Why You Should Take a 360-Degree Procurement Approach
Lara Nichols (in black) has held high-level procurement roles at organizations including NFP, Merck, Tyco and Wells Fargo.
If you think back on your school days, you might recall that your best teachers had real-world experience in their subjects. They knew the challenges that lay ahead of you and your classmates, and they did their best to prepare you for them — drawing from their own hard-earned experience.
Lara Nichols is one of those people who can walk the talk. A veteran of high-level procurement roles at organizations including NFP, Merck, Tyco and Wells Fargo, Nichols has shared her experience with supply chain management students in speaking engagements at Rutgers, Howard and Columbia universities, among others. “It’s one of my passions to work with students,” Nichols says. “In fact, I was a high school teacher my first five years out of college.”
Not surprisingly, students often want guidance on launching their careers. “The one piece of advice that I give them is: Research the industries, pick one that appeals to you and understand the characteristics of it,” Nichols says.
People with a little mileage on their odometers will already know this, but Nichols says those students need to be made aware that the procurement responsibilities at company A can be very different from what is expected at company B.
“The industry that you choose matters in the experience of your day to day,” she relates. “It’s not just the craft that you practice, whether it be supply chain management or whether you specialize in procurement specifically, or logistics and distribution. The industries have momentum as a result of what is happening around them and with their competition.”
Nichols’ extensive resume includes technology transformation, procurement and supplier management, organizational design and oversight roles in a variety of industries, each with its own challenges and opportunities. “For example, when I worked in industrial manufacturing, it was a contracting industry, [and] there was a tremendous push for efficiency and reduction of back-office operations, resulting in a higher dependency on offshoring and outsourcing,” she says.
That was a very different experience from her tenures in banking and insurance, which Nichols said were “much more growth-oriented” at the time. An insurance brokerage service such as NFP “is absolutely in a consolidating growth-oriented [mode]. So it’s all about how are we going to grow? How are we going to integrate? And how fast can we do it? And that, of course, changes your day-to-day experience as a procurement person.” (Note: Nichols recently left NFP to explore new opportunities.)
Pharmaceuticals was its own animal, as well: “I found that a support organization like supply chain and procurement is expected to be responsive to line-of-business needs, [and] each one of them expects you to serve as an accelerator for their business objectives. So you almost became an expert in the line of business on top of your procurement or your supply chain management expertise.”
It’s in the Details
But for a procurement professional, all industries do have one important thing in common. “In my experience, the table stakes for the procurement organization is frankly to grow the margin and to contribute to the company’s financial performance in that way,” Nichols says. “Lots of people talk about bottom line contributions, lots of people talk about savings or avoidance … but what really matters to the business is seeing that margin increase over time in part because of your contributions.”
At NFP, that meant focusing on projects that might have a smaller savings, but a bigger impact on overall financial performance. When faced with the choice to launch a project that would reduce capital costs by $3 to $5 million over five years vs. annual expense savings of $400,000, Nichols says she chose the expense reduction project because of the multiplier effect that positively impacted EBITDA.
“Additionally, because we had already invested in a 360 degree partnership with John Alexander Consulting, I knew our partner could swiftly reduce costs for everyday telecom and audio/video conferencing needs by leveraging competitive pressures without investing six months of sourcing and negotiation resources at renewal time,” she recalls. “The results speak for themselves: a 25 percent decrease in telecom expenses, extending a long-time service partnership with Mitel and zero disruption to NFP’s 300-plus field offices already using the service.
“Mitel’s service has been outstanding, so right-sizing the portfolio and grabbing fresh market rates under the guidance of John Alexander Consulting, acting as an extension of our procurement function, was an easy and impactful win for all.”
Margin improvement was a major part of Nichols’ mission when she came to NFP in 2014. The newly privatized organization was embarking on a wave of growth that would continue throughout her tenure — to the pace of about one acquisition per week.
“So somewhere between 45 and 55 acquisitions a year,” she recalls. “And so you moved through them very quickly and as a matter of routine.”
Her team’s role was to ferret out a target company’s potential drags on profitability. “Frequently, redundancies are found with technology suppliers that can quickly integrate for everyone’s gain. I look for things like long-term contracts such as software or subscription services, or even contracts that have a number of onerous terms that could be very expensive to get out of,” Nichols says. “Suppliers are eager to improve terms when they see the long-term upside and track record for growth. Finding that unique value proposition for your supplier discussions is key to the interdependency supplier model.”
Approaching procurement from the opposite direction, an important edict for Nichols was to create a procurement function at NFP “from the ground up to service the company on the expense base. NFP is about a $3 billion business in annual revenues. The vendor expense is just shy of about $500 million of that. The hallmarks of this is the degree of fragmentation that needed to be addressed.”
How fragmented? More than 5,000 different vendors service NFP. “One of the things I did when I joined was think about the expense base,” she recalls. “There was a great degree of fragmentation and plenty of opportunity to create synergies and a value proposition with key vendors as well as for all of those [NFP] offices.”
To Nichols, important achievements from that period included establishing basic processes, structures and guidelines to assist NFP “as we evolved from a holding company into more of an operating entity with interconnectedness.
“I also really worked on the culture to create confidence that to the third-party base, we matter,” she says. “You know, we don’t have that household name, [and] we are among thousands of other mid-market players out there. My stakeholders [at NFP] didn’t really think the vendors that we do business with wanted to spend time with us or create some sort of a strategic relationship.”
One of her missions was to persuade NFP stakeholders that “we have the ability to be much more intentional and strategic in our approach with our third parties. And I believe that that has permeated the environment so that that confidence does exist, and those conversations are happening. And it’s making a difference.”
The question then is, how do you create those strategic relationships with vendors?
‘Common Points of Light’
To make it work, Nichols borrowed a concept she had learned at Tyco. “We all rely on third parties to be able to be who we are, and so incorporating your interdependencies can change the way you make your decisions as a company,” she explains. “And that is something that a procurement organization can influence and lead as many stakeholders do not specialize in this concept.”
“Interdependencies” could take the form of “360-degree partnerships” with vendors. One example is NFP’s relationship with Eclaro, a vendor that specializes in financial services, insurance and technology industry support.
“One of the 360-degree partner investments NFP makes in Eclaro is to assist [them] in developing a specialization in insurance brokerage as an expertise in the insurance industry,” Nichols explains. In other words, the smarter your partners are about your business, the more they can help you achieve your goals, and vice versa.
“As a small business 360-degree partner,” Nichols continues, “I can also invest in Eclaro in ways that support their business growth objectives. For example, establishing a company-to-company mentoring program that would provide expertise and assistance where they may not have direct or specialized resources.”
The 360 approach allows NFP and partners such as Eclaro find “common points of light for business growth,” Nichols observes. “And each [company] opens doors, provides insights, lends their own expertise and advocates for their partner. While business is, and always will be, won on merit, the relationship aspect provides backing that is a timeless business asset.”
And that sounds like another lesson worth sharing with aspiring procurement professionals.
Sidebar: A Push to Simplify Procurement?
The pandemic’s disruption of supply chains point to the need for approaches such as 360-degree partnerships that nurture healthy, symbiotic relationships with vendors, Lara Nichols says.
“The pandemic has shown us that there is no such thing as a company that survives and thrives based on their own force-of-marketplace presence,” Nichols observes. “All of us rely on vast network of vendors, suppliers, partners and influencers. The more we think about those relationships as multi-directional and mutually favorable, built on transparency and relationship-driven operations and transactions fully in sync with this mindset, the faster we will accelerate into economic growth and stability.”