Complex services, N-tier transparency and sustainability through efficient purchasing

Intro | 00:01.60
Welcome to Procurement Unplugged, the podcast with procurement experts for the procurement world. Thank you for tuning in.

Fabian | 00:15.48
Welcome to another episode of Procurement Unplugged. Today with Professor Christoph Bode. I'm delighted to have you with us today. Welcome.

Prof. Christoph | 00:21.81
Hello Fabian. Thank you very much for the invitation.

Fabian | 00:26.20
Yes, Christoph, it's also very exciting to look at your career. Perhaps you could explain to us how you found your passion for procurement and why you are one of the few, in inverted commas, unique individuals in the German-speaking world who also invests a lot in research in this area?

Prof. Christoph | 00:46.17
Sure, I'm happy to say. I actually came to shopping a bit by taking a diversion. I'm originally from Lake Constance and the Allgäu. I did my A-levels and then did my military service. I come from an engineering family on my father's side. I've always thought that the highest level a person can reach is to become an engineer.

I then wanted to orientate myself in this direction during my studies, but I quickly realised that engineering in the narrower sense was not really my cup of tea. And then the solution was industrial engineering in Karlsruhe, which I think is a great degree programme.

And that's when I came into contact with mathematical optimisation in the field of logistics, supply chains and supply chain management. My first supply chain management lecture back then was with Knut Ahlicke, who is now a partner for supply chain topics at McKinsey and who gave a great lecture back in 2001, something like that. And yes, then how to develop further in this area, then staying in logistics, a whole range of topics. Then I also did a PhD in the field of risk, supply chains, logistics service topics.

I did my doctorate at WHU in Fallender and I enjoyed it so much. It was also the first time I published that I moved to Zurich with my doctoral supervisor, Stefan Wagner. I was there for five years and completed my habilitation. Actually more in the field of logistics, supply chain, but at some point I realised that... most of the topics that interest me have something to do with suppliers or the supplier side of supply chains. And then I realised that you can actually look at it from a purchasing perspective.

So all the topics that I already had at that time, innovation, risk, that was also at the end of the 2000s at the beginning, then the sustainability topics that came up and where you could also address interesting questions, I would say, from an optimisation perspective in this area. Exactly, and then I just stuck with it, had a few stations abroad and then at some point got the offer to move to Mannheim.

And Mannheim is of course a great place. We have fantastic students here, it's great fun to work with the excellent students on the Bachelor's and Master's programmes. And I've just... I've taken on responsibility for a chair called the Endowed Chair of Procurement, which is based at the Faculty of Business Administration in the Operations Management area. And the special thing about it, which has just been mentioned, is that we are one of the very few research groups here that really deals with the topic of procurement in a true blue way.

The initiative for this chair, hence the name Endowed Chair, came from a group of companies. The German Purchasing Association, the BME, was also involved, who realised that we needed to establish a beacon for the topic somewhere in the German purchasing and university scene, so that interesting, talented people would become interested in the topic. And we've been around for seven years now. The circle of founders still exists with the companies SAP, Hilti, Klaas, Roche and BME.

A new donor will be joining us soon, but I don't think we'll have a really great new donor soon and we really have a win-win collaboration with them. I believe that we are not only a great example in Mannheim at the university of how companies and business research and teaching can work together very well, but I would also say that this is a really great example for Germany. The whole thing often has a bit of a disreputable component in Germany, with companies somehow, I don't know, buying access to universities.

But with us it's real, maybe we can talk briefly about research afterwards, a real win-win. We have great topics that we can look at and access to data. At the same time, our students also benefit from the calibration that we don't just do research and teaching here in the Ivory Tower, but also topics that really matter in practice.

The Establishment of the Endowed Chair of Procurement

Fabian | 05:19.68
Yes, maybe if I could breathe in here, that would be quite exciting to find out. You've been involved in this sector or these topics for several years now. How has that changed or how have the scientific issues and perhaps also the research changed over the last 10 or 15 years?

Prof. Christoph | 05:38.57
So the topics come and go. Maybe they will come again. So just as an example, in my doctorate in 2008, I dealt with disruptions in supply chains. And the topic, I mean, is now as topical as...

Hardly any other, perhaps still with sustainability, but if you look at the whole thing now, if you open the newspaper or I've just picked up an Economist, there's something about supply risks and disruptions and whatnot, bottlenecks on the procurement markets. So I think that, basically, priorities change a bit over time.

What has definitely become more and more of a focus in the last ten years is the topic of sustainability. It was already there somewhere in the mid-2000s, but I would argue that for a long time it was simply driven by colleagues who had more of a preachy focus. Companies have to do more and that's not enough.

But as a business economist - to be honest, I'm not a business economist, as I said, but an industrial engineer - I can't do much with that, but as someone who deals with business research, because I have to be interested when trade-offs... I'm simply interested in situations where it's difficult to make a decision and not simply, we have to do more.

If a manager is in the fortunate position of being able to both cut costs and save CO2 with an initiative, great, let him or her do it, maybe they should have done it before. But I can't contribute to that. That's not an exciting question for me. For me, an exciting question is where there are somehow trade-off decisions.

It's only in the last few years that we've started to get to grips with these really tricky questions, where you have to honestly admit to yourself, for example in purchasing. I can't have everything, I have to think a bit about what the environment expects of me and how I have to adapt to that or adjust my decisions accordingly.

So long story short, sustainability is certainly the topic that has emerged most strongly in the last 10 or 15 years. And I believe we still have a lot to do in this area in the coming years. The other, of course, is digitalisation. Of course, your activities are also strongly affected. The transformation has started in all areas of the company and procurement is certainly a major battleground. This will continue to happen. We now also have the impression of what we have just done in the current empirical study with Marcel Vollmer, whom you also know well, with a large survey.

And this shows that the heavy breathing and hype in companies is perhaps being brought back to reality a little. If you take a look at the Gardner Hype Cycle, we may be arriving at reality. And the good ideas, the good digitalisation tools, are now being used more and more or are included somewhere in the roadmaps of companies. And things that have turned out to be simply not yet mature enough.

Let me take blockchain and distributed ledgers as an example. Great technology. Somehow everyone looked at it three years ago and thought, can we do something with it? There are also some great examples and some good ones... Friends and acquaintances of mine are doing research in this area, but it's not likely to be the big game changer for the next five years. And I think findings like these have led to this digital transformation topic becoming a bit normal again in a way.

That would be my second big topic. And then, well, we also have a few new ideas about how procurement should be set up, the operating model of procurement and more of an organisational theory issue. We're also doing a few things, especially on the subject of agility, I can perhaps follow up on that. I'm not the absolute expert on that either. But I can certainly imagine that.

Evolution of Procurement Research

Fabian | 10:11.19
I mean, you can hear that there are a lot of recurring, let's say, epics that keep coming back with new topics. And I mean, we also see the hot topics in the media, as you mentioned. Can you also talk about current research topics where you are currently working? That would perhaps also be very nice. Exciting for the words.

Prof. Christoph | 10:32.67
Of course, what academic doesn't like to talk about their research, and of course I love doing that. So specifically the big research projects that we have. We've just completed one on the topic of transparency in supply chains, or perhaps we're looking more at a relationship level.

You also founded a company in the area of simply creating transparency in procurement markets. I think there's a lot to do there. There are so many links to the topics we have already discussed. Risk has something to do with transparency, sustainability has something to do with transparency. There are so many points where you first have to think about this...

complexity and simply have more visibility in logistics, in transport and somehow in the higher-level supply chain. That's what we're looking at. How do you get companies, i.e. how do you get suppliers, to have a natural inclination to communicate honest transparency and at the same time create it on their side? I mean.

Fabian | 11:48.27
Transparency and supply chains are practically the dream of every buyer or large corporation, this end-animal chain transparency. Now there are two questions from my side. Firstly, it always seems relatively unrealistic to really achieve this across three or four stages of a chain. You would have to remeasure the world according to Humboldt.

The other issue, you mentioned trade-offs earlier. Is it even such a profitable trade if you as a company know the third and fourth client in the chain so precisely? And are there perhaps already solutions for this in research?

Prof. Christoph | 12:25.27
Yes, exactly. So I agree with you there. We always talk as if it's such a simple thing, even in the political dialogue, now the Supply Chain Act or what is sometimes quickly said in demands in the political context, so now the companies are measuring their Scope 3 CO2 emissions.

Yes, anyone who looks into it a little - I only need to show a little, as you have just said, what it will look like - will quickly come to the conclusion that it won't work. And of course, you can, how should I put it, make rough estimates that stand up to external scrutiny.

At least the companies I deal with in this area are primarily interested in being able to put a bulletproof, auditable figure in the shop window, so to speak.

Fabian | 13:27.54
So the first and second link in the chain, creating bulletproof auditability and then, let's say, grade 3, 4 of the chain. That's more of an estimation.

Prof. Christoph | 13:41.64
Exactly. And if we're realistic, it will have to come down to that somewhere. So even the really big gorillas in their supply chains, otherwise now the automotive OEMs or the big retailers, even those that are the final stage in the supply chain in terms of power, they can't do it any other way. At some point, there have to be rough... estimates.

And then we come to exactly what you said, which is kind of the question, what's the point? I'm a total fan of performance measurements and measuring in general, but if the number means a lot of effort to generate it, but at the end of the day no one is concerned with it, we don't make better decisions with it or it's not as if it creates a lot of peace in society in the sense of legitimacy.

Someone can always come back and say, that's not for me, that's too high or that's not enough or I'm worried somewhere that there's still something there. So this bulletproof that I have at the end is ultimately about legitimacy. So that society looks at the number and says, yes, that's okay. And I believe that it will remain difficult, especially when it comes to sustainability, to create a reasonable legitimacy for such rough estimates. Perhaps one or two industrial sectors will succeed in creating a standard.

You can also see in some industries that industry associations or companies, the University of Mannheim, my business school, are actively involved in the Value Balancing Alliance, which really tries to measure the social and ecological contribution of a company in a very broad approach.

These are interesting approaches and I'm not an expert on the details. I'm just on the sidelines and am interested to see whether this will lead to society becoming more accepting of business models over time. I'm curious.

The Supply Chain Act and Scope 3 Challenges

Fabian | 15:57.13
Yes, I mean, you've just mentioned another topic or a keyword that we're hearing more and more about, Scope 3, which is such a big topic on every CPO agenda at the moment. What kind of current insights do you have from research? Is this a topic that can be implemented so easily or is it something that needs to be addressed more in 2020?

Prof. Christoph | 16:20.14
So I think you can only answer the topic consistently, if at all, in individual areas and individual industries, if you want to be specific. But, for example, we are part of a research alliance with colleagues from Austria, England and Germany.

It's about supply chain control towers, Markus Gershberger. He's the principal investigator from Steyr University of Applied Sciences and Georgia Tech. And this control tower topic was also about transparency, taking a look at transport chains and Scope 3. And even there it is very difficult. And I'm only talking about Road, which is the simplest of all.

But even then, it's super difficult in detail because the logistics service providers simply can't or don't want to create full transparency. And then, depending on which standard you use, you have to assume relatively high conservative estimates, which at some point become so large that you really can't show the figure to anyone.

There is so much certainty and conservatism in it that you can't do much with the figures. And that's where we're looking now, we've just spoken to Markus Gersperger last week, and we've considered whether we can look at something together. But he's already much further along. So I can only recommend it to listeners who are interested.

Maybe Markus, also a totally open-minded person who is very interested here, for one or two more contacts.

Fabian | 18:13.79
Yes, I mean, I would address the last topic, this whole trend that is taking place in society or even in large companies, with the topic of outsourcing, with the topic of external service providers, more and more spending on services. And this is not yet somehow covered by software technology.

Prof. Christoph | 18:31.56
Yes, exactly.

Fabian | 18:36.16
How do you see this in research? And you mentioned the next topic in the preliminary discussion, even a dedicated research project. Brand is currently working on precisely this topic. So I think the keyword was software purchasing, although for the listeners it's not about classic consumer software, but really about industrial software for large automotives.

This is also a topic that is often overlooked - every part that we buy or use today contains industrial software, where of course there are no digital purchasing processes. So I think that would be very exciting for our audience in particular. What are you doing there? What are you doing there?

Prof. Christoph | 19:14.00
Absolutely. Just as you said, we are involved in a major project on the subject of software purchasing. We did it together with McKinsey and with a car manufacturer Volkswagen. We originally started with the starting point, as you just said, embedded software, complex software that is then integrated into the product.

And the problem... It's not just the automotives, but as you said, it ultimately affects the washing machine manufacturer just as much as the drill manufacturer and so on, which is increasingly included as software. And the companies that come from the classic hardware world, some of which are extremely well versed in how to make good purchases there, are also finding it difficult to deal with this software purchasing. And that's how we approached the topic.

It's really exciting because I think software purchasing is really something completely different. Firstly because of the characteristics of software. Software is never finished. You have to abandon the concept of quality that we know from the hardware world pretty quickly. Anyone who has just downloaded Windows updates this morning knows that things work differently these days and that you have to organise these relationships differently.

And to a certain extent, and we had this in the preliminary discussion, you can also clarify this with the familiar instruments of service purchasing. That doesn't make it much better, because service purchasing is notoriously complex. That's what I always tell my students, so smart people actually have to start somewhere with complex services... at the end of the day, because that is simply the point where you can assert yourself with the intelligent.

I mentioned logistics services at the very beginning. Logistics service providers are a totally exciting area. But as with purchasing, how do you organise competition there? If you have a complex service level agreement, how do you make service providers comparable? And to a certain extent, you also have that in software.

Fabian | 21:23.81
It's also a service somewhere. It's not a physical good, so to speak, but something complex that is now intangible.

Prof. Christoph | 21:33.74
Exactly. In a certain way, there is already a result. When it comes to services, they are perishable, they can't be stored in any way, and we have this strong service recipient, service provider, joint co-creation aspect in services. Partly with software as well, because you really have to clarify the definitions of the interfaces very clearly.

Often, software packages, so to speak, or individual software components, are outsourced and need to be coordinated again. So, in that sense, I completely agree with you. What we’ve learned, and anyone who works with computers and informatics would say, well, they could have known that beforehand.

But the big takeaway is, you can't buy software effectively if you don't understand how software is developed. I admit, that's a no-brainer. But you quickly arrive at concepts of agility. And with the classic waterfall development approach – which still exists in software, especially when there is strong regulatory pressure.

But otherwise, almost everyone develops software in some sort of agile approach. So, we moved forward and realized that we actually need agile components as well.

Fabian | 23:01.76
In the mystical sense of purchasing software, this agility can somehow be integrated through milestone concepts in the software. Otherwise, the purchasing process cannot really be managed.

Emerging Digital Tools in Procurement

Prof. Christoph | 23:15.18
Exactly. So, if you believe you can purchase a software project with a conventional approach, you might need to reconsider, I think. That doesn’t mean you have to fully implement everything with agility or just having a morning stand-up meeting makes you agile. There are important aspects involved, and you don’t necessarily have to completely change the procurement process. I would be cautious about that. I know there are many consultants probably offering great concepts. But in terms of the operating model, I don’t think you need to go that far. However, those involved in procurement must first understand how agile development works. Accordingly, they should also consider upfront where the milestones are and how to provide specifications so that the software developer can create a good software design.

Traditionally, when specifications are simply listed, the software developer receives a thick specification sheet and might think, 'I have to code 15 features before lunch.' How can a solid concept emerge from that, one that can later be handed over for maintenance and other phases? These elements definitely need to be considered. And of course, procurement is there to foster competition. We are currently looking closely at this, considering how we can approach the software procurement process more cleverly from the start. This includes introducing competition or checkpoints where a competitive element can be reintroduced.

I admit, some listeners might say it’s completely unrealistic to switch suppliers during the contract or procurement process. But for large contracts, it’s enough just to send a credible signal—what we’d call it in economics—that the supplier always needs to keep striving. There should at least be a reliable possibility that we might switch if necessary. For that, you need to have a firm grip on the process and think carefully about how it could work...

Fabian | 25:55.81
Separating it again somewhere and handing it over to others for further development, with clear encapsulated interfaces, and so on. Only then do things start to relax. On this topic, I want to highlight for the listeners that you're currently working on three highly relevant topics: supply chain transparency with a vision for the supply chain, sustainability—which is, of course, a key topic for everyone at the moment—and the topic of complex services, which you're examining through the example of industrial software procurement. Extremely, extremely exciting.

Now, as the last question: What is your vision for the future of procurement? You've been active in research for quite some time now. What is your vision for the next five to ten years?

Vision for the Future of Procurement

Prof. Christoph | 26:46.22
So I can bring it full circle back to the beginning, where I said that topics come and go. I actually believe that, in the end, the big themes will more or less remain the same. Risk, for example—we live in an uncertain world, and it will always come down to questions like how to buffer against the stochastic nature of the world we live in. So, risk management will always be a major topic. We haven’t talked about innovation, but in the end, that might be the most important topic of all. If you look at what makes companies successful, it’s always innovation, and procurement can contribute so much to that.

So, long story short, I believe these big topics will stay. The question is, how does procurement influence these topics? And I think it will come down to the role that strategic procurement will have within a business model. In some industries, we may see that operational procurement will soon fade away, and there won’t be as many exciting strategic topics left. This is what some refer to as the famous 'Rest in Peace Procurement,' which I can definitely imagine happening in certain sectors.

Fabian | 28:14.16
Procurement as an innovation driver, a risk mitigator, and a risk monitoring function, and then on the other side, where the operational part could be automated—through self-service and autonomous systems.

Prof. Christoph | 28:29.99
Exactly. On one hand, procurement is being elevated, especially with the topics we've been discussing—when procurement can make a significant contribution in areas like supplier innovation, risk hedging, and influencing sustainability. Then procurement becomes a really exciting field. And that brings me to my final point: this is the field we need to inspire talent for. And we will succeed because these topics are so compelling, and procurement is becoming a place to go, a place to be, and a place to stay for top talent.

I see this all the time here in Mannheim, surrounded by people, but of course, we need to compete. Some want to go into finance, others into marketing, or even start their own businesses like you did. So, we need to make it clear that there are truly exciting career opportunities in procurement. And we are fortunate to be in contact with great companies. But procurement will also need to focus on how to attract the best people. In the end, it's simple—if you have good people, you can deliver good results.

Fabian | 29:39.94
No, that’s actually a great closing statement. So, basically, investment banking and consulting were yesterday, procurement is tomorrow.

Prof. Christoph | 29:48.38
So it is.

Fabian | 29:51.66
Yes, thank you very much for the podcast. It was a very interesting discussion on current topics, and it was really exciting to hear about what you're working on in research.

Prof. Christoph | 30:05.07
Yes, with pleasure. Thank you. I enjoyed it.

Fabian | 30:10.35
Stay tuned and see you soon on Procurement Unplugged.