Spend Advantage Podcast

Modern Procurement with Melissa Rath

March 16, 2023 Varisource Season 1 Episode 30
Spend Advantage Podcast
Modern Procurement with Melissa Rath
Show Notes Transcript

Welcome to The Did You Know Podcast by Varisource, where we interview founders, executives and experts at amazing technology companies that can help your business save a lot of time, money and grow faster. Especially bring awareness to smarter, better, faster solutions that can transform your business and give you a competitive advantage----https://www.varisource.com

Welcome to the Did You Know Podcast by Varisource, where we interview founders and executives at amazing technology companies that can help your business save time and money and grow. Especially bring awareness to smarter, better, faster solutions that can transform your business. 1.4s Hello, everyone. This is is Victor with verisource. Welcome to another episode of the Did You know Podcast. Today, as part of our Modern Procurement series, we're excited to have Melissa Rath. She's an experienced procurement manager that's dealt with indirect spend as well as direct spend as well in several different industries. Super excited to have you on the show, Melissa. 

U1

Thank you, Victor. I'm really excited to be be here. 

U2

Yeah. 1.2s Obviously within this economy, procurement is becoming more and more important. So can't wait to pick your brain on what modern procurement looks like. So can you give maybe the audience a little bit of background of yourself? And how did you get into procurement? And maybe how have you seen kind of procurement evolve throughout the last few years? 1.5s Sure. I have 15 years of experience in procurement, subcontract management, vendor management in both the rail industry, which is a government contracting industry, and SaaS industries. So from the direct side, I've done the manufacturing, and from the indirect side, I've done every aspect of all categories and departments across the company 1.4s get into. It's actually pretty funny because I started off in project management at Kawasaki in the rail industry, and I made my job so efficient that it went from my predecessor doing 60 hours a week to me doing ten to 20 hours a week for the same role. And then I would walk around the company going, hey, what else can I do to help? What else can I do to help? 1.8s And they started understanding that I had enacted for contract language and started having me take over change management and change orders and negotiations with the customer. And that kind of segued into this purchasing role at Kinky Sharia, where I walked in and created their whole system for them and really organized and made that efficient as well, and just really streamline their subcontracting and management of that that they gave me all the rest of the admin contracts throughout the company. So 

U1

it's been kind of an interesting transition for that. And then I started up on Terra and did every single category across the entire company. There was just one of me and the entire 1400 person company. 

U2

Wow. 2.4s First of all, maybe going back to one thing you mentioned, which is really fascinating, is you had a neck for this contracting. And again, 1.4s contracting could be a living thing. It impacts a lot of things people look at. It just a document. But what was your neck on looking at the contract? Maybe differently than other people? 

U1

I think a lot of people read contracts and they don't fully understand the language, and they get really tripped up by the legal language. And I look at it and I can immediately discern what the intent of the language is and what we need to protect ourselves against. So if there's a clause in there that causes risk exposure on a certain thing we had one of these things in our contracts for the rail industry where they wrote, well, you have to deliver the entire facility at the end of the contract. And I'm like, you can't deliver facilities. I'm like, 

U2

that's an immediate 

U1

red flag. Hey, risk, risk. Chris right. So it's about reading contracts for risk management and knowing how to say, hey, look, this is what we really need, and getting that across to whoever you're negotiating with. 1.6s

U2

Yeah. And so, you know, you have done this a couple of times now where you were the only 1s procurement person, procurement department for a company with 1000, 2000, multi hundred, you know, employees. And there's so many categories. Like how do you, how do you first of all, how do you not get flustered and even thrive in that environment where it's like, hey, you are the go to in the entire company for this thing. And this thing consists of every product service vendor in the company, right? How do you kind of look at that as far as managing that? And the second part question to that is how do you manage all of these categories while not being the expert in all of it? Because it's impossible. It's impossible to be an expert in every product service category, right? So what do you think? 

U1

Oh, for sure, it is impossible to be an expert in all of that. But I don't get flustered because I love learning. I walk into a situation and what I really thrive on is just learning more about what everybody's doing. And the more I learn about what they're doing, the more effective I can be on my contract analysis, right? So if I know what their critical pieces are because they've now told me, then I can then look at the contract and say, okay, this is what's really important to us. This is not so important. So what I spend a lot of my time doing is listening to them, finding out what their critical needs are, finding out what's important to them, and then translating that into the contract. So when I go into a contract for something that's across all of these categories, I bring in the tech technical experts. I don't go into these contract negotiations alone. I'm not in a vacuum. So they'll handle any technical questions and then I'll translate it that into the commercial terms and the risk management of it. 3.1s

U2

And yeah, I know you mentioned a lot about risk, which I think a lot of procurement talked about, obviously cost reductions and more on the savings side. But you talked several times already about the risk. So what do you think is the role, procurement's role with risk and cost for the business? 

U1

I think risk and costs go hand to hand, and I think people forget that sometimes, because if you don't mitigate your risk, then you have to then 1.3s calculate what that cost could be. So one of the things we used to do for the rail industry is make giant risk management trackers and identify the risk throughout the contract, ones that we could either mitigate or ones that we couldn't because it was a government contract, and they just don't like to change their language. So it's so critical to try to mitigate these risks from the very beginning before you sign the contract. Once you sign the contract, it's hard to get those things out of there. So some of the things people don't think about in terms of cost is optimizing their contract. So in the case of the SaaS industry, where you've got licenses and multiple levels of licenses, does everybody need that license at that level? Or can you reduce some of them because they're not actually using them? And from that point, when you talk about risk and cost together, if you sign up for a multi year contract, then you're set at those license levels in a year, you can't reduce them. So in the case of the industry right now, with all the layoffs and all the changes in the test industry, 1.2s if you sign a three year deal, just because you've let people go doesn't mean you can reduce the number of license counts. So your software cost is still the same, and that's a risk that people aren't looking at as well. 1.6s

U2

Yeah. And would you call that the foresight? And it's an interesting topic. So why do you think because a lot of times when they're negotiating, they're looking at that moment, right. But they're not looking at the potential year, two years, three years down the line. And so why do you think companies or people negotiating these contracts maybe lose that foresight or don't think about those things you think 

U1

comes down to actual cost? Because they look at it as saying, well, I got a lower license count cost. Right. Unit cost for a license is lower, so if I go out longer but they're forgetting that there's that risk factor of are we actually going to keep this level? If you go up, it's no problem. Right. But if you go down, 1s you're just paying for a number of licenses you're not going to use. At my last company, we actually had whole contracts that were three years out, and they weren't even going to use it for the entire last year. So you're paying hundreds of thousands of dollars for a license that is not going to be used. And I think one of the rules of procurement is really just pointing this out. Have you thought about this? What is the forecast for what you're looking forward in one year, two year, three years? So with the industry being where it is, I actually wouldn't recommend signing more than a one year deal on a license count or a software contract. 1.5s Unless you know that that's a critical function for the company and you're not going to reduce it. So something like cloud service or a database storage where your product is functioning on it, then that is precisely the one that you would look at for a multi year deal because you're locking in rates and you're going to use that usage. But when you're talking about something that a company uses for their own employees, maybe that's not the best the option for signing for a 2345 year deal. 

U2

So do you have any quick tips for other procurement teams where you talked about when you look at a negotiating a contract, obviously the term right, whether one year or three year, you look at removing auto, renew those type of languages, those common things that most people probably think of. Are there any other tips that you like that you always look for in these contracts or things that maybe most people don't anything can think of? Yeah, 

U1

I mean, I always look at the limitations of liability. Right. You don't want to have that be too high if they have the ability to charge you five years out for what it is and make sure it's mutual. A lot of these contracts are written for a one sided 1.3s agreement, so whoever writes the contract has a habit of writing it for their benefit. So make sure that your limitations are actually mutual. Confidentiality is another one that I always look at. I want to make sure that we have a good amount of time. Ideally, you don't want anybody to be able to use your confidential information ever or give it away. But that's kind of been a shift. So when we talk about things that have changed in the last multiple years, the shift of confidentiality agreements sitting at indefinite have now gone to five years after the agreement or three years after the agreement. So you want to make sure it's long enough that anything that gets out is not going to harm the business. 2.5s The other thing I always look at is, what are the termination clauses? So does it have a termination for convenience? If they're contracting with you and they have a termination for convenience, then they can actually terminate at any time. And your risk factor of not getting that revenue is higher. But for a vendor, they tend to not want to give you that termination for convenience. So what are the options if you go into that multi year deal? And most likely it's just a breach? 

U2

Yeah, 1.8s awesome tips. And for procurement teams. And now we're going to talk about one of the hottest topics in procurement in general, which is 1.5s when you have a stakeholder that wants to buy something, maybe they've done some due diligence or whatever reason they've selected this solution and for procurement person or role to come in. And now tell them either, hey, hold on, let me do my thing before you can move forward even though you urgently need it, or hey, they felt like they already got everything taken care of. You're just coming in, trying to nitpick certain things, and they obviously look at things a little differently. So sometimes that creates friction between stakeholders and procurement, oftentimes in a business. Right. But I think you've done a fantastic job throughout your career of building champions and cooperation with stakeholders. And I think that's worth spending a couple of minutes on. Just what's your thoughts on this whole friction? And 1.4s how do you kind of minimize it? How do you create that environment where they're champions, even though, yes, everybody already work for the same company. But as you know, easier said than done, how do you bring that value in the cooperation with the stakeholders? 1.3s

U1

Sure. I mean, I definitely ran into that at Montero, right? Because they had always done their contracts individually. There was no procurement there prior to my entry into Monterey. So I did see a lot of friction. But how I went about doing it is really just going in, listening to them. I mean, I think that's really the key, right? Letting them feel heard and be heard. Not just feel heard, but actually see that you're listening and understanding what their concerns are. And I ran into a lot of that. But what I did was make sure that I was not the gatekeeper. I got my work done quickly. I got my work done well. And then for those that had already negotiated cost, and they sat there and said, Well, I've got it done already, I said, okay, well, what's the harm in having one more conversation with them? And I'd get on the phone with all of the parties, the technical team and the vendors, and we'd end up getting another discount because we kind of go through one final thing. And so for vendors having the procurement come in, they really do see that it's a little bit more of a higher stakes for them. And a lot of them do come down. Not everybody comes down. But so building that trust and that relationship, and then making sure that they actually give value out of my services, because it's really customer service, right. An internal team or stakeholders, we serve them. It is not us to be a blockade for things getting through. Yes, there's policies. Yes, there's procedures. Yes, things have to get done. But the other flip side of that is because it was so decentralized, there were no records kept, or it was all over the place, and nobody knew what their contracts were. Nobody knew what their expiration dates, nobody knew when it was renewing, if it was on an auto renewal, was it not? So really building that infrastructure where they could say, hey, do we have this? When is it coming up? And maybe able to pull up the information either through the system or tracking sheet. Because it was something that really had to be organized well, they really saw the value. So between the teamwork and the trust and just really proving value and getting things done quickly, it really built champions. So I actually had people that were really just gung ho about being part of the team and bringing me in. And the earlier they brought in, the more effective I was. And they could see that because all I did was facilitate their needs. 1.6s

U2

Yeah. No, that's a great response. So obviously, you in a short period of time, already talked about all the different ways procurement can help business internal. Right. But why do you think for a lot of companies, they still maybe oftentimes overlook the procurement department or what procurement actually can do for the business? Why do you think that is? 

U1

I think a lot of companies consider procurement as red tape. Right. So if you're dealing in a coverment contract, you've got all this bureaucracy and all these procedures, and it feels very similar in the procurement world. Right. We set up these policies. You have to go submit your request. The request has to be reviewed. The request has to be approved by finance. It's got to go through security review to make sure that the vendor meets the security requirements. And they just see this, well, why can't I just sign it and be done? So I think a lot of that comes down to they don't understand the value of procurement. They don't understand the risk management, what we can bring to the table. And then the flip side of that is sometimes when you run too smoothly and they don't see you because it's just working, then they forget. I definitely had that so 1s in the rail industry, I got it so streamlined that people would forget I even existed. 

U2

You did too good of a job. How dare you? 4s

U1

Yeah, 1.8s I'm a very big common sense person. A lot of times when I see these kind of business operations, I'm like it's. This doesn't make any sense. But no, like you said, 1.3s and I think this is one thing, is like what we talked about, a lot of these tools that cost hundreds of thousands of dollars, but they're so hard to use, so hard to implement. It takes you two years just to implement it, but then sometimes you feel like, well, that's why I paid a million dollars, because if I pay a million dollars it was so simple, then it just feels something's wrong. It's too easy. Wait a minute. Why 

U2

would you want to pay for more for the hard thing? I don't get it. 

U1

Yeah, I think it comes down to also the people that are most visible are the ones that are there until 10:00 at night. And if you're good at your job and you're efficient and you're effective, you shouldn't be there 10:00 at night. There's so much of that culture out there where they forget the efficient people are the ones you want. 1s

U2

Yeah, so so kind of add to that topic, though. Why do you think obviously, executives oftentimes focus on the top line versus the bottom line. Obviously. Again, we talked about what the economy that's changing and of course, top line is the most important. Right. You got to grow the business, especially if you're a fast growing, SaaS startup. That's accurate. Lifeline absolutely. But what I've seen, the reason I want to bring up this topic is because I've seen where procurement is able to when they help with the bottom line, there's more budget to buy top line products, right, in services, or more budget to buy ads. And there's also ways for procurement to impact the top line. 1.1s Right. And so how do you see that? And why do you think that is? Like, how why doesn't executives maybe look at procurement as a vehicle, as a mechanism to be able to impact the top line as well? Well, I think executives get stuck on the top line, and they're just looking at the revenue growth, and they it's something that they can tow. Well, we went from 250,000,000 revenue to 350,000,000. But if you go from 250 to 300, 350 in your top line, but your bottom line goes from 200 to 2325, that is not an indication of a viable company in the long run. Right. The the trend is off. I think if you're investing back into the company and you're doing management of that, sure, there's some of that that will happen. But I think people forget return on investment when you're doing these contracts, and sometimes you're just spending money to spend money rather than really optimizing. So I think when you talk procurement and the bottom line, what we do is we look at optimizing, we ask the questions, we ask the difficult questions. I constantly spent my time going, Is there an ROI on this? And 

U1

nobody could give me a concrete answer, because I don't think there was an assessment done on it. And so I think if the executives spent more time looking at some of the bottom line stuff and looking at their ROI, they'd see opportunities to improve that bottom line and improve the profit margin. 1.8s

U2

And how do you again, we talked about not having the expertise in every product service, especially even software. There's so much complexity. How do you measure ROI? How do you quantify ROI? And I agree with you. A lot of these stakeholders may not have looked at that during the process, or even if they did in the beginning, they might already forgot it a year later, and they're not tracking the ROI right. To some degree. So how do you to kind of look at that, especially you're not the expert in that space or product. Yeah. 2.1s Do people even use it, 1.9s getting out of it? Sometimes it's hard to quantify. So how do you approach it? Sure. For sure. Absolutely. You have to rely on your stakeholders and your key team members to do some of the analysis. But some of the analysis I did at vantera was really, like you said, talking about usage. It's really analyzing. Okay, you've got X number of licenses, how many people logged in. Okay, if only 50% of people logged in, you don't need 50% of these licenses. Or if people logged in but didn't use the tool, then you don't need these license. On the flip side of that, you actually have to look at and say, well, do they have proper training? Have they been provided the resources in order to know how to use these tools to get out of it? The ROI and ROI can be cost, it can be revenue generating, or it can be efficiencies and streamlining. So you can have time efficiencies that are an ROI, or you can have cost, revenue generating ROI. So I think it is a little bit nebulous in the sense that you can't always quantify, but there are metrics that you can look at, there are ways you can do. And honestly, we looked at one of the licenses, and I can tell you that there are 125 licenses, and we decided that we only needed 20 because 1.9s

U1

nobody was using it. And nobody was using it at a level that needed the paid license, when you could use the free license. 1.4s

U2

That's incredible. Right? I mean, you're talking about a significant amount of money there, and everybody's looking for more budget. More budget. I need more budget to buy more things, to do more. But then it's like, wait, but we have 100 license we don't even use. 

U1

And I'm finding that over and over again. Yeah, 

U2

but do you think, though, that in itself, we're here to ask the tough questions, right? Do you actually find that sometimes the stakeholders feels like, well, you're making them look bad for that investment, to say, well, there's no ROI. Why did you buy this thing? Do you feel like that's also maybe where they're coming from, where they're concerned or worried to work with you because they don't want you to tell them, why aren't you using this 120 licenses that you just bought? Do you feel like it's human nature. I think if you're trying to collaborate with somebody, you got to put yourself in their shoes. And I can see where that becomes kind of challenging. 1.2s

U1

No, for sure. There were definitely groups that I work with that had that attitude, and then there were other groups that had already become champions, and they're like, yes, let's figure this out. Let's save money. Let's keep people employed. Let's work on our bottom line. So I think it's both right, and I definitely agree that some people look at it as well. You don't have the right to tell me what I want. I am the key stakeholder folder. I am the subject matter expert. I know what I'm telling is you is right. But I think that they forget that they need to do that analysis. 2.1s

U2

Yeah, it's time resource data. They also have a lot of things they need to do. So I don't think it's ever blaming the stakeholders. I think it's on top of everything else they have to do. You hire them to do sales, you had them do marketing, and now you want them to do all these other vendors under management. Things like that wasn't part of the job description, per se. So yeah, it makes sense. So as we kind of wrap up with a couple of last questions so we talked about the modern procurement, and I think what you showed. 1.8s Throughout this conversation that modern procurement is about, you know, being more efficient, listening, and and being able to cooperate and all of these things. So how can procurement drive more value for the business other than cost savings, you think, in 2023 and moving forward? 

U1

Yeah, I think one of the biggest things we can do is, as we use all of these tools right, we get better insight into our contracts, better insight into the licenses. It's about getting the data driven insights. So it's about analyzing the data and providing that information so that the stakeholders and the subject matter experts can use that to make better decisions, leverage that technology to analyze the spend, so really work together. There are tools that are being used across multiple departments, and in some cases, they had individual contracts. So working to bring those together, to really collaborate and make sure that it's the right number of licenses across the company versus across the group, and leveraging that to reduce the cost is one of the great things to do. It so it's that it's building strong relationships between the stakeholders and procurement and procurement the stakeholders and the vendor. I was thinking about a funny story this morning, because one of the key things about supplier relationships is really building that trust and that report with them. And I think back to one of the contracts I did where I had the sales rep laughing so hard. I was like, so can we have an entertainment discount? And she worked hard and got us a better discount. 1.7s

U2

Wow. Do you use jokes to soften her up for discounts? 

U1

Sometimes it works, sometimes it 

U2

doesn't. Yeah, 1.5s ultimately. Look, business is just people and people and people working together, right? And a lot of times, obviously, relationships matters a lot. I think people want to create win win situations. Just, if you don't know how to communicate, sometimes seems like one party wants one thing, the other party wants something else. But yeah, no, I think that's really, 1.1s that people skill. And we've talked to a lot of procurement teams. That is one of the success factors, I think. Internal communication and external communication, I guess. 1.2s

U1

Yeah, for sure. I mean, if you can't communicate, you're not going to get your needs met. And if you can't listen, right, because half of negotiation is listening, you shouldn't be the one talking all the time. You should be listening to what the other party is saying. Are they giving you a tell of what they're willing to give on? Are they giving you something that you could use to leverage to get a discount? Are they saying, oh, we would like to use your brand, but you don't allow brands to be used for other sites, but it may give you some additional leverage with them. So I think it's listening and also communicating in a way that people understand along with building the 

U2

relationships. 2.4s A lot of times there is a first time procurement folks or been there a short period of time, six months, a year. That initial beginning is always the hardest. There's so much to do. You're trying to figure everything out. If you were to go into an organization, what tips would you have and how would you approach what category to start on first, how to figure out where to provide. Obviously you're going to sit down and listen to all the different stakeholders. But how do you typically decide where and what to focus on first? 1.7s Category wise, 

U1

maybe category wise it depends on every company, right? What are their key critical categories? So going into Bontara, it was a lot of sales, it was a lot of marketing, maximizing those tools, products, because they're so entrenched in what they're doing, there's not a lot of changes you can make. So really it's about prioritizing where you can have the biggest impact based on the data that's provided to you. And then also sometimes like you want to prioritize 1.2s the cost of it, right? So you're going to look at a bigger contract that's spread out over multiple different departments and try to consolidate. And sometimes it works and sometimes it doesn't. You're not going to prioritize the little contracts that are $1,000 a year or something like that. That's not a big impact on the company. I spend a lot of my first days just really learning and really diving into the data that's there and figuring out what's available. And then I start building my list of here's the top priorities, and then here's some low hanging fruit I can get done without working too hard. So just to have a small impact over here, things like 1.1s FedEx, too many people have 15 accounts on FedEx instead of consolidating into one FedEx account and being able to negotiate a discount because FedEx works on the basis of how much you're shipping on a single account. And so looking at things like that, you prioritize your top impact, but you start building your list of the other ones. 3.5s

U2

That sounds good. So kind of the last question is we always love to ask. Guest you've been through a lot, seen a lot. 1.1s If you have to give one personal and or business advice, whatever it is that you're most passionate about, what resonates with you the most, you think. 1.1s

U1

Learn, learn, learn. 

U2

Okay. 1.6s What's the best way to learn? And you talked about listening, right? That's a great way to learn. Are there certain steps that people can take? Are there certain tangible things that people can do to learn more or learn 

U1

better? Yeah. I mean, every time I interact with another department, another person, I listen and I pay attention. And I think people listen that they don't pay attention and try to comprehend. So in the rail industry, I worked with engineering, I worked with quality. In the end, I was able to write their correspondence against their department, work to help them and reduce it, and then I have them check it, and they're like, Nope, it's good, and go out. I think really, it's just being open to that kind of aspect of don't just sit there and listen and say, it's somebody else's department. I don't need to know more. Ask questions. Right. Ask why people are doing this this way. Figure out the root of what they're doing and figure out how that relates to your role as well. 1.1s

U2

Yeah, no, I appreciate your time and sharing all these great insights and experience with us. My pleasure, Victor. It's been really fun. 1.8s