continue
to drive productivity gains through
the emergence of enabling digital
technologies,” Clark concluded.
“Procurement is getting more
strategic: the function has a vital
role in getting ahead of the market,
separating hype from reality and
bringing commercially valuable
recommendations to multiple business
partners internally.” n
FURTHER INFORMATION
T: +1 732-382-6565
E: info@gep.com
W: www.gep.com
Doing it with data
Blockchain, the Internet of Things and data analytics are becoming increasingly
accessible – it’s up to procurement teams to harness their power, writes Richard Edwards

The architect of the UK’s Government
Digital Service, Mike Bracken, once
named procurement as one of the four
barriers to digital transformation, placing
the function alongside inappropriate
governance, funding and IT choices in his
‘square of despair’ model.
With procurement professionals
identifying digitalisation as the top strategic
priority in the new year, according to
Procurement Leaders’ CPO challenger guide
2019, teams have the chance to show they
can embrace technology and successfully
execute their own digital transformations.
For many, that digital transformation
will be the development of data analytics.
Indeed, respondents to the CPO challenger
guide survey suggested advanced data
analytics has the most disruptive potential
in 2019. This is hardly surprising, given
the exponential growth of analytics in
recent years.
Procurement teams have traditionally
struggled to make full use of the data that
technology now enables them to gather.
Procurement Leaders’ Data and technology
report, published in January 2018, found
70% of respondents believed data was

PROCUREMENT PROSPECTS | 008


‘important’ or ‘highly important’ to the
decision-making process.
The issue, however, is only 39% of those
involved in the study believed they use
this data successfully. Around one-third
of respondents, meanwhile, said they have
limited visibility over this information.
The benefits advanced data analytics
can help deliver are well documented.
So could 2019 shape up to be the year a
breakthrough is made – with procurement
organisations finally using data to optimise
both decision-making and future strategy?
ONE-CLICK ACCESS
There are signs this change is already
underway. More procurement organisations
are embracing technology such as contract
mining to extract and structure data from
documents such as contracts. This enables
buyers to gain a greater understanding of
almost every aspect of a purchase – from
date and time to where a product originally
travelled from and to.
This is clearly invaluable. What
procurement teams need to ensure, though,
is that this information is available at the
click of a button, rather than buried in an
email trail or a spreadsheet. This kind of
mining has previously been the preserve of
the legal industry, but that is now changing.
Construction machinery manufacturer,
JCB, is just one company using extensive
data mining to improve the information
available to its entire procurement
organisation.
“For the past two years, the focus has
been on getting the fundamental building
blocks of the data right and turning this
into a one-click access,” Tom Rae, group
director of purchasing and supply chain
at JCB, told Procurement Leaders earlier
this year.
“Data is black and white. The more data we have, the more facts and figures
we have and the more informed our decisions are”
PROCUREMENT PROSPECTS | 009
70%
“Anyone in the procurement team can
drill down into the data by business unit,
region, quality and individual supplier.”
Swedish car giant Volvo is another
company to have used the opportunities Of respondents
on offer, employing a team of analysts to said data was
gather and analyse data in a bid to ensure ‘important’ or
every buyer makes fully informed decisions.
‘highly important’
“Data is black and white,” says Chris
Sandford, Volvo’s global purchasing
to the decision-
director. “The more data we have, the making process
Source: Data and technology,
more facts and figures we have and the
Procurement Leaders, 2018
more informed our decisions are.”
Contract management is another area
in which procurement functions stand
to benefit from deploying advanced data
analytics solutions. The sheer number of
contracts, many of them complex due to
the unstructured nature of the data they
hold, means an ever-growing number of
procurement functions are struggling to
effectively manage this area – despite its
manifest importance to the organisation.
Procurement Leaders’ Data and
technology report found 39% of respondents
still manage their contract management
processes using improvised tools. It is
also an area in which procurement lacks
confidence, with only 42% of respondents
in the study believing their organisation to
be effective or very effective in this area.
That leaves huge room for improvement.
With more procurement teams moving
away from managing contracts using
emails and disorganised text documents,
there appears to be a shift towards
functions adopting a best-of-breed
approach to technology, rather than
relying on a suite of solutions.
While advanced data analytics continues
to represent a future cornerstone of
procurement, there is a nagging feeling
that machine learning or artificial
“With the use of technology, in the future a customer could potentially scan a
bag of salad and know with certainty where it came from”
39%
Of procurement
professionals use
improvised contract
management tools
Source: Data and technology,
Procurement Leaders, 2018
intelligence (AI) opportunities are not
being exploited to the full either.
A shift in the marketplace is, however,
well underway. The democratisation of
AI could lead to the technology becoming
more widely available. Google has already
made a series of announcements to
this effect and, according to business
technology news website ZDNet, the likes
of AWS and Microsoft look set to make
further strides in this area in 2019.
All of which suggests the number
of offerings in this space are set to
increase; whether the technology
offerings exist for procurement to harness
the power of AI is a matter of debate. One
thing, though, is certain – there are many
opportunities preparing to enter a new
year full of possibilities.
Global biopharmaceutical company,
UCB, is one company making progress in
this area.
Its creation of a cognitive procurement
assistant, named Aria, is just one example
of how natural language processing and AI
is changing how procurement operates.
In May 2018, Sebastien Bals, UCB CPO,
told Procurement Leaders Aria is having
a significant effect in areas such as
identifying user needs – for example, it asks
internal stakeholders and procurement
professionals to complete satisfaction
surveys – and aiding collaboration with
other functions.
Indeed, the development of Aria would
not have been possible without a cross-
functional team including IT, finance
and procurement.
Although UCB is using AI to great effect,
there are concerns that technology cannot
keep up with procurement’s ambition.
“It should be possible to have a question-
based process in terms of what you’re
PROCUREMENT PROSPECTS | 010
looking to procure, particularly in less
complex areas, then AI will indicate what
to purchase and when,” one leading CPO
told Procurement Leaders earlier this year.
“That’s how it should work at a macro level.
But I say to myself: ‘there must be someone
who does it,’ while, in fact, no one does.”
The race, however, is on and 2019 could
represent a sea of change in the way the
function uses AI to transform the way
it operates.
BUILDING BLOCKS
One area that has gained considerable
traction in recent years is blockchain,
and this looks set to continue. Tracing
goods throughout the supply chain is a
huge concern for CPOs, with the potential
damage to an organisation from a
reputational and financial perspective too
large to ignore.
The past year has seen several food
scares in the US, from E.coli in romaine
lettuce to salmonella in a range of products,
including eggs and breakfast cereal.
In response, Walmart announced in
September 2018 it will require all of its
leafy green vegetable suppliers to upload
their data to blockchain by September 2019
to enable it to react faster to such events.
“With the use of technology, in the
future a customer could potentially scan a
bag of salad and know with certainty where
it came from,” said Frank Yiannas, VP of
food safety at Walmart, in a statement.
The US retail giant is far from alone in
using blockchain to improve both visibility
in its supply chain and confidence in the
products it is selling. The likes of JD.com
and Alibaba are also using the technology.
The ever-increasing reliance on
blockchain is indicative of a wider spend
trend, particularly in Asia.

“We see blockchain technology either
being investigated or employed by a
variety of organisations across Asia to
securely track the movement of goods along
the supply chain. It also provides sellers or
consumers with transparent provenance
records,” Thomas Glucksmann, head of
corporate partnerships at blockchain
solutions firm, Diginex, told Procurement
Leaders earlier this year.
The importance of blockchain in
eliminating security risks from Internet
of Things (IOT) projects is also one of
the primary reasons why IOT spend is
expected to soar over the next three years.
Recent figures suggest total global
expenditure on IOT hardware, software
and services by 2021 will hit $1.4tn.
It is expected that the charge will be
led by manufacturing and transportation
businesses, while radio-frequency
identification technology is likely to be
most prevalent in freight monitoring.
The potential of IOT technology
to fundamentally change the way
procurement operates is clear to see.
From intelligent recognition to the
tracking and monitoring of freight and
PROCUREMENT PROSPECTS | 011
42%
cargo through the exchange of information
and real-time communications via
wireless, satellite and other channels, the
possibilities for the function are boundless.
Ensuring that procurement is capable Of respondents
of taking advantage of them will be one of believe their
the function’s major challenges over the organisation to be
next 12 months.
effective or very
TAILING OFF
effective in contract
According to the CPO challenger guide management
Source: Data and technology,
2019, consolidating spend ranked number-
Procurement Leaders, 2018
one among a list of value-adding projects
CPOs intend to lead during the year ahead.
B2B marketplaces are increasingly seen as
an invaluable way of achieving that.
According to research by Gartner, as
much as three-quarters of all B2B tail spend
on low-value and infrequently purchased
goods will be purchased using an online
marketplace by 2022. This is reflected
in the growth reported among leading
B2B marketplace providers. Alibaba, for
instance, reportedly expects its 2019
revenues to increase by more than 60%.
Amazon, meanwhile, expanded its
offerings in this area further still in
2018, with Spain, France and Italy
joining a marketplace that now boasts
annualised sales of $10bn. That figure
alone illustrates the size and potential
of the B2B marketplace that could prove
invaluable to procurement over both the
short and long-term.
With many B2B marketplaces merely
mirroring the offering of portals available
to consumers, the premise is an extremely
simple one – and one that is already
proving highly effective.
The year ahead could represent a
watershed for procurement, with the
function being given the opportunity to
show that it can harness technology to
not only deliver savings, but also bring
innovation to the table.
As we move into 2019, there may never
be a better opportunity for procurement to
show Bracken he is wide of the mark. n

Navigating the unknown
In a time dominated by political and economic uncertainty, CPOs need to put risk management
at the forefront of their strategies for the year ahead, writes Richard Edwards
Risk mitigation should always be a high
priority for procurement. But when we are
witnessing the kind of volatility on show
across the world at the current time, it
assumes even greater importance.
The uncertainty engendered by Brexit,
coupled with the creep of populism and
trade policies that reflect a growing shift
towards protectionism, means there is
plenty to occupy the minds of CPOs for the
year ahead.
It might be events in Europe and the
US causing procurement chiefs to stay
glued to their newsfeeds. But the effect
of Brexit and the significance of the, as
yet unratified, renegotiation of the North
PROCUREMENT PROSPECTS | Page 012
Photo: © Alexandros Michailidis / Shutterstock.com
American Free Trade Agreement (Nafta)
between the US, Canada and Mexico, is
being felt across the world.
The former looms large both in
London and Brussels, as it does in many
boardrooms, with the UK still scheduled to
leave the European Union in March 2019.
Regardless of whether that happens,
that date is unlikely to signal a period of
certainty and predictability.
EU elections take place in May 2019
and the mainstream parties in countries
such as France – still reeling from rioting
in Paris over a fuel tax that has enraged
many – Germany and Sweden, among
others, will anxiously await the results.
 A recent Reuters study suggests the
Eurosceptic bloc of the European parliament
could rise by as much as 60% following the
elections, further disrupting the status
quo. This could lead to an increasing
number of countries examining their own
dealings with the EU. Furthermore, it
raises the potential of established parties
changing their policy positions to reflect
the concerns of a number of voters.
For procurement, the most pressing
issues surround examining how this
shifting dynamic will affect complicated
European supply chains, particularly those
for goods that move between countries
during the manufacturing process.
At the 2018 G20 summit in Buenos
Aires, for example, the Japanese prime
minister Shinzo Abe urged the UK to avoid
leaving the EU without a deal. In doing so,
he reflected the concerns of companies
such as Nissan and Honda – both of which
have a strong manufacturing presence in
the UK – over the possible impact such
a scenario could have on supply chains
across Europe.
This focus will also put huge pressure on
CPOs to exhibit true leadership.
“Whenever there are swings in the
market – be it currency swings or political
tensions – we continually revise and update
our commodity and supplier strategies,”
Fredrick Spalcke, EVP and CPO at Dutch
consumer goods company Royal Philips, told
Procurement Leaders in June 2018. “Every
time politicians make announcements, we
need to review our plans.”
Taking a long-term view rather than
being short-term and reactionary is also
going to challenge CPOs in this area.
“I have seen dogmatic, even aggressive
behaviour arise with fast, but not good,
decisions being made, as leaders seek
to avoid uncomfortable feelings of
uncertainty and ambiguity. This means
strategy is often not designed to respond
to the right challenges,” says Murray
Eldridge, a chartered director and
PROCUREMENT PROSPECTS | Page 013
leadership and strategy course leader at “I have seen
the UK Institute of Directors.
With so much left unresolved, CPOs
dogmatic, even
need to be able to respond to change as aggressive
quickly as possible. behaviour
That is especially true when it comes to arise with fast,
keeping pace with some of the tariffs that
have made headlines around the world
but not good,
throughout 2018. The impact has been decisions being
dramatic, not least as a result of some of the made, as leaders
enormous tariffs placed on Chinese goods seek to avoid
entering the US – and the knock-on effect
on the way China now trades with the US.
uncomfortable
feelings of
SHIFTING SOURCING uncertainty and
Earlier this year, analysts at financial ambiguity”
services firm Morgan Stanley estimated
the US tariffs, alongside the retaliatory
responses by trading partners, would
affect 1% of global trade. The analysts did,
though, rightly point out this 1% covers
a much larger share of some companies’
supply chains than others.
There are already clear signals that
companies are adapting their thinking to
reflect a new era in which free trade is no
longer a guarantee.
In the US, Harley-Davidson, for example,
has moved the production of bikes bound
for Europe out of the US to factories it
has built in India, Brazil and Thailand, in
response to increasing tariffs on Chinese
goods and the ongoing uncertainty around
tariffs on goods imported from the EU.
Other companies, such as Vivint Smart
Home, are changing the way they operate
to reflect this new trading environment.
“For those of us in the consumer
electronics sector, we were very focused
on Asia and China. But I see some shifts
happening now,” David Porter, the
company’s CPO, told Procurement Leaders
in August 2018.
“As a CPO, there are two drums to
beat. One is about driving down costs and
having high quality; the other is assurance
of supply – you have to be sure you can de-
risk the supply chain.”
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 That will be a priority for a great many
others as we move into 2019: a year that
could see a fundamental shift in the
sourcing map. Although no one can truly
predict what the next 12 months hold in
store in terms of trade, it’s incumbent on
CPOs to be as prepared as possible.
“We have trade-war tensions that are
combined with a push for localism. The
message for procurement is they need
to be prepared for that and have backup
scenarios,” Mike Hales, a partner in
AT Kearney’s operation practice, told
Procurement Leaders in August 2018.
ROCKY ROAD AHEAD
This uncertain landscape has contributed
to fears over the financial stability of an
increasingly stretched supply base.
The US dollar has been gradually
strengthening on the back of continued
interest rate rises by the US Federal
Reserve. As a consequence, businesses
are finding it harder to service dollar-
denominated debt, leading to fears that
a high-risk environment is developing
and corporate credit conditions are once
again worsening.
Just over a decade on from the economic
crash that utterly changed the financial
landscape, alarm bells are ringing again.
This nervousness is reflected in figures “We have trade-war
from the Bank for International Settlements,
which showed companies are taking on
tensions that are
more debt while reducing the ratio of cash combined with a
they hold to cover their obligations by 5%. push for localism.
Analysts at S&P Global now estimate The message for
the proportion of highly leveraged
companies stands at 37% globally, which
procurement is they
indicates businesses are more indebted need to be prepared
now than they were before the 2008 global for that and have
financial crisis. backup scenarios”
The collapse of UK construction
company Carillion in January 2018
graphically demonstrated the dangers
facing the supply base in corners of Europe.
But as Jamie Gardner, senior manager
at Efficio and former head of capital
procurement for UK utilities provider
Thames Water, explains, establishing
the financial health of a supplier is often
a process mired in difficulty, particularly
during a lengthy sourcing process.
“Just because a company issues a profit
warning, you cannot stop the train,” he
says. “There may have been a lot of financial
vetting well before the contracts were
awarded [to Carillion], but that information
can sometimes be up to 12 months old. We
are advising clients to do a cash flow test
and interview CFOs so they understand the
situation in real time.” n

MITIGATING FINANCIAL SUPPLY CHAIN RISK AT VATTENFALL

Some companies have already taken positive and
significant steps to mitigate financial risk. Among
them is Swedish power company, Vattenfall, which
has established rigorous supplier onboarding
and monitoring processes. Here, procurement
works hand-in-hand with the firm’s credit risk
team – a team that is completely independent
from procurement.
The company aims to identify any risks at the
pre-qualification stage, before any tender or
negotiation has taken place.
Speaking to Procurement Leaders, Martin Clarke,
procurement team leader of portfolio wind projects
at Vattenfall, said Vattenfall uses a ‘series of tools’
to support appropriate risk mitigation throughout
the life cycle of a contract – from the inclusion of
credit-related conditions, to periodic monitoring
of supplier creditworthiness and, where necessary,
including specific bonds and guarantees.
As concerns over debt risk continue to surface,
more companies could be expected to do the same
as we move into 2019.

PROCUREMENT PROSPECTS | Page 015

Inside information
A selection of the very best quotes from this issue of Procurement Prospects to help inform
leaders’ strategy decisions for the year ahead

Procurement chiefs have the

opportunity to be the connection that allows
collaboration in the value chain, enabling
parties within it to learn from each other
Errol Rasit, chief innovation and product officer, Procurement Leaders
page 002

“The more data we

have, the more facts
and figures we have and
the more informed our
decisions are”
Chris Sandford, global purchasing
director, Volvo page 008

“Every time politicians

make announcements,
Technologists, analysts, mathematicians we need to review
and data scientists will supplement the our plans”
heartland procurement skills Frederick Spalcke, EVP and CPO,
Royal Philips page 012
Thomas Udesen, CPO, Bayer page 002

PROCUREMENT PROSPECTS | Page 16

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