How to get started with digital procurement
Jacob G Larsen, Digital Procurement Evangelist
Every year EFFSO organizes a CPO Round Table with 20 Chief Procurement Officers from Swedish companies, and digitalization of procurement has been a part of the agenda at least for the last five years. During our last CPO Round Table in October 2021, we had the opportunity to listen to Jacob Gorm Larsen the time, Jacob was responsible for Digital Procurement at Maersk, the Danish global shipping company.
Jacob took us and the audience by storm. He is not only a thought leader on e-auctions and digital procurement in general, he is also a true practitioner who knows how e-auctions work and what it takes to drive adoption successfully across a global organization. Already in 2010, his team did more than 1000 e-auctions. Since then, they have executed more than 10 000 e-auctions across industries and in all parts of the world. And they have been using robots for more than one million tasks per year. This means more than 100 processes automated so far and growing every week. No wonder his recent published book is called “A practical guide to e-auctions for procurement”!
Since then Jacob has moved on. After almost 18 years at Maersk, he launched in December 2021 Moneyball CPH, an advisory providing services within digital sourcing, e-auctions and digital transformation of procurement. We decided to interview Jacob to hear more about his new business and to talk about his favourite subject, how to apply technology to improve and optimize procurement processes.
This article is the first one in a series of two. The next article is about the mindset and the capabilities you need to succeed with your digital transformation.
You headed Digital Procurement at Maersk. Are you a tech guy?
Actually, no, I have a Bachelor degree of contemporary history. History is and always will be my passion. But on top of that I have a Master in information science and it was my master thesis on web enabled knowledge sharing that took me to Maersk almost 18 years ago.
My first assignment at Maersk was to build a contract repository and a knowledge platform to communicate and share all our agreements. But where I spent most of time was within the go-to-market space, digitizing our sourcing processes with e-sourcing and e-auctions solutions. And for the last five years I headed up the Digital Procurement function, having the end-to-end responsibility for all technology solutions within procurement reporting directly to the CPO.
How did the procurement function look like when you joined Maersk?
You can say I saw sort of the rise and development of Procurement. When I joined we were 15-20 people in Global Procurement. Now they are around 600 of which 40 work with digital procurement. At the time, they were doing a few global agreements out of Copenhagen essentially but we were not organized according to a global procurement organization. Nor were we part of the overall strategy, the processes or the tools.
Today, Procurement is truly global function with front line people in all parts of the world doing sourcing etc. But most importantly, it has become a digital organization. We have seen people change their behaviour and becoming more data driven. And when you see that the organization is changing and adapting new ways of working – that’s when you have real transformation!
What was the recipe?
There was no recipe we could follow, not even a cook book. Very few companies have done this journey before so we had to develop our plan on the way. It’s like building the plane while you fly it*, an analogy I often use. The difficulty lies in transforming procurement while at the same time operating the function. Because you still have to deliver today, tomorrow and the next week.
But one thing is sure. When you talk about digital transformation, you don’t start with technology!
So how do you start a digital procurement transformation?
If you want to initiate a real digital transformation, my key message is simple: don’t start with the technology. Buying technology or “shiny objects” will not bring you transformation. You have to start by identifying the main business problems, or the opportunities if you like, that need to be solved.
And, that comes without saying, different companies will have different pain points they wish to solve. That is why I don’t believe in adopting a fixed approach to this initial strategy phase. For Maersk, digitalization is not about reducing head count. Its purpose is to change procurement’s value proposition and through that address the company’s challenges. One of them is to become carbon neutral by 2050.
Now having said that, in some cases some kind of structure for inspiration is useful and I often list the following six dimensions as a starting point in my workshops with clients:
- Supplier collaboration: Make it easy for your partners
- Market place: Make it easy to use your contracts
- Data as a strategic asset: Create real-time transparency and predictive analytics
- Commercialization: Convert insights into products
- Go-to market: Ensure effective and efficient market events
- Procurement automation: Drive hands-free procurement
Then, when you have identified your main business problems, you map these pain points or opportunities against the [thousands of] digital procurement solutions that exist to select the two or three you should put a bid on. And based on that you create a road map and a change management plan.
Are there any low-hanging fruits?
Definitely! Although each company may have different starting points, if you haven’t started this journey yet there is a high likelihood that there are some very low-hanging fruits within the whole sourcing area. Introducing e-sourcing, and e-auctions particularly, is a very good place to start.
Why? Firstly, technology wise it is not something that requires a lot of tech support and integration. It is typically operated as a standalone tool and you can get up and running quickly. The second reason is that there will be a lot of easy quick wins. You will be able to quickly demonstrate some very tangible and solid results which you can use then to fuel the whole complex part of the transformation going forward. It is extremely important to get a good start of the program by showing some solid results, and it’s almost a guarantee if you start with e-sourcing/ e-auctions!
I guess that is where you started at Maersk?
Exactly. Another learning is to start small. For example, you start in one country or with one process. When you show it works, you get commitment from people, you get people to talk about it in a positive way an then you can scale it from there.
Also, I don’t believe in big global rollouts coming from the company’s HQ. That is not how you create change. You need people on the journey and that is why it’s a good start to begin with e-auctions. It’s simple and it creates momentum. The same goes for robotics in procurement. Start simple and small in one country, prove people that it will be a help, not a threat. If you show them that it will not take away their jobs, on the contrary it will only make their jobs more interesting, you get their commitment and then you can scale.
At Maersk, we started on a small scale. It took me six to eight weeks to find the right use case and convince Procurement to roll out the technology. That is what takes time, it’s not the technology. The technology is already there. Now we have a RPA “factory” (Robotic Process Automation), a team of six to eight people working with eight virtual robots.
How do you get people to buy into your strategy?
Ah, this is where the real work begins! Trust me, this is the hard work. The implementation is about getting the change processes designed right, getting the right capabilities developed within the organization etc.
There are a couple of things you must have in place. Firstly, you must ensure very close alignment and active support from the CPO or Head of Procurement. The change program should be anchored and report directly to him or her.
Secondly, you need a strong vision. Our vision at Maersk was to fundamentally transform how procurement was working, and we expressed that vision by stating that “there is a 50 percent automation potential”. This number was based on a calculation done by the digital procurement team. We reviewed all the people and the high level processes and came up with a 51,2 percent automation potential but to make it easier to communicate, we rounded down to the nearest whole value.
Of course, it created a shock the first time it was shared during a global town hall meeting. But we were also very clear that this didn’t mean 50 percent fewer people. It was all about eliminating the tedious tasks so that people could spend more time on interesting, more strategic and more analytics based tasks. I actually believe we will need more people than ever in procurement, due to digitalization!
The last point here, and I already mentioned this, is that when you start rolling out a solution, you need to constantly create momentum by delivering on small and big cases. The small wins become the fuel that drives the larger transformation forward!
I guess the people dimension is the biggest challenge…
Without doubt, because there will always be people who don’t buy into your strategy and your vision. Also, in procurement there is a lot of people whose main skill and interest is doing negotiations. So it’s easy to understand that they won’t be the first supporters of things like e-auctions or other digital negotiation tools.
I do admit that communication wise, it is hard to on the one hand talk about a huge automation potential and on the other that there will be a lot of new jobs, or the same but more interesting ones. You need to show that this conversion, as we called it, is possible. That’s why it is crucial to track these conversions as you go along. Because if you don’t follow it up to ensure that the time that has been freed up is invested in the right things, you will not see transformation happening!
At Maersk, we tracked the impact of RPA every week. Each department had a target for the number of tasks automated and the number of people converted. The dashboard was shared in global leadership team meetings to show progress or lack of same.
Can you give an example of these converted tasks?
We had for instance a buyer who was converted into a virtual workforce manager. Instead of doing the actual transactions, he was now monitoring the robots who were performing the transactions and controlling that they were working the way they were supposed to.
We also had a couple of other buyers who could step up into a new role called Operational Category Manager which meant that they could spend more time on setting up the policies and the structure in place so that everything was ready for the robots to automate. I think it’s a more interesting, and more impactful job because you are fixing things at a structural level instead of at transactional level.
Some would argue that this isn’t right for them because they are a people person. My answer to that is that there is even more people interaction in such a job because you have to front, and sometimes defend, what the robots are doing for the rest of the organization.
What do you do about the ones that don’t buy into the strategy?
Prioritize, which also means to deprioritize. There will always be people or departments that are less positive about your vision, sometimes even working against you. Of course there is a need to enthusiasm the organization to make it understand that the technology is not a threat. That’s what we did with our “Digital Procurement Safari”-tour. But don’t spend time debating with the ones that are not with you. If you are working in a larger company, this may be easier. But you just need to prioritize the ones that are with you. The “laggards” will come along at one point when they see the results and when they realize that they will be left behind if they don’t.
What other technologies and solutions did you implement?
We digitized and implemented solutions for all the steps in the procurement deal flow. Everything from the go-to market (Coupa CSO), contract management (DocuSign), operationalizing agreements (OpusCapita), call-off (Blue Prism) as well as the invoice and payment (C2FO) phases. Even the category planning is digitized (via Power Apps)!
On top of that, we have implemented process mining (Celonis) and even combined several technologies in a kind of hyper automation solution. For example, process mining in combination with RPA or automated e-auctions which is when a robot is doing the e-auctions. I would also like to mention collaborative sourcing or chatbot negotiations (Pactum). It is used for spot negotiations where a fixed price is not already available.
Tell us more about your new venture, Moneyball CPH!
First of all I have received a lot of questions about the name. It comes from a book by Michael Lewis called “Moneyball – the art of winning an unfair game”. There’s also a movie. It’s all about using data and technology to make smarter decisions. It means that with the right insights even the smallest guy can gain an edge over big competitors…
I want to help companies that have not yet started this journey to enhance the performance of their procurement teams through data and digital solutions, to put it short. It means helping them with first of all the strategy and the mindset but also helping them implement it. For the simple reason that I’ve done it before and I have seen the transformation take place.
Thank you, Jacob! But we have more coming out from this interview. The next article will be about the team that Jacob built up at Maersk. As well as the skills or profiles that will be needed in procurement in the future. So stay tuned!
* This phrase is a cliché of Silicon Valley that initially referred to iterating software development. Instead of perfecting the software before shipping, this phrase summarizes a different approach – ship it, fix it, ship it again. Since then, this metaphor has been used to describe infrastructure, growing industries, the education system, the financial landscape, and much more (Ellen Kirkness).