Interview: Building a Procurement Function from Scratch
(Pic Courtesy: Anna Konoplianikova)
When Anna Konoplianikova joined Chalhoub Group as the Head of Procurement, the biggest challenge she faced was how best to set up a Procurement team in a company that has been in existence for nearly seven decades.
Chalhoub Group is a leading partner, curator and creator of luxury products and services in the Middle East. An expert in hybrid retail, distribution and marketing services, the Group is the foremost player in the luxury beauty, fashion, and art de vivre categories regionally with a portfolio of six own brands and over 300 global brands including 680 retail stores across seven countries.
It was 9.30 a.m. in Dubai when Anna Konoplianikova, the Head of Procurement at Chalhoub Group, received Beroe’s video call. Beroe spoke with Anna to get a sense of what it takes to set up a Procurement team from scratch.
Currently, Anna’s newly minted team manages Chalhoub’s non-merchandise spend, or in industry adage “indirect spend”, such as technology, marketing, logistics, capex, non-capital opex, professional services, facilities management and so on.
What made you join Chalhoub and why was the company looking for a professional of your calibre to set up the procurement function; what’s the backstory?
Well, there are two backstories. First, one relates to the company’s decision that was initially driven by the market forces in the pre-COVID era; and then, during the COVID-19 pandemic, the company was looking to further optimize its cost base and centralise its purchases to be able to leverage its size and strength in the market.
The second backstory concerns my decision to join Chalhoub. The reason I joined was actually because of the excitement of the project: setting up everything from scratch is a challenging yet exhilarating task. After working in structured organizations with established procurement functions, I saw this as an opportunity to push myself and challenge every basic assumption. I joined the company in September 2020 when the first wave of the pandemic was beginning to recede in the UAE.
What was the state of Procurement at Chalhoub? How was purchasing done?
Sourcing was fragmented and the business units took care of purchasing individually. The advantage of such a system was that you can act very fast. However, in this model the spend is being stretched too thin and as a result holds little weight with the individual supplier. To increase your competitive advantage on the suppliers’ market and maximise received value, you need to leverage your spend.
Why the focus on non-merchandise spend? Just to clarify for the readers: merchandise spend deals with actual products that appear on the retail store shelves, right?
That’s correct. The decision to split the spend categories as merchandise and non-merchandise was a strategic one that we had to make. Right from the word “go” you cannot boil the ocean, right? What we need is a step-by-step process. People find a lot of commonalities in non-merchandise spend as it applies across the organization and business units. And it is very important to showcase the immediate benefits -- the low hanging fruit so to speak -- that are very clear to the stakeholders.
In a way, this is like a start-up. Did you get into the start-up mindset while setting up the procurement function?
Well, you could say it's like a start-up. The most important thing is to identify your priorities and identify your champions who would support you, right? And then, yes, just like a start-up, you focus on the most important categories. We made the choice that tech and marketing are the focus areas in the initial days. Of course, now we focus on many other categories.
Whether one has start-up mindset or not, the main priority is to solve the stakeholders’ problems. If the businesses realize that you are here to help them, and start speaking their language, we can win stakeholder trust.
What are some of the challenges in professionalizing a purchasing function, especially when you and your team are new and are setting up a brand-new function?
The most difficult part is always managing people, right? Stakeholder management and change management are the topmost challenges. If the stakeholders are not happy and if there is a breakdown in communication, then that creates problems. Especially when it comes to the introduction of policies and processes, do not be afraid to overcommunicate.
Of course, the other challenges include curtailing the maverick spend, increasing spend visibility, and ensuring that POs are a must before making any payment. We are ensuring the process is followed.
These are still early days for you, but what are some of the digital tools and solutions that you implemented in this initial period?
I believe that implementation of digital solutions should be based on the procurement function’s level of maturity. We should be mindful that we are solving business problems and not necessarily technology problems. Technology solutions are an enabler and not a silver bullet.
At our level of maturity, we felt the importance of investing in a spend analytics tool. Some may ask why? You can still operate blind, but it's much easier when you see your priorities and decode the spend pattern. The spend analytics tool should be used across the organization because many times when the way the finance and business teams process data is very different from procurement.
There are quite a few tools in the market, which are the best of breed; you don't need to buy end-to-end integrated solutions. Once my team started going up the maturity curve, we were looking at the end-to-end digitalization solution. After evaluation, we implemented source-to-contract (S2C) solution, which helps with upstream procurement. Upstream procurement basically deals with sourcing RFPs and ends at the contracting stage. Our priority was to first automate the S2C part, which is relatively easier because there are less stakeholders involved in the exercise as opposed to P2P which practically touches the whole business.
We are done with the “Upstream Procurement” and we are now making quite a lot of customization for the category templates. Also, we are in discussion with our stakeholders on how we can accomplish cross-team collaboration through the digital tool as well. We are looking into downstream, which is much more challenging.
Can you tell us some of the KPI’s and performance metrics that you devised for your team? The reason why I am asking is because there are many companies who may be setting up their Procurement function, and your viewpoints may be of help to them.
Sure. We have four main objectives.
Cost savings and Value Creation: We focus on cost savings, which is obvious; we also try to showcase Procurement ROI.
Spend Under Management: We try to bring in more spend under management or influence. Also tail-spend management is crucial, we are working on a mechanism for this.
Operational Performance: This covers metrics such as PO coverage, Requisition to Order, contract coverage, and Sourcing Cycle -- that is how many days it takes to fulfil a sourcing request. The importance of these KPIs grows with the implementation of P2P.
Employee KPIs: This again is straightforward. We track cost savings per procurement FTE, spend under management per FTE, and finally we measure customer satisfaction within organization.
As we continue to mature, there will be new KPIs for sure.
In general, how mature is the Procurement function in the Middle East region, say, compared to Europe or North America? What is your opinion on this?
There are some great opportunities for the procurement profession in the Middle East. With disruptions caused by COVID-19 pandemic and the current geopolitical instability, I see the importance of procurement becoming elevated in the region. Exciting days are ahead for sure.
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