The alignment of the procurement function to the wider corporate aims: Vodafone's Stephen Day talks with Proxima
Oct 24, 2013 3:00:00 AM
Stephen Day, Group Supply Chain Management Director – IT at Vodafone, and Proxima discuss the importance of procurement to the wider business strategy; and the pros and cons of outsourcing, particularly in the area of procurement outsourcing.
CG: Stephen, can you tell me about your role at Vodafone?
SD: Vodafone is one of the world’s largest communication companies, operating in over 23 countries and over 40 partner markets. My role is to manage all the sourcing activities for Vodafone in the IT Category across our global footprint. I report to the Group Supply Chain Director.
CG: How high is indirect procurement on both the procurement agenda and the business agenda?
SD: At Vodafone, we have four principle categories of sourcing. One is networks - everything we need to provide our service, our voice and data services. The second is IT, so that’s all our billing, our customer care, our rating engine systems, and our infrastructure support. The third is Terminals - which includes all the handsets, tablets, dongles and related accessories. And finally Services, but many people call it Indirect. Services is a very broad category encompassing everything from contact centres through to marketing spend, our business support spend, all our real estate and property, travel, fleet and HR services. It is historically the least mature area in terms of our sourcing methodology but it’s the area we see the biggest opportunity for dramatic improvement over time.
CG: What percentage of your total procurement spend is allocated to indirect?
SD: About a quarter of our spend is indirect - which is not surprising, because at the end of the day Vodafone is a sizeable business. So if you take, for example, the marketing investment we make in the brand and in our packaging, our promotional adverting spend; then it’s not surprising that we have quite a sizeable services spend. There are areas of spend where historically procurement hasn’t really been encouraged or even been allowed to engage. At Vodafone this is very different. Anything we can contribute to in terms of improving the business, we are encouraged to participate in.
CG: I guess what it comes down to is effectiveness - how do you measure the effectiveness of the indirect spend? Do you look at anything else in terms of innovation and revenue generation ideas?
SD: That’s a good question. First and foremost we look at savings. Measuring innovation and revenue opportunity is sometimes very difficult to do.
What I am observing from a sourcing perspective is fatigue on the part of suppliers, who are basically saying “Can you procurement guys change your tune a bit? You have been taking to us now for several years about savings. We want to start working with companies that have a different conversation about how they work with their supply base”.
Therefore, one of the things I’m very keen about is asking suppliers on a regular basis, “What’s it like doing business with Vodafone? What more would you like to see from Vodafone?”
What we want to be now is the customer of choice. The reason why we want to be the customer of choice is because we recognise that suppliers have choices themselves about how they want to allocate their corporate resources. We are keen to ensure they allocate their corporate resources to Vodafone; whether that’s account executives, investment decisions or their innovation decisions. We are moving in that direction.
CG: How sceptical are your CFO, CEO and board members of some of the measures and metrics that you are trying to introduce that are outside of pure savings?
SD: I think we have a very supportive executive board in Vodafone. They definitely see the value of what the supply chain has contributed over the last few years. If anything they are looking for new ideas to produce the next set of benefits and opportunities. If that means changing our dialogue, or tweaking the service we get from our supply base, to achieve a different set of benefits, then they are very supportive of that.
CG: Looking forward, what are your objectives and areas of focus in the next three months?
SD: Well, first and foremost like most companies, we have an on-going set of financial targets and objectives to meet. It goes without saying that we need to stay focused on those. However, I think the sustainability agenda is becoming much higher up the list of priorities. That is partly driven by consumer behaviour. Increasingly consumers are asking companies to have some authenticity and integrity in terms of how they treat the environment, how they treat their people, and how they treat people within their extended supply chains. There is a brand risk associated with not acting with integrity within the supply chain.
The other challenge for us is to think more laterally about how we can bring value back into the corporation. This brings opportunities for the suppliers as well; whether that’s through new business opportunities, an opportunity to get experience drive innovation, or some of the technology insight of Vodafone.
CG: Now you have defined these objectives, how allied are they with the greater business objectives?
SD: Well the first one that goes without saying. Sustainability is a big corporate drive. If you look at our corporate sustainability report, we’re talking in some depth about how the supply chain contributes to on-going sustainability. The challenge for innovation is similarly a big focus within Vodafone; we are focussed on looking for sources of new innovation and value creation for our customers.
CG: How involved is finance?
SD: From a procurement and supply chain perspective there is very good alignment with finance. The simple truth is that we could not do our job effectively if we didn’t have a good working relationship with our colleagues in finance. Why? Because in many cases it’s the finance colleagues that give us the insight into where the budget areas are, where the financial challenges are and where the opportunities lie. We work very collaboratively with them to identify areas of spend where the sourcing teams can contribute. I have worked in companies where that relationship is not strong, but I’m very fortunate to say that certainly within Vodafone, we have a very strong relationship with our finance colleagues.
CG: The state of the global economy has forced businesses to look at cost reduction as a matter of urgency. Is there anything extra that you are doing to look at this margin protection?
SD: We are in a really interesting stage in the economic cycle. If you look at macro issues right now, everybody’s cost is going in a northerly direction. Inflation is significantly higher than we have seen in a generation and paradoxically interest rates are at a generational low. So there is a lot of uncertainty about what the economic outlook is likely to be. What we are increasingly looking for is value for money, both for ourselves, and so that we are able to serve customers in a way that brings value to them. Therefore if there is anything we are doing in the corporation that does not bring value to our customers, we will simply stop doing it and strip it out of our business.
Naturally, that means we are constantly looking at areas that we can leverage our group spend, and where we can deliver savings as a whole. This also means looking at areas where we can be more uniform in terms of how our suppliers do business with us. We are trying to identify areas of process cost that we can eliminate, whether that’s electronic invoicing, consolidating invoicing, or shared service centres. We are perusing all of those options simultaneously.
CG: Are you also looking at outsourcing as a viable solution?
SD: As a corporation we constantly look at activity that we can outsource. We have worked with technology providers as well in terms of outsourcing some of our technology assets. When outsourcing is done well, it’s a very powerful business transformation opportunity - because there are areas of your business that are not your core expertise and there are companies out there who might be able to do a better job. When it’s done badly [i.e. a fragmented or unregulated process] you may come across problems.
CG: So you’re looking for more than the traditional detached BPO.
SD: I think people can be more inventive in terms of thinking about how to fix a problem. They should not gravitate between a very digital yes or no, but rather look at areas and opportunities to solve a problem that is cost challenging to their organisation.
What I have observed over time is a mistake that people make on the outsourcing contract - they forget that they need to retain some kind of investment to manage the on-going contract.
Many people outsource the whole thing, and are left with a very lean organisation that does not really have the bandwidth to do any kind of supplier performance management. What happens is that businesses create these vendor management organisations that are completely misaligned with the core sourcing team. You almost have two organisations within one business. One is vendor management, and the other is sourcing. These are both having a very different dialogue with suppliers and they can get confused. I think the decision about how you want to run the model post transformation is as important as deciding what it is you want to outsource.
CG: The final question is: What is the one thing that global procurement teams should be doing to be seen as an indispensable part of any organisation?
SD: The idea of acting in unison; acting globally but thinking locally is as important now as it was many years ago. Procurement brings tremendous value when it can simultaneously leverage all the common spend but at the same time be sensitive to areas of spend that need to be managed and taken care of locally. If you can integrate between local and global then I think you build a very successful organisation that is very well regarded. I have to say I’m very proud to say I think Vodafone has done that very admirably.
CG: Thank you, Stephen Day.