At Opstream we routinely meet with industry leaders deeply involved with building procurement departments and processes within their organizations.
Today, we were fortunate enough to sit down with our guest Patrick Michaud, an expert at both.
Patrick was previously at Bluecross Blueshield of Florida as the Director of Enterprise Procurement Operations and is currently the Head of Procurement and Supplier Management at Innovacare Health.
Topics Covered:
Entrance to procurement
Patrick, you've been in procurement for a while. Is it something you always wanted to be or how did you find your way here?
I think the vast majority of everybody in procurement accidentally ended up in procurement. I don't think a lot of folks think about it as a career, at least today. I think that's probably one of the things that's going to be changing inside of the industry is the way we attract young talent.
But for me, when I graduated college, I actually started a recruiting career first. But in 2008, with the looming financial crisis, construction, land development, environmental, everything I was recruiting for, was the first to drop.
So I found myself going to customers that I have had for years and they were handing me stacks of resumes from their people that had been laid off. So I knew I needed to make a change and had a connection inside of an environmental consulting firm. They were hiring for what they called the project manager.
Really, it was a procurement manager sourcing specialist type role. And so that was my accidental entry into procurement. And I really fell in love with procurement from that point.
Because this is one of the few industries that I've been in where you can use relationship building skills and analytics skills. Usually, people lean one way or the other. But procurement folks are kind of a rare breed where we fit in the middle of that.
So, for me, procurement was kind of the best of both worlds.
The Future of Procurement
Where do you feel like the state of procurement is going?
Well the roots of procurement were always in purchasing. And so companies created these purchasing departments that were very tactical in nature and very focused on requisitions and purchase orders, paying invoices, getting stuff out on time.
And enterprises started to realize that these purchasing groups, they started to see everything in the enterprise. Very few departments could really see everything that's happening inside of the enterprise. And purchasing is one of those areas they would see where all the spend was going. They would typically get involved in large and small purchases.
So it was just a natural area to kind of centralize activity. So the development went from purchasing to strategic sourcing and then ultimately category management pretty rapidly. So I see the industry continuing to move towards having a strategic seat at the table.
Even now, a lot of organizations have Chief Procurement Officers. In the past, you really wouldn't see CPO’s. And they definitely wouldn't be officers in the company. But even in today's world, that CPO is what we would call a little C, meaning they usually report up to the CFO. The next step for chief government officers and internal departments that they manage is to really have a big C reporting directly to the CEO.
And the reason it’s been this way is the role was typically sitting inside finance. It was always very focused on numbers and saving money, which will always be a strong part of procurement. But where you're seeing that being different now is there's a component of defining value beyond just dollar figures. There’s qualitative factors to consider now.
Strategic Procurement
You mentioned procurement being strategic. How does procurement act strategically for the organization? And perhaps just as important, how does the organization in turn see procurement as strategic?
Yeah, the second part of that is really vital.
But for the first part, procurement is in a unique position to look at third party suppliers. And not just the third party suppliers themselves, but the initiatives that the third parties are supporting at a holistic level.
So if you're inside of IT and you're kicking off a new project, a lot of times IT projects will touch a lot of different departments inside of the enterprise.
But as IT you might not necessarily see that because you're focused on the technology portion of the project. Procurement by design has to focus not just on who their internal customer is on servicing a contract for IT, but they’re also looking at it from a perspective of what does this do to compliance? What does this do to risk regulatory concerns? How does this report back to the financial? And what does this do from a total cost of ownership perspective?
Especially in enterprises that are growing rapidly, there are a lot of different lines of business internally. Procurement is really one of those points where they can say, holistically speaking, this is what the enterprise is doing and this is where the enterprise is going. Then they can pull in things from the outside like market research, financial due diligence, regulatory due diligence and the like and really act as an internal consultant when it comes to these third parties.
And one problem I’ve seen with enterprises that are growing is they get hooked on the consultant bandwagon. And consultants definitely have a role role, but having that resource internally is a pretty powerful tool for the enterprise. And this path is what allows procurement to have that strategic seat at the table.
Now, how do you get the rest of the enterprise to kind of recognize procurement that way? That is the challenge that procurement as an industry has gone through, especially the last five, six, seven years.
Procurement professionals realize they want to take that strategic role and it makes sense for most enterprises to have procurement in a strategic function.
But how do you bridge that gap and get there? That is the difficult part.
For your internal customers, you want them to look at the job you did on an individual contract or project, and you want them to come back to you for their next one because they know they can't get the level of expertise and the level of information on their own without going to a consultant.
Automation
So business customers come to you to get the level of expertise needed but what needs to happen to fill in the gaps for procurement? Are there tasks that can be automated so you can focus on being that strategic partner?
Naturally, when you put in a purchasing policy in place with an enterprise, it can slow things down.
And if you're not careful with your operational set up, you can create a department that is essentially applying mountains of red tape to your lines of business. If that happens, they are not going to be apt to come to procurement if it's just going to slow everything down without reason. So there's always a delicate balancing act of governance against speed and efficiency. So procurement has to be very mindful of that.
And I think in the past, procurement has not been mindful of that. They've been asked to set up a purchase policy, which puts in the appropriate amount of governance and restrictions on purchases, but they've not been quick to have a customer service focus on that or look at their procurement department as a business.
And so the way that I've always approached procurement departments and setting up operations is to look at it as procurement was its own business, was its own consulting and processing shop.
One of the key pieces from an automation specific perspective is to set up the appropriate governance so procurement can identify what is low risk, what can be transactional and set up that groundwork both from an ERP and a process perspective. Then find ways to automate it because those types of purchases do not require human intervention.
But, they require checks and balances. They require technology with guide rails that can allow us to automate that piece of the puzzle
Guide Rails
So what do guiderails look like?
One of the first things procurement will do when they start doing a spend analysis is an 80-20 breakdown because most of your spend is usually in a very small percentage of your supplier base.
That 80% spend is your strategic bucket. That's where you live strategically.
But the vast majority of your suppliers are in your tail spend. And the tail spend is usually pretty long.
Traditionally, the same amount of rigor would be put on your tail spend purchases versus your strategic purchases from a procurement FTE perspective.
In reality, you should be focused on getting that tail spend automated as quickly as possible.
Because you shouldn't slow down purchases in that tail spend bucket as much as you slow down purchases in the strategic bucket. Because, let’s be honest, your internal customers will see that slowdown, see you as a bottleneck. And rightfully so at that point.
There's usually very little risk inside of that tail spend from a regulatory and compliance standpoint. But you still need to know that spend is controlled. And if they are bypassing you, that’s a problem.
You need to know people are functioning inside of your purchasing guide rails. That's where automation comes in to help you and to push you as a strategic partner. And if you’re not used to it, that can feel uncomfortable.
One thing to note is there's also a lot of automation up front inside of that strategic bucket as well. But usually that automation is more so getting information that helps fill your strategic category plans or helps utilize the information inside of that category plan in an automated fashion for the rest of your supplier base.
Sifting Through The Noise
Speaking of potential slowdown in procurement, there are thousands of software and vendors out there. How does one person or even a team of people sift through all of that in a timely manner?
It's a shift in focusing on desired outcomes and agreeing upon the desired outcomes with your supplier.
The way traditional contracts were set up is I pay a fee, I get a service, and I'm getting what I pay for.
Essentially, shifting towards outcome based means you can explore different options and every application offers slightly different market differentiation, which is just good business practice.
But aligning those sometimes very subtle market differentiating factors against your desired outcomes gives you a better chance at selecting the application that will work best.
If you don't approach procurement with an outcomes perspective, you will likely find a really good application but it fail to meet the desired outcome. And by no fault of the supplier or the application. It’s purely because it doesn't line up to the outcomes that you probably didn't have well defined in the first place.
Category Management
You’ve spoken before about category management. In an ideal world, where does the category manager come into play? From the beginning or once a category is up and running?
Absolutely from the beginning. But what you'll see is the reverse of that.
Usually a leader will start asking when will they have enough spend to give a category manager to a dedicated category. In smaller enterprises, the category manager may be running four or five categories, and they can do that because there’s enough spend in any one area to need a dedicated manager.
Duck Duck Goose
Last question, Patrick, and this is a fun one. What's the most unique or interesting thing you've ever had to procure?
Yeah, I've got so many, but definitely our goose dog was the most fun and unique that I've gone out to procure.
So we had a very unique need with our facilities group. Our headquarters was a very large property.Very large. And being in Florida, there’s lots of water, lots of lakes.
So when the wintertime rolls around we get an influx of Canadian geese coming in. And these geese, they loved our headquarters. Absolutely loved it.
And these geese were harassing our employees who were just walking around. We had a very open culture and very much wanted to get our employees out of their desks and see this big beautiful piece of property we had. But they’re getting chased around by these geese on a constant basis.
So we wanted to figure out a way to humanely handle the situation and looked at so many different methods. So many.
We tried putting speakers out on campus and they played owl noises. We got prop owls and put them all all over the place. Didn’t work. The geese learned quickly these owls were fake and the problem resumed.
Then we found a company that made goose repellent. That didnt work either.
It got to the point where we were spending six figures pretty easily on things that were ineffective..
So we teamed up with the facilities group, and we actually found out this is a problem happening all over the country in different spots. And there's a company that specializes in training dogs, primarily border collie type breeds, to chase geese.
So we figured why not, let’s try it. And this company would come by and set these dogs out on a flock of geese and that dog would circle the geese and chase the geese until, finally, they flew away.
Within a few months of deploying our first goose dog, we could cancel all the contracts we had for $200,000 plus in goose repellent.
I didn't have to worry about running speakers at night, could take down the fake statues of owls we had put up all over the place and ultimately lowered our cost, but also controlled our goose population.
Our corporate neighbors weren't as happy because all the geese got pushed onto their properties, but ours was goose free.
So you saved the company heaps of money, made a dog happy and hit the objective. Win-win. Love that story. Patrick, that’s it for today. I want to thank you for coming in. This was a great interview.
Absolutely, thanks for having me.
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