I interviewed Ashutosh Dekhene who discussed Global Sourcing Perspectives from a Corporate Supply Chain.
It's nice to speak with you today, Ashutosh. Today we're looking forward to hearing your views on global sourcing perspectives from a corporate supply chain. Can you first provide a brief background your yourself?
Hey, Dustin. It is great to be talking to you. Thank you for this opportunity, and looks like we're going to have a great conversation. As background, I am a supply chain professional with roughly two decades of experience in industry and consulting. On the industry side, my experience has been with an automotive OEM, a global bank, a large industrial manufacturer, and with a 3PL where I had a regional, North American P&L responsibility.
In addition, I have had consulting experience with the number one global management consulting firm where I lead their supply chain factors as a junior partner. Now I work at PepsiCo as the vice president of global operations and strategic logistics.
What is your experience with global sourcing?
My experience with global sourcing, most of my career has been in broad operations with a strong emphasis in sourcing. I've had experience with direct sourcing — commodities, parts, goods — and with almost all categories of indirect sourcing—for example, travel, fleet, tem labor, IT facilities, telecom, shared services, and the like.
I've had roughly 15+ years of logistic sourcing and operations experience. I want to talk about that. It's related to transportation, warehousing, and in general, supply chain or logistics ID. And I've had this experience across industries and globally.
As part of consulting, I've lead multiple procurement transformations, focusing on overall spend overhauls to resetting procurement organizations for medium and large or even Fortune 50, Fortune 100 companies. So that's it on my background.
Can you talk about some of the best practices that you can share?
Yeah.That's a great question on best practices. This is not really a silver bullet and the practices will vary from company to company. Based on my experience in working across industries as a shipper, as a 3PL, and as a management consultant globally, I will share some practices that I believe are key, that many companies are or should be adopting right now.
Some of these practices may lean slightly towards logistics but the applications are just as good for all global, direct and indirect, sourcing categories. Although, as you may know, each category does have its own nuances.
Starting with the first practice, I would call it you don't know what you buy. It sounds really simple, for many companies struggle to get their arms around what is being bought where, by whom, and at what price. Accuracy of having the spend base line is really important. Spend visibility is paramount to good sourcing outcomes.
Number two is spend analytics. Is time well spent? Companies don't spend sufficient time here. It's very important to analyze where the money was spent. Did we buy what we needed? What was the demand fragmentation? How many SKUs are we buying? If I give the example of transport, how many lanes? What are the requirements of what we are buying? Do we have the right level of spend information for ocean, air, for truckload, parcel? Do we know what the supply fragmentation looks like? So how fragmented is our supply really? Again, in some cases, fragmentation may be good. So it's not always a bad thing, but it's important to understand what fragmentation is today, how fragmented are our suppliers, and why we should or should not have that level of fragmentation.
And most importantly, with spend, it's focusing on the 80/20. What are the key or top 80 that will move the needle? Focus there, not having an analysis paralysis situation.
Point number three is category, strategy, and sourcing strategy are fundamental. We need to understand the dynamics of the category we are sourcing. What drives the supply? What drives or moves the market? Who are the key players, that is, the supplies? Are they regional or are they global? What capacity is this in the market by player? How do these players operate? How does the market operate? What are the influences of demand and how does our company work with regards to that?
In short, we need to assess the market, the players, the market forces, and the economics, all of which should lead to a strong, well-defined category strategy. But then we can't stop at that. You've got to define what the sourcing strategies are going to be. It is about how do you go to market for [inaudible 00:06:07]. What is the frequency or the contracting cycle? In general, sometimes we see companies fix the cycle and then hitting the repeat button all the time.
Each category needs to have a different sourcing frequency. Right? Even within a category, frequency will need to be adjusted. And you can't have one answer for the lifetime of the category. For example, in transportation, if you believe the market is heading towards an inflation, a longer contracting cycle, maybe a two-year's contract might be the right solution. If you're suspecting or if you're expecting a deflation, then you might go with a smaller length of contract, as small as you can. Now, again, we should be not naive enough to think that the suppliers are not aware of the market. So it's always going to be a negotiation on whether or not an eight, six month contract is something that the suppliers are willing to sign. But, again, that should be the goal, is to sign as short of a contract as possible, especially if you're foreseeing a deflation.
Point number four is stay true to your suppliers. Bring supplies along. Always be truthful. You don't need to play games. We've seen cases where we try to fool around or fool the suppliers. It's in nobody's interest. Short terms, we may see gains. But in the long-term, it's not sustainable. It's not a healthy relationship. More importantly, we've got to collaborate with the suppliers. So ask what we can do to help them become more efficient and really work on this. Don't just do it for the namesake.
Now that really leads to the next one which is the fifth point, focusing on the PCO, not only on the price or the rate. The rate is only about 50 to 60% of the total cost of the product or service. Now, there's several other things that are as or more important, sometimes, than the rate alone. What is the capacity commitment we're getting for it? What's the flex capacity? What about delivery commitments?On time delivery of [inaudible 00:08:46] deliveries and pickups? Will it help simplify the processing for us? Will our other systems become more efficient because of something that a supplier is willing to bring? Will our systems be better? Will they be more integrated and therefore we save time in other collateral activities, which are taking, bringing inefficiency? So there are many things that matter. The key here is don't just look at the tip of the iceberg. Look way below.
Point number six is set targets in advance. Companies use, for example, rules of thumb all the time. For example, some say we try to get a 3% reduction or we are just trying to be inflation neutral. That is really not the way to go. So it's important that we say aspirational. But that we are realistic. Do we really put should-cost models to use for target setting, and if not, why? What is stopping us? And how can we get there?
Point number seven is negotiate hard but fairly. Arm yourself with facts and data. It is not sufficient to just ask for a 5% lower price than what the supplier has quoted you. You should know why you should deserve 5%. Why not 8.5%? Know your facts well. Arm yourself with the facts. Stand your line, but be reasonable.
Point number eight, use technology, lots of advances in procurement, and many in logistics procurement tools. For example, we have e-procurement, ERFX, etc., tools like this should be integrated within the base systems, the spend management systems that you have within the company. Invest the time to link e-procurement tools to, say, in transportation, the TMS, the Transportation Management System. It will only help make data gathering, data analysis easier. But not only that, it will make the sourcing process so much more efficient.The sourcing of all outcomes could also be integrated by to the TMS for improved management of all contract carriers. You could link it to an automated route guide compliance model. So the possibilities of using and deploying technologies are just endless right now. We would be really stone age if we don't really accept technology and start using it to the best of our abilities for sourcing.
And finally, this one point, invest in building talent. Sourcing is a tool, a global function, and globalization has made it that much more challenging. We need to build capabilities and skills in all levels of the sourcing organization. It can just be, you're just getting people from somewhere and not putting into and investing in training and building the skill set. And skill set is not just how do you go and negotiate a contract and how do you [inaudible 00:12:23]. It's understand the category, understanding the market, understand the supply [inaudible 00:12:28], building relationships with them and using the power of data and power of analytics to have more meaningful conversations with the internal and external stakeholder and then following it through, throughout the entire sourcing process.
So again, this is one area where companies don't invest enough. It is extremely important that we do put in the effort if we want to have a sustainable, stronger fulfillment outcome year after year.
Do you have any suggestions of things that should not be done such as lessons learned?
So you asked this question on what should companies not do, almost lessons learned. I think by and large, we covered that as part of the best practices. Best practices to follow is basically, if you follow that, then you are trying to avoid the lessons learned. But there are three or four that I'd like the highlight here.
Number one is stakeholder alignment is key. Never leave them behind. Make them an integral part of the sourcing process. As you get them, negotiate with them in the right way, in respecting their needs of this requirement and insure they're fully aligned on what they really need. What's this? What is a pure want?
You don't always need a gold-plated screw to fix a picture frame. So what do we really need, and then go and source what is absolutely needed versus what people would just like to have. So don't fall prey to the ask. Investigate further. Go deep and dig deep there.
The next one is manage expectations and target. Don't over commit, but don't stand back for the next year either. Get all that you can now. Don't leave money on the table. It does not help us. It does not help companies. It is not good for long-term stakeholder value creation. And it's not the right thing to do for the employer, employers that we work for.
And next one is see through the entire process. Procurement should not only start with contacting. There is a big push around compliance and performance management — so metrics, KPIs,having the right performance dialogs with the suppliers. Procurement should lead, not just be engaged in, such dialogs throughout the entire length of the contract.
And lastly, one lesson learned is in an attempt to go after maximum value now, we tend to not consider risks that are out there. Risks are everywhere. We need to protect ourselves and the business. We cannot always predict how the market is moving accurately or how the demand will shape, or if there will be a catastrophe. Now as supply chain, we have to plan for these risks. We have to factor these risks in. So it's important to kind of assess the waters. What are important? And then build some sort of a premium for those types of risks in the contracts. So you're supply chains keep running the way it's intended to be.
Thank you, Dustin. It was a pleasure talking to you, and I hope the listeners and readers get some information out of this. And that's it. Have a good and a successful year ahead. Thanks. Bye.
About Ashutosh Dekhne
Vice President - Global Operations & Strategic Logistics, PepsiCo