The Future of Sourcing

Transcript:

Bruce Morton: Welcome to Subject to Talent, brought to you by Allegis Global Solutions (AGS). Similar to you, we're always trying to learn more. On this podcast, we speak to workforce and talent experts from around the world, that we market trends, technology, and our ever-evolving dynamic industry.

Hi, I'm Bruce Morton, the host of AGS’ Subject to Talent Podcast. Today I'm joined by a very good friend of mine, Dawn Tiura. Dawn is president and CEO of Sourcing Industry Group. The world's premier membership association, representing Fortune 500 and Global 1000 companies with a combined spend of $17 trillion with a T, 17 trillion in sourcing and outsourcing. And what a great job they do with that.

SIG's goal is to elevate the strategic impact to these organizations on their company's top and bottom line. So welcome Dawn.

Dawn Tiura: Well, thank you, Bruce. I'm excited to be here with you today.

Bruce: Yeah, same here. So as we kick things off, I'm hoping you can introduce not just yourself, but also SIG or Sourcing Industry Group, lovingly known as SIG. And the growth and evolution over the past 20 years and just share your personal journey as well within the Sourcing Industry as well and how you got this point.

Dawn: Yeah, I'd be happy to. So SIG is actually just celebrated its 30th year, but I joined in November 2007. I started participating in SIG back in the 90s and I was a sourcing consultant. I have a firm called Denali Group. But prior to that, my career path was, actually, I am a recovering CPA, and I have masters in international taxation. And I was in private practice in Palo Alto, working with high network individuals and the Silicon Valley start-ups back then. I was actually on a group that named it Silicon Valley and tried to recruit business to Silicon Valley.

Bruce: Wow.

Dawn: So it was really exciting times. I just had companies like Electronic Arts before they went public. I had David Packard and Bill Hewlett as high net worth individuals, and the HP Foundation and the Packard Foundation. So it was an exciting time to be in Palo Alto. Condoleezza Rice was the, I think the vice provost over at Stanford. I was president of the Palo Alto chamber of commerce and she was on my board. So it was a really exciting time.

And then fast forward, one of my clients was a consulting firm who had just gotten into sourcing, and they hired my firm to come in and they said, "We know we're driving value, but we can't prove where it is." So we went in and I showed them how to create one of the very first activity-based cost models, which was the birth of total cost of ownership. And we were able to prove where they were driving value right down to the general ledger code on the financial statements.

And I fell in love with sourcing. So I sold my CPA firm. I went to work for them. It took about three years, I realized I make a really bad employee. And so I launched my own consulting firm called Denali Group. And then did that for 12 years. And through that, one of my mentors said, "You have to get involved with SIG." It's just the premier organization for anyone in outsourcing at the time.
So I went to the first event and started introducing strategic sourcing. And ironically back then, Bruce, the outsourcing people were the cool kids and the strategic sourcing were the small potatoes. 
They would look at us and say, "My agreements are worth billions of dollars. And you're talking about pencils and pens," which was not true. And so I started speaking there and slowly but surely during my tenure, as a consultant, we started to bring the outsourcing and the sourcing sides together to say, "All they are, are different size agreements, but at the end of the day, the same principles and practices of strategic sourcing apply." And so it was very successful for my firm at the time.

And then Barry Wiegler, who was original founder, and I got to be good friends. And one day I said to him, ironically, I said, "Barry, when I grew up, I'd be you." And he said, "What does that mean?" I said, "You get to talk about sourcing. You get to talk to brilliant people day in and day out. And it sounds really cool." And I was going through a midlife crisis. I had four young children at home traveling every week.

And ironically, five years later, he called me up and said, "Hey, do you want to grow up and be me?" And so I really believe if you put it out there in the universe, sometimes the world hears you. So I thought, "Wow, what an opportunity." So I sold my part of the consulting firm and joined SIG and took it over November 1, which if you recall was just shortly before the markets crashed. And so in February 2008, we had the pleasure of meeting the new recession, drove down membership by about 40%, and I thought, "Oh my God, what did I do?"

But I was lucky I was married. So I had an income at that time. So I was able to not take a salary and just plow every bit of money that the company was making back into it. And I knew that the recession was going to end. And I knew if we just kept evolving and making ourselves better and better that they would come once the recession was over. And so they did. And so now 15 years later, it's the time of my life. And I still every day wake up and pinch myself like, "How did I get here? This is so cool."

Bruce: Wow. That's a great story. And thank you so much for sharing. It's incredible. How many times you hear that successful companies being built during a recession? I don't think anybody would do it by choice but hey, all that is well, ends well. So that's great. So I think we can definitely agree that right now, it's definitely an interesting time, a very challenging time to be in the sourcing world.
Whether it's your local hairdresser or the local grocery store, supply chain is on everybody's lips and how they can get this or that. So to set the context for today's conversation, can you briefly explain, as you think about the sourcing industry at large, what's happening in the supply chain right now?

Dawn: Well, a massive disruption and we had taken it too far in the opposite direction, supply chain. I was adamant that we wanted to go for just-in-time delivery, zero-inventory levels, cost to capital historically has been quite high. So we would always preach for just in time, cross docking, not even receiving material and as a result, never had foreseen a pandemic. And so years later, having no inventory is actually a bad thing.

And I do foresee that we're going to have to build up some inventory to be able to protect against disruption. But the disruption became evident during the pandemic. I think it was fast forward because of the pandemic, but the truth be told, the baby boomers are still retiring out of the system. The pandemic made a lot of people rethink and say, "I just don't want to go back to work in a risky environment." So we lose the truckers, the warehouse workers, the people on the docks.

And so there is going to be a workforce shortage and it's not going to get better. And so it's really time for people to start thinking about how to build the resiliency in. So the pandemic brought it to light. It's funny. You're right. Everybody now knows about supply chain. Everyone knows that word. My neighbors ask me like, "Why can't I get my fencing?" It's like, "I don't know. It’s not what I study."

Bruce: It's your fault.

Dawn: But I face it myself. I've got things that are missing in my new house that I can't get fixed. So I get it. It's on everyone's tongue. On the other hand, it's also made a lot of sourcing people the superheroes – those who were able to get through the pandemic and do well for their companies. But I'd say that, the biggest issue we're facing is there's going to be a permanent workforce shortage, which is going to drive digital. And really, with the whole gig economy that in fact you brought to us years before when you said we're going to be at 50% gig workforce, and I was like, "There's no way. That number is outrageous." And now all of our members are facing the fact it is a gig economy. And how do you do more with less? And how do you have these you flexible workforces?

So, it's always going to be disrupted. And I think the supply chain is not going to get better until, I think a lot of people are going to have to bring sources of supply closer to home. I get a lot of people to say, "Well, shame on us. We moved our auto manufacturing to Asia,” and that's not really true. We moved a lot of or we created a lot of jobs in Asia for auto manufacturing, but that wasn't just for low cost labor.

That was because we created a middle class in China who now wanted these vehicles. And we brought them closer to the source. We still manufacture vehicles in North America. Unfortunately it's the computer chip issue that we're facing in a lot of the supply chain disruption today. But a lot of people just don't get the fact that we did move a lot of manufacturing closer to where the consumers are.

Bruce: Yeah. It was headlines again, just this morning about the semiconductor shortage. Headline now is "Biden, what are you doing about it?" So I'm like, "So he’s insourcing now."

Dawn: Yes.

Bruce: So you touched on there, the shortage and obviously that's where our worlds collide in a way, that shortage of talent and the reality that we are living in a new world now. Because of your great conversations with CPOs of some of the world's best companies out there, what are they getting into in terms of how they can respond to this decline in the workforce?

Dawn: It was interesting. We had a really large debate, just a couple hours ago on our CPO executive round table. And one of the folks was shocked. “There's no talent shortage, there's plenty of talent.” That shouldn't be the reason you don't go digital. And the truth is we have a lot of people still in procurement, but we don't have a lot of people with the right mindset and the training to be digital talent. And those are the warriors that we need.

The people that have system thinking that can do design thinking, the people that can go into projects and see holistically how the systems all need to be integrated. That's a really different talent than the normal procurement person needed in the past. So while there are a lot of bodies that still are actively involved in procurement, we need more digital talent. The people that understand it. The younger generation doesn’t have patience, and they want speed, they want efficiency. Smart people don't want to do dumb work.

And so the younger generation is pushing for digitalization. The older generation is saying, just do your job. And so it's really going to be when we have enough baby boomers retired out of the system, and we have younger leaders who understand that the only way to motivate and retain top talent is going to be making sure that you're as digitalized as possible, that we're really going to be able to start attracting and retaining good talent.

So we're at that point right now of inflection, where we have to ask some of the baby boomers to step away.

Bruce: Right. As a baby boomer myself, I'm looking forward to it at some point. But do you see that because of those conversations that the sourcing function itself is either trying to create that more strategic space or being invited to have those conversations, “What are the different ways we can get work done as opposed to just throwing bodies at it?”

Dawn: Yeah. One of our executives said, "We have proven our value almost too much. And if without going digital or democratization of the sourcing activity, we can't handle it." Now that we showed our value, there's so much demand on us and we can't keep up. So it's going to drive us to go to digitalization. 

And the whole democratization of the sourcing activity, we have to be able to push it out to the end-user. And I think that's a really important concept. At the same time though, and this is important, this one company said we have to rethink third-party risk because we spend $18 million a year as a procurement organization managing risk.

And they came up with a brilliant concept where they're going to take the riskiest suppliers and assess a fee. Because they said, "If we had $18 million more think of what we could buy in technology, the people we could bring in – the talent, but we spent $18 million that we never spent in the past on third-party risk. So we're going to start passing that on to our riskier suppliers, the ones that we still need, but bring more risk." And I think that's an interesting concept too. So they said, "The problem is we proved our value. The problem is we can't serve all of these clients. And so now how do we push it out so that everybody can be doing purchasing, but we're putting the parameters around it.” And that takes tools and technology and digital natives.

Bruce: Right. And apparently, it's an interesting risk levy, I was thinking in my head. But as you were mentioning there, you can't possibly do all the procurement for every person. So do you think that's expedited the growth of the technology platforms out there that can be more consumer-like. So if you're a manager inside of an organization, you're not in procurement, but you want to buy something, are you seeing evidence of procurement making that easier for that? You've given more of a consumer experience?

Dawn: Yeah. So one of the struggles that we talked about today in fact, was the fact that they invested so heavily back in their early 2000s in ERP systems. And the things that were supposed to “not be customized, be out of the box” became highly customized $10 and $20 million implementations. And that's still biting a lot of them. When they go to ask and say, "We need to be more agile, we need more technology." And they remember the ERP rollout days.

And so really the case now is that the tools have changed so dramatically in the last few years. The onset of new participants and the investment community putting money into these startups is huge in the last few years. And so now it's really for us to be able to get away from the ERP baggage that we carry and the expense that it costs the company and talk about all these agile tools that are out there today.

And those are the ones that people need and want. And that's the only way we're going to be able to push out the actual procurement out to the end individuals, and have parameters around it and manage the third-party risk. So there's no reason people should be able to click in and get what they need as long as we've set all the rules at the top level.

Bruce: Right. So then that sourcing function becomes more of, as you say, the gatekeeper, putting the parameters around it, doing that vetting, but once they're in the tent then procurement process should be a lot smoother.

Dawn: Yeah. And back when I first met you, Bruce, services was one of those things that we never touched back then because no one knew, we had no visibility on service. When I got into sourcing, it was materials, commodities, and then we start talking about services and it was like, "Well, they're out there." We could identify a consulting agreement. We could identify, maybe a staff augmentation firm. But one of the first times when I met you and talked about getting your handle around all of the spend for all of the services, that was a mind-boggling concept; that was a six-month consulting gig one time for us.

Bruce: Right.

Dawn: Six months when the CEO asked the CPO, how many people does it take to run my company? And he said 14,000. And he came to the CPO and said, "Can you prove it?" And it was 28,000, but it took us six months to tell him that .

Bruce: Can't find them.

Dawn: Yeah. Yeah. And so what you've been able to do has put so much more visibility on the services side. And thank God, because there's so much risk in the services' specter. We never thought about services of having third-party risk and it's huge.

Bruce: Yeah.

Dawn: So, that's a huge change.

Bruce: Yeah. Actually a nice segue into what I was just thinking about as well, is that we've been... You and I personally and many others have been discussing that when are procurement and HR finally going to come together? Who put up 100 people 50 procurement, 50 HR, and said, "Who owns the non-employee workforce?" And then let the fun begin.

Dawn: It's a great volleyball game.

Bruce: Yeah. We've seen a great shift in that. And funny enough, just yesterday, I was looking at the organizations that are coming to our annual customer council events. Now, if you look on the contingent side of the business, the staff aug with the services five years ago, that would've been 80-90% procurement. Now we're 50/50. So HR having more of a holistic view and some form of ownership and visibility of the entire workforce… I don't think we're done yet. I think they're still coming together to happen. In your conversations, do you get that feeling that procurement is understanding how this needs to be more of a harmonized approach?

Dawn: Yeah. HR traditionally back when I started only wanted to focus on full-time employees.

Those are the ones that they nurtured and cared for and wanted to know about the onboarding experience, the lifestyle experience, the offboarding experience. They never thought about the fact that they also could eventually nurture and help retain the non-employee base. And I think that realization is starting to grow and is hitting 50% in a lot of companies. They realize that those people are just as important as full-time employees. And we can't be successful without both the full-time and the non-employee base, both being nurtured. Because retention of non-employee base is just as important because they can pick up and go in an instant.

Bruce: Yep.

Dawn: I think that helped HR understand that they really need to be about all the people. And by understanding that we had the tools and the visibility through the procurement organization, I think we've come to respect each other much more than we did 10 years ago and understand that we're both going for the same cause that, which is, getting the work done, and being efficient and time to market and all that. So I think it's taken the realization that, that we had to come together and it just took time. 

Bruce: Yeah. It's great to see. So I want to shift gears slightly, and you touched on third-party risk earlier, but I know it's something that you're truly passionate about. So how has that changed over the years when CPOs talk about risk mitigation. What is the lens they tend to look through? What things are you looking for when you talk about risk mitigation?

Dawn: So historically, 15, 20 years ago, if I was going to source somebody to work on facilities, a computer wasn't involved. And a background check really didn't matter that much. We had groups that hired ex-cons to come in and do cleaning and things like that at night. And it was fine. There have been so many changes, both in diversity equity inclusion, where we want diverse workforces to workforce safety has changed to the fact that now we have to look at any services group as having computers as part of their job.

Bruce: Right.

Dawn: And my HVAC whoever thought that air conditioning and heating and cooling had to VPN into the system. That was something that we never did a cyber check, never talked about computer access 15, 20 years ago. And that's what happened to target was an HVAC supplier. I have one that I love to just scare people with, which is we have a set of casinos headquartered out of Las Vegas, operating worldwide, and they have a huge fish tank. And in the fish tank, they had a fish aquarium vendor, maintenance vendor that they hired.

Bruce: Right.

Dawn: And they dropped a thermometer in the fish tank to monitor the temperature of the water. It has to be on the internet. Somebody hacked through the thermometer, enabled to siphon off millions of dollars. Being a casino the bells went off really quickly, but they still lost millions of dollars. So something as innocent as someone who's going to care for our aquarium has an internet-connected device.

And so there's a cyber risk, a third-party risk to that. This was a small contract,  or the size of the tank it was probably $50,000 a year. You don't pay attention to that size contract. And yet that cost them millions of dollars per year. And it wasn't the fish vendor's fault. They had an internet-connected device. It wasn't necessarily procurement's fault because I never thought about it.

But the risk came back and said, "Procurement, you didn't do your due diligence." So that's just the most basic way you look at it. So third-party risk through services is everywhere. Do we allow them to VPN? And I don't know how it hit you, but when we first sent all the workforce home in the pandemic, a lot of people said we can't let contractors work from home.

Bruce: Yeah.

Dawn: I don't know what they're doing. Well, you didn't know what your employees were doing either. Well, I can't allow them access. They're not in the office.

Bruce: That's right.

Dawn: You know?

Bruce: Yeah.

Dawn: And so you think about all the people that are involved in the services side that introduce so much risk into the organization. And so procurement by itself could literally take down the organization, the company or wreck their reputation. And so that is why it is such a prevalent need for us to identify risk. And it's not to be a worry wart; it's to be aware. 

Bruce: Yeah. Absolutely. Yeah. I can just imagine those folks that are listening to this right now just glanced at the thermometer on the wall when you told that story. That's a great illustration. Well, yeah. Thank you for that. So something else that I love hearing you talk about is that I know you're a big advocate for improving sustainability in the global supply chain. And just talk more about how SIG is helping companies out there meet their ESG goals?

Dawn: Yeah. So it's way beyond ESG, to be honest with you. We took a commitment when we first went to the UN to support the 17 Sustainable Development Goals (SDGs). And so it's everything from human trafficking in the supply chain to feeding the people of the world. And there are so many things that we can do, you know Bruce, when you think about it and there's a good side and a bad side. Especially, if you're political.

By outsourcing to China, we created a middle class that didn't exist. We raised millions of people out of poverty and created a middle class. We lost the manufacturing abilities quite a bit. On the other hand, these people, when they hit middle class wanted Western goods. So it drove more sales to other countries. We lifted India, by outsourcing application development and computer services and all kinds of things.

We raised millions of people out of poverty. So sourcing can have such an impact. And the good thing is once again, they then strive to be more westernized and they want Western goods, we sell more. It also left us very exposed in a pandemic not having everyone close, not being able to touch and feel and talk to people, but we've done a lot of good. And so you think about it in Africa, which is one of the places that we're moving to right now, the folks that are normally starving are now able to take the little bit of education they have, or a lot of education they have and provide for their families and raise them out of poverty.

That's all part of the 17 SDGs. And so sourcing, we talked about in waring factions if you have political unrest and you have no jobs, and inflation sky high, you'll have doctors and scientists in the streets fighting because there's nothing else for them to do. What they'd rather do is have a job. They'd much rather be in their home, and working, and getting money, and taking care of their family. So you can lower tensions around the world by outsourcing to certain factions around the world. And what people don't realize is that like Mexico puts out more engineers annually than United States. Way more.

So it's just having that realization that there are really smart people. I was down in Nicaragua. I can pay an engineer $6,000 a year and get an educated engineer and then he will have a good lifestyle. So we just have to realize that a lot of good has come out of this and we can help lift people out of poverty, help end hunger, all kinds of things by how we source and what we do. So, that's where my passion lies. We literally can change the world through procurement.

Bruce: Yeah. That's great. And well said. And I've loved watching the evolution of India, because I've been in the staffing industry for 40+ years, that was all about labor arbitrage. Now it's about skillset. So that's where the smart people know this stuff. That's why you're saying certain types of work to Israel and other types of work to Egypt. And I think at some point we can break down those barriers that are now countries, it's more around the tribalism of skillset and knowledge. If you think designers, everybody thinks IKEA, they think Scandinavia, right? So what are those other areas that we group together all. Anyway, you and I could talk for hours about that and sure will, next time we meet over a glass of wine. But as we come to the end here, we do like to ask all of our guests, the crystal ball question. So I apologize in advance, but here we go. If you had a crystal ball few years out, what do you think the sourcing industry will look like? And what would the differences between now and then?

Dawn: So we're in 2022, if I went out to let's say 2030, 2040, I think we are going to have end-to-end visibility of 100% of our supply chain. So very much like farm to table. It's going to be farm to table to consumer on every aspect of supply chain. I think we're going to have 100% visibility. We're going to know where our cotton was grown, that was then spun into cloth that went on to be manufactured. I think we're going to have complete and total visibility.

I think we're going to understand how much carbon and other emissions come out of every single good that we buy. I think we're going to be all actively focused on credits and ways to offset our carbon footprint. I think we're going to have so much more visibility into all of that on a worldwide basis. And so that's my first one.

And I think the other part is that it's going to be with the use of AI. I think most of procurement will be fully automated. And the smart procurement person is going to be helping guide the AI and making sure it's getting unbiased feeds. I think we're going to have... I can't believe I'm saying this, but I think we're even going to increase the number of non-employees that work for a company. And that the more and more people are going to go for the gig economy in the future than even today. And we're going to get by the smaller workforce because we have to.

Bruce: That's great. Wow. That's an exciting world. And thank you for giving us that vision. Being great pleasure goes to speak to Dawn. Thank you again. And so where can our listeners go if they want to learn more about you and SIG.

Dawn: Very easy: sig.org. Six letters, one little period, and you're in. And we'd love to have more people part of the SIG tribe.

Bruce: Yeah. And I highly, highly recommend it been a great partnership over the years. I look forward to many, many more. Thanks again, Dawn, it's been great.

Dawn: Thank you.

Bruce: To learn more about AGS. Please check us out at allegisglobalsolutions.com. You can also send questions to me of our guests just tweet us here. @AllegisGlobal with a #SubjectToTalent or email us at subjecttotalent@allegisglobalsolutions.com. And if you enjoyed our podcast today, please subscribe, rate us and leave a review. Until next time, cheers.