In this podcast episode, the speakers shed light on the current challenges and developments in the field of procurement, with a particular focus on services. The first part of the conversation covers the fundamental differences between the procurement of direct and indirect materials, which already have well-established processes and software solutions, compared to services, which are more complex to define and evaluate. Services, often characterised by individual human factors and specific legal requirements, require detailed analysis and customised solutions to find and use the right service provider.
The second part emphasises the increasing importance of digital transformation and strategic alignment in procurement. While operational tasks are increasingly being automated, the value contribution of procurement is growing in areas such as supplier innovation, risk management and sustainability. The speakers emphasise that future purchasers will need to further develop their role as strategic partners and that technologies such as artificial intelligence and machine learning will play a key role in effectively managing complex service requirements and further optimising procurement.
Fabian | 00:01.19
Welcome to a new episode of Procurement am Plug with Mercanis. Today's guest is Marcel Vollmer. He has a very eventful background and history in procurement. Firstly, as Chief Procurement Officer at SAP, Europe's most ambitious software company to date. Then also as an executive at the German Dekakon Celones. Managing Director at Ariba, probably the best-known global procurement software. And now he looks at procurement through the eyes of a strategy consultant.
Yes, Marcel, I'm delighted to have you here today. And I'd like to introduce our listeners to how you got into procurement and how the various dimensions have affected you during your career.
Marcel | 00:54.89
Great, Fabian, I'm delighted to be here today and welcome from my side too. Yes, how did I get into purchasing? I mean, after 15 years at DHL, I moved to SAP, where I spent a total of 14 years, where I first started to drive forward the topic of shared services and centralise the back office function. My main process, where I got the deepest into the content, was Procure2Pay back then as the main focus. But then I also... took on more strategic projects, basically setting up a kind of in-house consulting for SAP for the transformation of its own business units in the back office. This also included, for example, integrations, post-merger integrations such as Business Objects, Sybase. And then I helped with some strategic initiatives before I received an offer I couldn't refuse from my boss at the time, the Group CFO of SAP.
And he asked me and said, hey Marcel, we've done so much now in terms of restructuring to optimise our internal area. But we haven't done as much for the external spend that SAP has. And that was of course a very exciting challenge. And so in 2011, almost exactly ten years ago now. At the beginning of 2011, I took over as Chief Procurement Officer to realign procurement, redefine the end-to-end process and set up the organisation accordingly. At the time, this also included the topic of shared services and buying centres.
And then, of course, the whole issue of system selection. System selection - some people will now say, well, if they were at SAP, what else would they choose but SAP - was a little different back then. I was very lucky. And that I was also part of the team that looked after Ariba, Feel Class, Concord, the market leaders in the cloud at the time, from the acquisition and above all from the integration. In other words, we not only bought this solution in the company as SAP, but also introduced this solution at SAP. And that made my time in procurement very, very exciting. So I actually had a pretty atypical career. I was more of a lateral entrant, I have to say, but then I really got to experience the fun and joy of procurement first-hand, from restructuring to acquisition, which was very, very exciting, and then I was able to continue the whole thing as COO to integrate Ariba and Feglas more closely and then as Chief Digital Officer from the USA.
I also lived in Atlanta, Georgia for a long time. to support customers accordingly. How can you make your digital transformation in procurement fit for the future? Yes, you already mentioned Celones, a big grain. Super exciting time as Chief Innovation Officer and now I've been here at BCG, Boston Consulting Group, since August last year. Really a great opportunity for me, both the procurement experience, but also the experience from the different... from different times and career stages and to support clients in successfully leading digital transformation and procurement into the future, but of course also the integration with the supply chain and always the topic of the right system selection, preparing and making decisions here. It's a super exciting time and I'm delighted to be here today.
Fabian | 04:39.02
Yes, very exciting and above all, as you mentioned, the different dimensions that you have experienced. I think it would be interesting for me to hear how purchasing in general has changed over the last 20 years.
Marcel | 04:53.91
Purchasing has gone through a very interesting journey. Back then, shopping is actually very, very old. If you go way back, it was the first shopping activity in ancient times with marketplaces back on the Silk Road. Now it's also a topic that's being rebuilt. So purchasing as an activity is very, very old. Purchasing as a corporate function is not so old. It was professionalised in the 50s and 60s. Mainly then to optimise trans... national purchasing. But then it was very quickly recognised in the 70s, 80s and 90s that purchasing could do much more.
It's not just operational order processing, i.e. what someone in the company needs, optimising costs and ensuring that it arrives on time in the desired quality, but that there is much, much more behind it, namely that you can really provide strategic support in purchasing to increase the company's value contribution. And you can see very, very clearly today that procurement is not just about operational excellence, it has really become a strategic consultant, today I would say a digital enabler business partner, focussing on the value contribution and increasing the value contribution for companies.
Topics such as driving supplier innovation. So no matter which products you look at, you can see that innovation is a big part of everything. The automotive industry with the electric drive, the smartphone with Apple's Gorilla Glass, business models that have emerged, such as the Nespresso coffee capsules that were developed together with the supplier. These are topics where purchasing plays a very central role. But we have also seen during the crisis, during the Covid-19 pandemic, how important it is to achieve risk management and resilience in the supply chain.
Purchasing also contributes to this, as well as issues such as sustainability and ensuring that our products are sustainable. These are currently the topics that are keeping Procurement very, very busy. And of course not to forget, how could I ever do that, the topic of Ensuring procurement savings. Of course, this is still a central task of procurement for goods, but also for services.
Fabian | 07:40.71
Yes, I mean you're talking about services, I mean historically, you've now gone back to antiquity, to the Roman Forum and the Agoras in Greece. So I think we're all very familiar with the trade in materials and products. We know a lot about that. It's very automated and digitalised now. But our world has changed a lot in the last two decades.
Two thirds of European GDP is now services. As a Western society, we are merely the orchestrators in the value chain. How is procurement positioned in the services sector and do you see that there has been a change in the last 10 or 15 years? And what are the other challenges in services?
Marcel | 08:38.41
Change is a good keyword and I clearly see the trend moving more and more from products to services. And you've already mentioned the share of GDP, of gross domestic product, which is increasing noticeably, especially in the more developed economies, where it's more and more about services. You can see that in the USA with the tech companies.
In Germany, there are fewer tech companies, but fortunately there are also some start-ups that are very successful and are really starting to play an increasingly important role in the rapidly growing market. Not just SAP, but many companies that are now entering the sector as a whole. Are services therefore important, as companies are considering how they can optimise their global supply chain? And one issue is of course to consider, okay, do I make the products and everything myself or do I buy the corresponding services intelligently? And that is precisely the topic that can be observed in the market, which is a trend.
In English, we would say that the focus is increasingly shifting from goods to services. For example, cleaning services are no longer provided by the company itself. Starting with the basic services we are talking about, the canteen service. But then also more complex services, such as in the... data centres, now that a great deal is being invested in the cloud, maintenance, i.e. the regular maintenance of these centres, is also being taken over by the service bar.
It is becoming increasingly common for entire product ranges to be offered by service providers in the automotive sector. Magna would be an example of this, as they work together with many. This is clearly a trend that we are seeing. That means moving away from simple services towards more complex services that companies cover and must cover in order to be successful.
Fabian | 10:47.01
No, of course you see that in all sectors and industries and it's very exciting to see that the whole thing has an impact, whether blue colour or white colour. I think that's something that you might see here and there... Forget it, of course not all listeners here are purchasing experts under certain circumstances.
That's why it might be interesting to hear from you as an absolute expert, what is the fundamental difference in purchasing products, materials, i.e. physical goods or services? So where do you see the main differences?
Marcel | 11:21.71
Well, it was relatively simple. These are the things that you can touch, that you buy. The biggest area, of course, is direct materials. And the largest part is still in the global supply chain, which now stands at around 18 trillion, measured in US dollars. Most of these are of course goods, i.e. direct materials in purchasing. Indirect materials also play a major role, of course.
These are the materials that you need to run the company, from IT services, marketing, IT products, small services to business premises that you provide, but also the usual example of the office materials that you need. Now that many people are working from home, the office supplies they need are somewhat different, and then there is another area, namely services. This is the area that is currently growing very strongly and where you can also see that companies are actively considering how they can structure services in an intelligent way and also give them to trustworthy suppliers.
The big difference here is that for classic materials, whether direct or indirect materials, there are also very good software systems that can be used to organise purchasing, including in the chemicals sector, whether raw materials are being purchased. There are many examples in the automotive sector, from steel to finished parts.
There are solutions there and companies have had purchasing solutions for a very long time, although the whole topic of e-procurement came up in the 1990s. So I would say 30 years now, a little over 30 years in terms of time. So in the services sector it was mostly like that, there were quite a few... Services, especially in the area, so when you used to talk about services in procurement, it was always just about temporary workers, Templator.
In other words, the employees you need to fill in for a holiday or to handle a project or a special task that needs to be completed, for which you need employees for a certain period of time. The fact that services are becoming more and more complex means that we also need solutions for how to fulfil these more complex service requirements, orders and the associated complexity. For example, there are laws on this, the Social Code, bogus self-employment is a keyword that used to be relevant, but still is today. Minimum wage is currently back in the political discussion ahead of the general election.
Of course, these are relevant issues. You need solutions to comply with this and also to ensure that you have the right qualifications for the areas that employees need in order to be allowed to work there at all. Training courses, for example, not everyone is allowed to drive forklift trucks. But not everyone is allowed to carry out certain activities in the company either, for example when it comes to maintaining equipment. Many devices are also certified. You have to make sure that you have the right training.
Of course, this is much more complex than buying raw materials or even complex products such as a computer or a server, or even a very large machine is basically just a line item where you say, okay, when can I get it, what can it do, how much does it cost? What are the requirements? It's much more difficult with the service, of course, because I have a lot more framework conditions that I have to take into account. And then there's the service, we're talking about services now, as if it were also a tangible product, like a smartphone or some other product. Of course it's not. It is something that is provided individually by people or by a person.
That means... Of course, you also have to make sure that the person fits, i.e. in addition to the initial technical and training requirements that they have to fulfil, do they also fit the task? Is this someone with the qualifications profile I have in mind? If I'm looking for an SAP consultant for a large IT ERP implementation, for example, I want to make sure that they not only understand SAP as a software solution, but that they... also knows how to set up such projects and has done this before. And ideally he has even done it in my industry. In other words, he speaks my language and knows what's important. In other words, you can see from these examples that it is much more difficult to find the right person.
We are on a very personal level here. In other words, it's not just a material, it's not just a production input factor that you would talk about in technical terms, but a person with empathy, with the right training, who is motivated, who you employ. And of course you also have to make sure that you define it in this way and can deploy it intelligently in the company. In other words, it's not just me as a company who decides what I need, but you also have to have created the conditions so that someone can then be successful in the given environment under the framework conditions. Nowadays, it is a major challenge to be able to purchase the simple services I have described in the right way, right through to the more complex ones.
Fabian | 17:32.30
That makes perfect sense and I think, regardless of the category, whether it's marketing, IT, legal or even MRO services, I think people always play a real role and I think if you then abstract that to a more rational level, then what you have just presented is of course ultimately also, how do my service specifications match the qualifications of the service provider. I think this is probably a bit more difficult, because I mean, if I think in terms of direct purchasing, which is where my experience with Scalpi comes from, then of course you have existing taxonomies.
So of course I can say the NAICS or the UNSPC code and it's structured accordingly. How does this work for services? Are there also taxonomies or how does the matching work there?
Marcel | 18:27.12
You've already made a good point about service records and service provision. I didn't want to go into such technical details, but absolutely, these are the prerequisites, these are the framework conditions that are there. But if you think about it, and I'll perhaps use the software example again, when I implement software, I write in the fact that there is a certain amount of experience, i.e. part of the service specifications. Now, of course, the question is how do I actually provide this service and, above all, how can I measure it and the next step is how can I evaluate the whole thing.
So Scoutbee, also a highly exciting software solution, combined with a service in the market to create real transparency about purchasing products that are not so easily transparent for a buyer who does not do this regularly, where you really have to do research. Of course, it's a little more difficult to do this for services, because even in projects such as software implementation, you can't necessarily describe everything precisely. What actually has to be done between now and then? And that means there is always a certain flexibility component. Right down to how you personally provide the service. Everyone has been to the canteen and was pleased with the nice, friendly service.
Other times, perhaps the service wasn't as friendly, perhaps you weren't as friendly yourself. You can't blame the staff for that, as you soon call in, and sometimes it comes back to you. But the service description is probably exactly the same. And you can also see that we are human beings and are dealing with people here, where it is important to take empathy or the switch factors into account accordingly, i.e. to ensure that the appropriate fit is there, depending on the service that is being provided. And sometimes you can't describe that in a service specification. Accordingly, it is of course also difficult.
How can I structure, make transparent and automate the whole thing with a software solution, for example? These are, of course, major challenges in this area if you want to purchase something and then, above all, organise it in a very structured way via a sourcing process with supplier selection, e-sourcing, evaluation and, of course, a successful tender that ends in a contract. But then, of course, the order is also sent out from the system so that the supplier receives written confirmation of the order and can then make the delivery accordingly. Then there is the whole issue of time recording, which is necessary.
Or if it's not a contract that is based on time, but also the provision of a service. The service is productised, so to speak, by saying that I'm not really interested in whether you work from 8 to 10 hours, until 4 pm, or whether you work at other times. In the end, what is important to me is that what we agree on has actually been provided. And these are of course different requirements that you have and also a completely different complexity, which you can no longer simply offer with USNPC numbers or others. The article numbers available on the market.
Fabian | 22:09.47
Yes, I can see that the whole thing is categorised under the topic of low visibility, low transparency and therefore difficult to compare. And what I've heard now is that due to the lack of taxonomies in the service sector, you can't categorise it like that and in the sourcing process there's a bit of a lack of flexibility, agility and also the evaluation of the human factor through soft factors, if I can take that with me and have heard it correctly.
If you look at these challenges, what do you think would be possible solutions for how to overcome these challenges in services, which are becoming more and more important, which are taking on a higher degree of added value in the company, how could this be achieved over the next few years? Are these more issues where you say you need new software that addresses them? Are these also topics where you say that you might need to get the specialist department on board somehow, so that you can solve this triangle of tension between service provider, specialist department and purchaser a little and thus somehow achieve better agility and flexibility in the process? Or are these issues related to the future skillset of the buyer?
Marcel | 23:30.46
I think... Fabian, you've absolutely addressed the most important points. The question will be, how do I get it in the right order and how do I then come up with a solution that I can use. It is very important that you define exactly and discuss in the specialist area, for example, what you actually need as services, what are the services that I require here and is what the specialist area has in mind really what is available on the market or what is customary for the provision of the service. The important thing is that you also need a slightly different skills profile from a purchasing perspective. Of course, you have to ask exactly the right questions for such a software implementation.
How many architects do I need? How many consulting employees with the skillset and programming language are needed? How many project managers do I need? And these are of course topics where the buyer is also required to develop further and not just IT, now we are very strongly focussed on the IT area, which is of course also my personal background with over 15 years, but it goes much further than that. It's a marketing area, exactly comparable to the services, but it's also a production area, where you can see when you look at a large production plant, regularly on site with customers, even during the crisis, that there are also many service providers who support this production company accordingly.
In other words, you need to have the right understanding of how to select service providers, what is important and then, of course, the technical possibilities. How can I use the available systems intelligently? For example, can I use machine learning or artificial intelligence to support me in the selection process? And are there any solutions that I can use? Because the classic solutions for purchasing, a lot of it is indirect materials. There is also a lot for direct materials. There is a whole set of solutions in the area of temporary employees, temporary workers with very integrated selection criteria. But when it comes to more complex services, such as maintenance for a data centre, how can I redesign my office building so that employees want to work there, how can I optimise my production, for example.
There are many, many services that are not so easy and so clear to describe and therefore, in addition to understanding the coordination in the specialist area, you also need the technical solution to obtain the data, how I can then set up and optimise the whole thing and ideally also a procurement solution that can map complex service requirements very well. And there's still a big day for that these days.
Fabian | 26:36.10
Yes, I can already see a multi-layered approach. So it can probably be subsumed under the heading of digital transformation. You have to pick up the people, pick up the employees, thereby also creating collaboration between the specialist department and the purchasing department. And as we have just heard, there is unfortunately still no real solution that addresses the issue of services in the broader sense, if you exclude the issue of temporary staffing, and then of course, as you say, you have to look around to see if there is anything that is state of the art, i.e. RPA, AI, data and so on, where you can really automate, as you just mentioned. No, that's an exciting approach. Yes, my last question now would be, time always flies with you, Marcel.
The last question now would be, I mean with BCG, you also do a lot of research, you see a lot, where is your vision in procurement going, what would be your vision for the future? You read more and more about autonomous procurement, self-service procurement, especially in indirect procurement, and you also read more and more about the transformation from transactional to strategic procurement, also in indirect procurement. So I think that would also be of interest to all listeners. What is your vision for the future of procurement?
Marcel | 28:08.93
Yes, Fabian, you've already mentioned the key terms. I've now had some fun with the audience by using lots of buzzwords, as they say, to make the whole thing even more complete, but perhaps to put it simply. Procurement is currently facing a major challenge as a result of transformation and digitalisation. Why is this? Operational and tactical tasks are already being taken over by machines and will be increasingly automated. This is a trend that we are seeing. Why do employees still have to enter order numbers and then look up an order in order to check an invoice from the supplier accordingly and then, if they are OK and the goods have been received and the quality is right, have them pay at the end. Machines can do that much better, highly automated.
This means that many of these employees, who still perform tactical operational tasks today, will no longer have to carry out these tasks. This means, for example, that employees in the shared service centre will be sitting in front of two screens, looking at an invoice on the left and searching for the relevant data in the system on the right. This will soon be a thing of the past. It will be a while before paper has really disappeared completely, but procurement and its role will change in such a way that the value contribution of strategic tasks such as supplier innovation, resilience in the supply chain and the whole issue of risk management or sustainability management, for example, will increasingly play a role. This will play an increasingly important role and new tasks will emerge in procurement, such as machine intelligence programmers.
Bionic procurement is a keyword here, just to use a password. So this, you called it autonomous procurement, is basically the fully automated execution of tasks that are not yet automated today by machines. And the whole thing sounds very simple and always very, very clear. However, people still have to work together with these machines. So someone in the system still has to say, I want a new smartphone now. Or a new employee starts, I need a laptop with a camera, I need a monitor, a mouse and so on. Of course, these are things where collaboration is very, very important. That's why I believe that, in addition to the strategic orientation, Purchasing is focussing on the value contribution.
Of course, continuing to realise procurement savings will also play a major role, how employees work with these machines and the more or less intelligent solution that will then be available. together and that will be a major change in how procurement will change. In the future, the purchasing organisation will probably be smaller in terms of the number of employees, but the tasks and the value contribution realised by purchasing will grow. And this will of course require orchestration between man and machine, which is the topic of bionics, but also... managing this value contribution via business partnering, i.e. collaboration with suppliers and business units.
And that will be the big task of procurement, which is a very, very exciting change. And the role of procurement and its importance will certainly grow rather than diminish, even if tasks are eliminated that are then taken over by machines, because this frees up capacities that are urgently needed for the value contribution. This also means, of course, that some employees will have to be developed further and some will have to see how tasks can be solved intelligently to ensure that the right employees are available on the market, which is not so easy in purchasing because purchasing often does not have the same reputation as other business areas in the company.
Fabian | 32:28.43
Yes, that sounds like a lot of change in the next few years and probably also a lot of new business opportunities for you as consultants. Because for me that ultimately means, as you've just explained, that BPOs and shared service centres will be disrupted sooner or later. But that also means that the role of the buyer will shift from transactional to strategic.
And... You say that collaboration is the key to success, be it with machines or with the specialist department, so not to throw any more buzzwords into the room, but that sounds like the buyer will become the value-driving orchestrator in this whole area of tension in the future.
Marcel | 33:18.81
Absolutely, Fabian, perfectly summarised and this is exactly what we see in consulting at BCG, what companies currently want to know, how do I get there? How can I carry out the transformation? How can I further digitalise the company? How can I further advance the integration? These are the exciting tasks and I hope that everyone who listens will awaken enthusiasm for procurement, if it has not yet been awakened, because the tasks are becoming increasingly exciting and, above all, you can see how great the value contribution is that procurement makes to the success of the company. Just thinking about it, you come up with a new business model where you contribute, like espresso capsules as one possibility.
That is, of course, a great achievement that has been accomplished. And there are certainly many more examples, in all industries, I can't mention them all now. which makes the job in purchasing incredibly exciting. I therefore hope that many people will continue to be enthusiastic about these exciting tasks in the future.
Fabian | 34:27.89
Marcel, thank you very much for being here. It was a great pleasure. A thousand thanks and, as always, it was a great conversation for our listeners. There will be another episode of Procurement on Plug soon. We have more exciting guests coming soon, including James Meads, who has been a Procurement Advisor for ten years, especially in the indirect sector, and is also particularly familiar with shared service centres and IPOs.
We've had discussions today, we've touched on a few things, and we'll go into a little more depth with you in the next episode. So on that note, thank you very much and we look forward to the next episode.
Marcel | 35:04.43
Thank you very much for the invitation, Fabian. Thank you very much, a listener for your interest. Thank you very much.
