Supply chains are risky business, but with the right skillsets, procurement can leverage its position as both innovator and revenue generator.
It’s a fascinating quirk of human nature that we tend to fixate on negative information and externalise our problems. As systems theorist Donella Meadows said, it is comforting to assume the cause of a problem is “out there” rather than “in here”. It’s more unsettling to admit that the cause of challenges may lay closer to home because acknowledgement requires change in the way we see, think and act. But this should also bring its own comfort, because when we learn to confront our weakness we can become the master of our own solutions.
The last two years gave rise to an environment where global supply chains are now in a constant state of change – yet some have thrived. And there are common themes among their stories, such as developing a responsive procurement team to match the capricious business landscape, having an exacting approach to self analysis, or a tacit awareness of the need to be connected to supply chains in multiple directions simultaneously, so as you widen the touchpoints you increase the chance of discovering solutions.
Supply Management spoke with several organisations that flourished in the face of instability by embracing unconventional methods. Here, we explore their successes to find out how alternative thinking and risk-taking, the bedrock of this progress, are the necessary first steps in unleashing the power of advanced procurement.
THE GENERATOR: Turning telecoms operator MTN into a global tech leader
There is a real sense of dynamic transformation at MTN. As Africa’s largest network operator, it connects some 270m people through services ranging from data, digital and fintech, to wholesale, enterprise and application programming interface (API) – but it’s not stopping there. “We’re building the largest and most valuable business platform with a clear focus on bringing Africa and its enterprises forward. It means that we’re now a tech company rather than just a telecommunications company,” says Andrew Savage, MTN global lead for procurement excellence.
Naturally, the way the company performs procurement also had to change to accommodate this ambition. The new operating model reflects MTN’s digital, data-driven strategy, being built on data science capabilities Savage implemented when he joined the firm in 2017. This has brought a more agile capability which, Savage explains, was always “part of how I am preparing the procurement for the future”.
“I wanted to ensure procurement becomes a strategic value creator for the organisation,” he says. “We’ve successfully collaborated with our suppliers and developed a partner ecosystem. We can now derive competitive advantage over others because of our strategic partnerships and access to the latest technology.”
This transformation enabled the team to pursue more advanced strategic sourcing, to bring its expertise into platform and fintech procurement and allowed it to embed sourcing intelligence into new domains for the business. It has supported a far more data-driven approach to decision-making, which has in turn been supported by the development of sophisticated in-house technologies such as AI and machine learning.
“It’s a gamechanger when you can enter a negotiation with real-time insights that model optimal outcomes,” says Savage. “Stress testing the supply chain has become our strength in a recurring uncertain economic environment. We can now proactively drive required mitigations ahead of the rest of the industry. This is how we are gaining a competitive advantage.”
The appetite to develop procurement’s capabilities had long sat within the team, but the potential to realise emerged during the pandemic. The semiconductor shortage had a major impact; by using its predictive systems, the company navigated these frictions, and the system ensured resilience and enabled better cost management. “We used our tools to enhance visibility through supply chain control towers and we ultimately got closer to our key stakeholders,” says Savage. “We are now able to serve them faster and ensure their business requirements are future fit, taking the value creation to a whole new level.
“And the benefits of our strong procurement strategy go far beyond cost savings. We are unlocking new cost models for some of our largest categories, supporting the company’s sustainability agenda and accelerating digital culture in the organisation. Procurement is now seen as a strategic stakeholder that can unlock new opportunities for businesses within the organisation.”
This can be seen on the bottom line too. Procurement has boosted EBIDTA by 30%, while also improving operational efficiency and control through robotic process automation (RPA) solutions. MTN’s self-built recommendation engine ensures it benefits from every possible bundling opportunity by scanning ongoing and planned sourcing events. It has improved leverage over suppliers during sourcing events and directly impacted the commercial terms and conditions by “motivating suppliers to innovate their business proposals to MTN”.
“One of our machine learning models (decision support application) takes subjectivity out of our sourcing decisions,” says Savage. “All our bids are now analysed for their cost drivers, stress-tested with award scenario optimisation, and negotiation agendas are drafted using game theory for each bidder.”
It’s an intelligent approach made all the more formidable by its exacting standards. The ambition and investment in technology has been matched by the investment in people. Companies often pin their growth on the power of technology only to fail when people can’t keep pace. But it’s not the case at MTN. “We are providing agile coaching, agile training, and Scrum certifications, along with upskilling our teams in areas such as intelligent automation to be future-ready. It directly translates into valuable business outcomes,” Savage says. “It’s our investment in people and their skills that is going to be the long-term value driver.”
THE CHALLENGER: M&S is questioning defaults, making room to do things differently
“I always talk about being on the front foot,” says Andrew Newnham, CPO at UK retailer Mark’s & Spencer. “As a procurement team, you don’t want to let things happen to you. Be on the front foot, make things happen.”
With a melee of disruptions in full swing – equal parts pandemic, Brexit, war and looming recession – it makes for sobering advice, and an ethos against which Newnham and M&S have set their stall. Emerging from the damage of the pandemic and the bite of Brexit tariffs – which cost the company £47m in total – the retailer set about addressing flaws in its supply chain by reviewing its logistics network and optimising for the medium term. So far this has proven successful, delivering savings through operational efficiencies, reducing waste and refreshing outdated supply chains.
A review of its European business models also led to more local sourcing and rerouting of products through European hubs, which improved product availability. But once you open the business up to scrutiny and start identifying issues, you have to be prepared to make the necessary changes.
“There are a number of things we’re working on,” Newnham explains. “If you look broadly at our supply chain, there’s a lot of pieces ongoing to modernise it from end to end. We’re asking if we have the right network in place in certain areas. How would joining those networks feed availability and stock loss? Part of our clothing supply network is insourced and part is outsourced. Is that right? When we ask those questions, we start coming back to alternative ways of thinking. How do we do things differently? How are we thinking about challenging the business to change the way it works?”
Most people would agree that the hardest part of any transformation process is successfully managing the cultural shift. Buy-in is crucial. In that respect, driving change at M&S was largely about recognising what was expected of each person and each team, and it has been a long journey to establish new ways of working at what is essentially a heritage brand with a history of operating in a certain way.
“You can’t just turn people into change managers. As a procurement team, we have to understand the market and the strategy, and we have to understand the business cycle we are in. Then we must think differently and challenge the way the company does things from the perspective of the decision-maker.” This approach has won favour at board level for successfully marrying business and commercial strategy with long-term vision. It has given procurement a licence to push the business in new directions and meant that Newnham and his team can eschew conventional procurement wisdom, such as agreeing deals that meet long-term partnering needs rather than savings alone.
“You need the right culture to make [the transformation] succeed. It’s about being consistent with our strategy and the long-term goal that the company is building towards,” he adds. “We have a clear vision of where the moving parts and contracts fit into the 10-year strategy. Our CFO wants to know that we’ve got a good deal; but the first thing he wants to know is how it fits into the business strategy.”
For Newnham, an integral part of the way M&S does procurement is down to strong foundations, nurtured through collaboration. “We spent three years being really good partners,” he explains. “We generated savings, made sure our category plans were good and that our pipelines were good. Unless you do that, you can’t do the rest.” Only with the technical procurement expertise in place and with trust built among stakeholders could Newnham’s team then consider alternative strategies, to step forward and become agents for change within the business.
The team spent a great deal of time looking into processes. And each time a process analysis was carried out and insights gained, they could use this specific data to engage the business and suppliers on the issue. As Newnham says, armed with facts they could then “ask the supplier to tell us how they can innovate for us”.
At the time of writing, M&S was in negotiations with its package design supplier to streamline and reorganise the end-to-end process with a view to making improvements for all parties, with the emphasis on collaboration and long-term value, not beating down prices. “We could have taken 5% out of the contract,” Newnham adds, “but we looked at it from a broader business perspective and drove that business change. We’ve been the catalyst for that. It comes back to the different way of thinking about business problems beyond how much things cost.”
This approach is keeping M&S firmly on the front foot. With a recession looming, the next 18 months will be especially tough for retail, so rather than holding back, Newnham plans to keep building capability. “It is an opportunity to do things differently,” he says. “We’re clear about what we want to achieve and what we’re trying to deliver. “Have goals and be clear about them, and how you will achieve them. For the other things you’re doing, you will find a way to do them. Progress is more important than perfection.”
THE INVESTOR: In a period of downturn, Etihad Aviation Group took to blue-sky thinking
As transformations go, the turnaround at Etihad Airways has been nothing short of awe-inspiring. Off the back of Covid-19- induced losses totalling $1.7bn in 2020, the procurement department has helped the UAE-based airline return to profit for the first time since the pandemic, delivering value and even winning awards for its approach to sustainability in the process.
“Year on year, we’ve delivered hundreds of millions of dollars in value to our bottom line in an incredibly challenging operating environment, and with considerably fewer people,” says vice-president of procurement and supply chain Cassie Mackie. “That’s at a scale that procurement hasn’t really done before [at Etihad]. Our half-year results show that Etihad is returning to profit a year ahead of its transformation programme.”
On the ground, it took efforts in multiple prongs to deliver that journey effectively. It was partly down to improving operational efficiency through systems and processes, and partly through a cost transformation programme that has built resilience and put an emphasis on cost-efficiency by working in lockstep with key business stakeholders.
There has also been substantial change in the airline’s approach to sustainability. This may seem a separate issue but, as Mackie points out, it’s all part of a much bigger cohesive picture. “Sustainability has long been a top priority for Etihad, and even through the past two years of challenges, we’ve made great leaps forward.” In May this year, the group announced plans to use closed-loop supply products on economy flights from December, as part of its wider efforts to reach net zero by 2050 and, in the shorter term, to hit its targets of removing 80% of single-use plastics from its operation by the end of 2022.
The organisation’s supply chain has had a huge influence on these changes. In 2019, the Greenliner programme was established in partnership with Boeing and GE to use Etihad’s fleet of Boeing 787 Dreamliners as testbeds for collaborative industry initiatives aiming to make air travel more sustainable.
“Late last year, we announced a similar partnership with Airbus and Rolls-Royce to make Etihad’s new A350-1000 fleet a part of this industry-leading sustainability initiative, under our Sustainable50 programme,” says Mackie. “With the two most fuel-efficient twin-engine commercial passenger aircraft both under the Etihad Sustainability umbrella, we’re driving the world’s most comprehensive industry-wide testing and innovation programme in collaboration with our suppliers.”
These programmes have already demonstrated the positive impact of involving the supply chain in helping the airline’s decarbonisation drive. In October 2021, Etihad conducted its most sustainable flight to date, successfully reducing carbon emissions on a London-to-Abu Dhabi flight by 72%.
Arguably, it is in the sustainability space that procurement has the biggest opportunity to make a long-term difference. “The pathway to net zero will require significant investments in efficiency and innovation, as well as regulatory change,” says Mackie. “To truly make sustainability a reality in aviation we need to look at the biggest contributing factor: fuel. Sustainable aviation fuels (SAFs) are currently four to six times more expensive than conventional jet aviation fuel, and are incredibly difficult, to the point of impractical, to procure. Unless we can resolve the economics of this, it isn’t going to be a commercially sustainable part of the solution. It requires policy changes from governments, continued R&D, enhanced supply chains and refining improvements… and there is a lot we can do.”
In May it was announced that Adnoc, BP and Masdar were working alongside Etihad to produce SAF from green hydrogen and municipal waste. Separately, the company is working with Boeing, Adnoc Refining, Safran, GE and Bauer Resources on a long-term pilot to produce its own SAF through an innovative seawater energy and agriculture system that caters to both energy and food security. It is a project that procurement is driving.
“When we talk about SAF from a procurement perspective and take into consideration that a lot of European governments are starting to mandate its use, it adds considerable cost. The industry isn’t there from a volume perspective, so we’re doing all we can to change that, from investing in R&D efforts to engaging with policymakers and industry partners.”
But innovation doesn’t stop there. Mackie says the firm is working with UK-based Satavia to test ways of reducing contrails – the vapour emissions you see in the sky from aircraft – a project for which Etihad was the launch customer. “Primarily, this is about a more efficient flight and reducing non-CO2 emissions” she says. “But from a procurement perspective, we’re not only running that pilot deal, we’re helping to launch a new capability in the market that will benefit the broader industry in reducing its warming impact.”
Through a wider lens, it’s evident the group is heading in the right direction again, thanks in no small part to its procurement team. Alongside a return to profit and a highly successful transformation programme, Etihad was awarded Environmental Airline of Year by Airline Ratings. “Compared to where we were before the pandemic, we’re much leaner and greener, and we’re winning awards and gaining approval and we’re innovating,” Mackie concludes. The sky is clearly the limit.
THE CONNECTOR: Indirect Spend Alliance offers tools for cross-industry progress
Seven months ago, a series of informal conversations with indirect procurement professionals led Oliver Hurrey to form the Indirect Spend Alliance (ISA) alongside a group of companies tackling environmental and human rights in the indirect space. The group, which includes giants such as Amazon, Lego, GSK and AstraZeneca, is developing a set of tools and knowledge banks that apply across indirect categories.
“There were common problems and concerns about how to take proper action on human rights and the environment,” says Hurrey. “And while there’s a lot of information out there, there’s not a lot of ‘how to’. So what we’re doing is finding where knowledge exists and then sharing that.”
It’s having the desired effect, as freight firm Evri’s director of procurement, Pauline Potter, explains. “The hardest thing for us was understanding where to start with ESG risks. The ISA has been great in that respect. It’s developed a coherent and comprehensive structure my team can use to assess and manage risk for different spend categories.”
Hazel Culley, director FMCG at TwentyFifty agrees. “It’s great to see the members address the issues in categories that represent a significant amount of spend and contain many challenging human-rights risks,” she says. “By highlighting existing practices and developing supporting tools, we’re enabling members to make the changes that are need and tackle the issues together.”
The desire to achieve results differentiates the alliance
from similar ventures in the sector. It’s underscored by a set
of deliverables and a 12-month timeframe that gives the project a motivating framework, allowing it to build the momentum that makes a difference. “These are procurement professionals who want facts, figures, results and tools,” says Hurrey. “They want to get on with it, and so the collaboration needs to deliver that.”
The first tool is a series of crash courses in the facilities management (FM), logistics and professional services categories, helping procurement professionals identify human rights risks and emissions savings opportunities. The second is a web-based matrix that builds on the workshops and collates the essential information for each category. “What that means is each category manager has the relevant data, facts and questions to take to their suppliers and stakeholders,” says Hurrey. “It makes their life much simpler.”
The final piece of the jigsaw is designed as an assessment tool for engaging suppliers in certain categories. It sets out the right questions to ask and in the right way. As an overall package, it gives those involved knowledge, a tool for knowledge and a tool for talking to suppliers. One of the project’s biggest achievements is to have removed barriers between procurement and supply. Each workshop has a major supplier involved, talking about their experiences working with procurement. It’s a crucial voice that is often missing from the conversation on human rights and the environment.
“The voice of the supplier is key,” says Hurrey. “We now understand that just nagging them, auditing and then asking them to fix problems isn’t very helpful. But what is helpful is open conversation that establishes how we can work together mutually, how we can build programmes that support both organisation and the wider supply chain.”
The more strategic approach is working towards a nascent best practice for indirect procurement, an ideal where through partnership suppliers bring solutions, ideas and services rather than just performing actions to tick boxes. There is a sense that this is where real traction could be made. Jamie Barsimantov, chief strategy officer and co-founder of insights platform SupplyShift, believes so. “Companies using a common approach to engage their indirect suppliers on the most pressing human-rights and greenhouse-gas issues specific to each category is the best way to make rapid progress on these issues. It’s amazing to see it happening here.”
It takes bravery to stand apart from the crowd. With financial and environmental issues jostling for priority in a long list of urgent matters, a new approach represents a very big risk – but this is where procurement excels. Necessity is the mother of invention, as they say, and in incredibly challenging times with reduced resources, these procurement teams kept opening up ways to generate revenue, to partner more creatively with suppliers, and doubled down on investments with a keen eye on the long-term value. So yes, innovation is hard work and not always the priority it should be, but it too has transformed, from a nice to have to an essential part of modern business.