University of Arkansas

Walton College

The Sam M. Walton College of Business

Episode 12: Remko Van Hoek Shares Insight About Sourcing and Procurement Strategies

February 20, 2019  |  By Matt Waller

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Remko Van Hoek is a clinical full professor of Supply Chain Management at the University of Arkansas in the Sam M. Walton College of Business. He took this position in January 2018. In addition to this, Remko also serves as an independent advisor of sourcing and procurement.

Episode Transcript

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00:07 Matt Waller: Hi, I'm Matt Waller, Dean of the Sam. M. Walton College of Business. Welcome to Be EPIC, the podcast where we explore excellence, professionalism, innovation, and collegiality, and what those values mean in business, education and your life today.

00:27 Matt Waller: I have with me, Professor Remko Van Hoek. He is a faculty member in the Sam M. Walton College of Business in the Department of Supply Chain Management. And he is a expert in the area of procurement and sourcing, and really supply chain management in general. In addition to teaching and research, he also is an extensive consultant and we are thrilled to have you here today.

00:56 Remko Van Hoek: Thank you so much for having me.

00:58 Matt Waller: Before we get going, you and I, Brian and Marat just co-authored a book on Blockchain that should come out in the next few months. And you've written a lot and done lots of research in your day. One book that you wrote that is now in its second edition is called Leading Procurement Strategy. And the subtitle is Driving value through the supply chain. One of my favorite chapters of the book is the end of the book. It's called, The Future of Procurement: Pitfalls and pathways forward. So I thought what better way to start a podcast than the last chapter of a book. [chuckle] But you've got some of your research summarized here that talks about the ladder of procurement progress, which I wanna ask you about, the talks about things going forward that are going to be emphasized more, and things that are going to be emphasized less, and things that are gonna be kind of the same. Would you mind talking about that just a little bit?

02:01 Remko Van Hoek: Yeah, absolutely, it'd be my pleasure. It's a data point that you're referring to that ask procurement executives around the world, where in the years to come, they're gonna focus less of their time, investment dollars and team resourcing, and where are they gonna focus more. And there's three parts to the findings, the first is, there's gonna be no change in the importance of focusing on improving cost in a supply chain, de-risking the supply chain, and developing talent. So those things have been crucial, are crucial, and will be crucial.

02:33 Remko Van Hoek: One of the reasons why I'm excited to be part of the Walton College team because we have a tremendous opportunity to help develop that talents of the future as they go through our programs. The second part is areas where there's gonna be a decrease in focus, and that includes strategic sourcing. That sounds strange because a lot of the claim to fame of modern procurement in corporate America is based on the ability to become more strategic about procurement and do proper sourcing initiatives in the major areas of spend. The reason why we're focusing less on it is that we've done so much already, so we have an installed base of a lot of good sourcing strategies that are running well, that we need to keep up to date. You're never done with sourcing, but we can begin to free up some of our resourcing to move forward into Supplier Relationship Management which historically has had less of a focus and is becoming increasingly important to managing those contracts that we have put in place over the years to not only deliver to performance, but to deliver continuous improvement and beyond that, maybe even supplier-enabled innovation.

03:38 Remko Van Hoek: And that scenario where most aspiring procurement executives would love to spend more and more time, have more and more staff allocation go to, and more of their dollars go to. The key to that is, that's aspiration. That's what we're aspiring to achieve. The data point is not super new. But it's still very relevant because it's very much the conversation that my peers in the procurement field are having today. So there's more aspiration and there's more talk than there is achievement. And so the unique opportunity that we at the Walton College have is, number one, help develop the talent that's going to close the gap between aspiration and accomplishment, and secondly, work with the companies in our environment to advise them on practical ways forward against that initiative.

04:27 Matt Waller: You talk about supplier-enabled innovation. One thing I have noticed about Northwest Arkansas, when I got here in 1994, there was a lot of supplier-enabled innovation going on between Walmart and suppliers. I remember vendor-managed inventory, collaborative planning, forecasting replenishment, category management, POS-sharing. All of these new ideas were coming out in Supply Chain Management. And Walmart was doing it in conjunction with suppliers. It was a fun time to be here. And now, it seems like we're starting to see that again. And I wonder if that's driven by all of the dynamism and industry as a result of technological disruption.

05:18 Remko Van Hoek: I think that plays a factor, I think your tie to VMI's are really a good example because P&G, that helped Walmart in that effort, is a leader in the field of targeting supplier enabled innovation. They have very public commitments out there from the CEO down to about how much of their innovations they want to see from their supply base. Simply reasoning, you can't come up with all the solutions ourselves. We need to work with our Supply Chain partners to get there. And they have very public commitments to that out there. So those that help, that level of innovation are included in the group that is now pushing the boundaries of practice forward once again. So it's a very good reference. I think technology plays a role in here. To be honest with you, in relationships, it is a lot more than technology. If I translate it to, "What does it mean for a procurement team in a major corporation?" It means different skill sets. Yes, you still need to be able to negotiate and still need to be able to run a proper tender and RFP process. You need to be able to come with a sourcing strategy. But you also need to be able to be part of the relationship compact and to be able to figure out how do I turn an interface into a diamond of multiple connections that I governed well for the company?

06:32 Remko Van Hoek: Suppliers very often have more contacts with our company than we are aware of. And so how can we mind it, how can we stimulate it, how can we steward that? That's a different skill set. So some of the research that we did in the past year here at the college was in that space and we called it, Don't Build a Bridge to Nowhere. And it taps into the point of, it's easy to say, "Let's go ask our suppliers for what they can do to help accelerate us on our innovation road map. Let's see if they can help." The key insight is, don't ask that question too soon, make sure that you are ready for what they might come to offer. Because if you're just gonna ask and they're saying wonderful things, you need to be ready to be able to figure out, "Where do we need to take that in the corporation? Which executives do I need to have engaged in this effort," so that you can get to talk to the right people. "What investment dollars can we put towards a potential innovation? What teams can we allocate to a joint innovation effort?" And so on. So the insight is there's a ton of work that needs to happen inside the company before you can have that conversation with the supplier well. So don't build a bridge to nowhere.

07:40 Matt Waller: What a great title. When you think about innovation, it's really interesting because I think a lot of times, companies can think, "Well, I don't wanna innovate with my suppliers. I'll be giving away my innovation and they're gonna share it with other customers of theirs who are my competitors." Yet, one thing I noticed again, in the '90s, when the internet became real popular, I remember thinking, all major retailers are gonna start sharing POS, and inventory data, and other data like that, because now... Walmart had invested in all this very dedicated technology to doing that, and now anybody can do it with the internet. And yet, they didn't do it. It's really interesting how innovation occurs because sometimes, you can bring innovation to a large company and they can't adopt it, it's just not possible.

08:42 Remko Van Hoek: One of the roles that P&G created to make this process work was something they call navigators. And they are members of the procurement team whose role it is, if a supplier comes up with something that sounds really, really interesting, to help that supplier navigate their complex global organization to figure out who do we need to give you a conversation with, and who do we need to get you connected with to see if there's an opportunity to do something together? So that gets through that point of, I may suggest to you lots of things but then nothing happens. Well, this is a way to make sure that something happens. The point about, "Am I gonna share my innovation, whereas your next meeting might be with my competitor?" What Electrolux, another company, is really good in this space, found out is that the way to drive engagement of suppliers and sharing was their commitment to do a few things.

09:33 Remko Van Hoek: First, we will get top executives in the room because we are generally committed about this. This is not a supply chain or a procurement priority, this is a corporate priority. Secondly, even if we won't do anything with the innovation, we will give you feedback no matter how good or how bad your suggestion is, we will give you feedback. It will not be like leaving your best innovation in an employee suggestion box and who knows who will ever open it kind of thing. And the third thing is the ability to allocate teams, investment, and have a dedicated process to steward joint efforts through. So there are practical things you can do to increase the likelihood of success, to increase the likelihood of, "We will spot it when it's something good, and we will have a way to figure out how we can do something with it," put simply.

10:21 Matt Waller: Your career in sourcing and procurement is really interesting because you eventually got a doctorate, and then you became a professor, you were a very successful professor, you published some articles that are still cited heavily, one of them on postponement that I'm aware of, but I've seen many others. And then you went back in the industry and you worked for a number of companies, PWC, and then I know when you were with The Walt Disney Company, you were senior vice president of procurement?

11:00 Remko Van Hoek: Yes.

11:00 Matt Waller: One thing I think about The Walt Disney Company is service, unbelievably good service and imagination. Those are the two words that come to mind. And so I'm wondering from a procurement and sourcing perspective. It's real easy to see how those play out in a park or in entertainment, but how did those filter into the procurement and sourcing side of it?

11:28 Remko Van Hoek: What's really cool about The Walt Disney Company is that it's so much more than this park in Orlando. So the question I used to get a lot, "Oh, so are you based in Orlando?" I said, "No, actually I'm based in corporate head office in California." So the company has got a number of segments including TV, including film. And so it's much broader than the parks or the cruise line for a procurement perspective, that's created lots of opportunities to craft relationship with critical suppliers that weren't just involved in parks, but also in movies, and also in IT, and also in corporate efforts. So there were lots of surprising combinations and opportunities to grow, some really major relationships. And secondly, just a breadth of spend, from buying cruise ships to building a hotel in Shanghai to IT systems to enable the next Star Wars movie to be made.

12:27 Remko Van Hoek: It's the procurement role is always fun at... Well, Disney was a really good example of you get to buy fun things, you get to buy fun things. The point about service matters is, yes, it was a little bit easier to make the argument for, it's not just about doing a deal with the supplier, it's also about delivering really, really well and on time, and accurately together. And for that, we need to have a close working relationship which takes time and effort and we both need to commit to that. So on a good day, that played out pretty well. It's not unique, though. I worked with a much smaller construction-related company in Europe. It was only about a billion and a half dollars or so, but 80% of revenue went towards purchase value, so 80% of the money that we made had to go straight to our suppliers in order to deliver the service we were doing. And then we were a very blue collar, so it was also very labor-intensive. So you ended up with a situation where a much smaller company, very narrow margin, and so the delta between a profit and a loss might just be that 2% or 3% improvement with your most important suppliers, that you can achieve if you really, really work to get her operationally well on the side of building a new building or something like that.

13:49 Remko Van Hoek: So that's one of the many things that why I end up... I think of myself as a supply chain person that end up majoring in procurement, or maybe I just fell into the trap and I couldn't get out. I love the part of the supply chain because it used to be underestimated and ignored. And increasingly, it's so obvious that if you don't get procurement right, you will shut down the factory, you will end up with empty shelves and disappointed consumers that will take their business somewhere else. So even tough procurement is far upstream in the supply chain, it's very directly related to our ability to win in the market and serve consumers. Secondly, if you don't do it right, you can have a major impact in terms of risk and financial and performance. I'll give you the example of the delta between your profit and the loss for the year.

14:39 Remko Van Hoek: And that's only growing, not because we're touching more areas of spend, but because we're one of the most outward-oriented parts of the organization. Maybe other than sales, we may be the most outward-oriented part of the company. The number of suppliers that procurement interacts with on a day-to-day basis are such an important part of our ecosystem and our supply chain. Isn't it the best part to start thinking about what can we do towards citizenship ambitions, what can we do towards improving the environmental footprint of our supply chain, what can we do to think about speeding up the supply chain or exploring the role of an emerging technology, new technology such as Blockchain? It is just the right playground for an ambitious supply chain person.

15:28 Matt Waller: Most of my knowledge in procurement and sourcing had really been more in high tech on the one hand, and in consumer products on the other. And of course, fast-moving consumer goods, especially like food products, tend to have pretty short supply chains, whereas the computer industry where I had done a lot of work back in the '90s has really long supply chains. And the challenges associated with those two are very different. About a little over 10 years ago, I had a student by the name of Brett Gunn. And at the time, he was director of sourcing and procurement for Dillard's, and I really knew nothing about the apparel supply chain at that point. Nothing. It's just something I hadn't been exposed to, but I'd be teaching something in the supply chain course, and he'd say, "Well." He'd raise issues. And it was so interesting to hear. Now today, he's, I believe his title is Senior Vice President of operations for Dillard's. He's a brilliant man. But as we're going through this, I kept learning more about it.

16:44 Matt Waller: When I was teaching international logistics, when you look at international logistics for many consumer goods, it's a big part of the cost, but for apparel, especially fashion apparel, the transportation piece is a small part. It's really the procurement cost that are the high part. And tariffs can be high as well. And I remember, we were talking about apparel that was coming over from China, that was costing just a few cents, if I remember correctly, per garment, while it's being transported from Guangzhou to Savannah, it's hard to comprehend this, but it's apparel folded up and put into a 40-foot container.

17:34 Remko Van Hoek: Yeah.

17:35 Matt Waller: What I've noticed about everyone involved in procurement and sourcing, including you, is this need to understand what's going on in the world, because I know that when the tariffs started coming about in China, many apparel manufacturers had to start redirecting procurement.

18:01 Remko Van Hoek: So I had the privilege of being part of Nike's EMEA supply chain organization for a while, particularly focused on apparel. So your point about the importance of logistics, that project started because they actually had logistical problems getting product to market on time. So it would come in from all over the world, those low-cost source locations, and would get stuck in their central distribution pipeline because they didn't have the capacity and the systems and the procedures in place to accommodate a very fast-moving supply chain. So there's a similarity with your food example, apparel is very much a fashion item, and it needs to move fast and that supply chain since then, has only speeded up. So Nike used to have two seasons a year. It became four seasons a year, and by the way, seasons typically means a complete new product line, designed, sold, sourced, made, shipped, delivered, stocked, replenished, everything.

19:02 Remko Van Hoek: So, that's inventing your supply chain all over again a couple of times a year. Number one, at a global level. Number two, there's been a move towards more in-season product introductions also, to be able to be able to respond to the market faster. "The yellow t-shirts are moving faster this season, so can we get some more in?" That means you have to have a certain amount of your supply base much closer to you in market. So for EMEA, that means Turkey or Eastern Europe or Spain or Portugal, so that you can really replenish fast. That's point number two. And what's exciting about sticking with the Nike example, I have, my friend from Nike teach a session in our EMBA program, actually, about the supply chain transformation that Nike is going through, as we speak. And one of the things that they're doing is moving towards the ability to customize footwear. And they're able to do that online, but also in selected Nike Towns, which are their retail outlets, where you can actually design your shoe and two hours later, pick it up. And that requires robotics technology that came from suppliers that they didn't use to work with, that are now making it possible to effectively have a customized product with a two hour supply chain.

20:26 Remko Van Hoek: So, I love your example to how supply chains vary from one industry to another, and how they're segmented between markets and consumers and channels. And the apparel to me, is just a fascinating example of how much change there is, and probably how much more there is to come, particularly when it translates to sourcing and procurement. I think a lot of the foundations of modern supply chain management go back a ways, and I think of the sourcing and procurement part of the supply chain is potentially one of the youngest in it. The foreword in the book you referenced is written by the person who wrote the first Harvard Business Review article about procurement should be strategic. It's only about 35 years old. And in the foreword he says, "We've achieved so much." And my response to that is, "No, we've just gotten started." There's so much more to do for modern supply chains to drive consumer value and to impact the society in which we do business.

21:24 Matt Waller: Well, that's amazing. You got Peter Kralijc, the former director of McKinsey & Company to write your foreword. Yeah, that article that came out about procurement back in 1983 was really, I think a groundbreaking kind of an article.

21:42 Remko Van Hoek: And it was the first one. It was the first article in the Harvard Business Review that said something about procurement should become strategic. You're right, they say, "A good theory is actionable." You asked me what I was teaching this semester, the Saturday class I taught, just the last Saturday with our EMBAs, I had a guest lecturer talking about how they're evolving their procurement strategy and he used that matrix.

22:08 Matt Waller: Oh, is that right?

22:09 Remko Van Hoek: Thirty-five years on, that matrix is still very much a part of the curriculum, and part of the essential toolkit in the field. My point is, Peter is right, we've had a great run the past 30-plus years, we're just getting started.

22:26 Matt Waller: Procurement and sourcing can be so strategic.

22:29 Remko Van Hoek: Yes.

22:31 Matt Waller: Whoever leads a procurement organization has to be a leader with a very good boundary spanning capability.

22:40 Remko Van Hoek: Thank you for bringing it up. That is part of why procurement is so exciting as part of your career track. When you think of the... If you think of young talent coming out of our programs, why would you not want to consider, even just for a period in time in your career a role in procurement? You think of the exposure to the enterprise, procurement touches every part of the business. Procurement has demonstrable ROI. You can run a six-months project and drive a multi-million dollar saving that's very feasible to the C-suite. You can do impact things like sustainability, like relationships, you can learn how to collaborate within and across organizations. It's typically international, it has some innovation involved, it has exploration involved, has negotiations, it has... There's so many aspects of it. If you think through that, if you just become just a little bit better in that how much more of a candidate for a future general manager will that make you?

23:40 Matt Waller: Absolutely, and I think with sourcing, a lot of times when you're out looking for factories or sources, you wind up learning about what your competitors are doing.

23:52 Remko Van Hoek: Yes.

23:53 Matt Waller: Because you see, "Oh, that's a new style. I haven't seen that before." But you see it because these factories produce your competitors' products as well.

24:05 Remko Van Hoek: And it's why you gotta listen to your suppliers. Ask them, "How are we to do business with?" Because they will tell you, they will tell you where there are areas where you're just so much more challenging or demanding or asking of silly things of them than your competitor is. Which means they will be tempted to go to the competitor first. So ask that question and see what you could do to become more of a customer of choice, so that they will come to you first.

24:32 Matt Waller: I'll tell you, it's interesting, the further I get in my career, the more I believe feedback and listening is such an important competitive advantage. If you can do it, it's one thing, you need leaders that can do it, but your company as a whole needs to be able to do it. On the one hand, you look at entrepreneurs, successful entrepreneurs, they look for problems, they figure out solutions, whether they be products or services. They introduce those products or services, they get feedback, they incorporate the feedback, they change, they don't just stick to what they have. They introduce a business model eventually, they get feedback, they make corrections. So all the way down to an entrepreneur, feedback and listening is so important. And I even think in my own position right now as dean of a business school, listening to faculty, listening to staff, listening to students, listening to parents, listening to recruiters, etcetera, etcetera, benchmarking my competitors, and then taking all of that information and changing as a result. The more you can do that, the more of an advantage you'll have.

25:48 Remko Van Hoek: Well, since we're talking about feedback on you... No, just kidding.

[laughter]

25:53 Remko Van Hoek: I agree. And the ability to listen to suppliers and partners in your supply chain is so crucial. And old school procurement wasn't as focused on that. Old school procurement was more of, "These are my specifications and these are the requirements you must need to qualify as a supplier to make it past my desk so that you can do business here. And that's really changing towards, these are problems that we don't have solutions for, might you be able to help us? So if you ask the people you work with inside your organization, on your team, and in your supply chain, what else can I do to help? They will tell you, they will tell you. And as a leader, I've personally enjoyed more to try and make somebody else's day than tell them what they do that they aren't already doing kind of a thing.

26:45 Remko Van Hoek: So now being part of your team here at the Walton College, what an opportunity to serve talent of the future, by profession, by advancing the thinking, trying to help companies advance the practice of it, so the opportunity to impact students, business and our field is just quadrupled, and the opportunity to serve is a real privilege, being part of a business school faculty, at least, so I think.

27:17 Matt Waller: So Remko, speaking of servant leadership, you have done that in many ways. You've served our whole industry. You were chairman of the board of CSCMP Council of supply chain management professionals, which is the largest professional organization and most prestigious in our discipline. You served as chairman for a year and now you're past chairman, but I know you've served in that organization in many ways over the years. How did you learn to be a servant leader?

27:50 Remko Van Hoek: I think it's fun. I do have some background in professional services where you learn that the best way to grow a business is by helping others, and doing so with a very, very high service standard. And then quality will lead to a follow-on question. When I moved out of professional services into line roles, I quickly figured out that if people ask you back, then that's a really good way to grow the opportunity to impact the business for the better. So if you can figure out how can I help you even more or what else can I do for you next? I think supply chain and certainly sourcing and procurement typically is somewhat of an internal service, so it's a function that's ideally suited for going and talking to a business leader and asking, "How can I make your year more successful, what can I do to help you hit your business targets?" It's a really good way to not lead by telling but lead by serving.

28:44 Remko Van Hoek: And then when it comes to professional associations, and serving our fields, I truly think that it's not only fun but it's well known that to be a great leader, you must be a servant of many. And the other thing that I've experienced in many, many instances is that the more you give, the more likely you are to get. That goes back to our relationship. We've known each other through CSCMP for 20 years. I don't even know how long. So my involvement with CSCMP has enabled me to make some incredible contacts. And my opportunity to help you when you were a servant of the organization as an editor, helping you in that editorial role a little bit, helped us develop an appreciation for how we think about our fields. And as a result, when my wife told me it was time to go back to academia and asked me when I was gonna stop talking about it and start doing something about it, it didn't take me long to get to you to pick up the phone when I called.

29:48 Matt Waller: Well, I was thrilled when I heard you wanted to come back to academia and that you even were interested in Arkansas, I thought, wow, because you've lived in massive cities globally, and I thought would he really want to come to Arkansas? But you did, and I was, of course, thrilled about that.

30:04 Remko Van Hoek: We're so happy to be here.

30:06 Matt Waller: Well, thank you so much for visiting with me about procurement and sourcing, I really appreciate it.

30:11 Remko Van Hoek: It was so much fun, thank you.

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30:19 Matt Waller: Thanks for listening to today's episode of the Be EPIC podcast from the Walton College. You can find us on Google, SoundCloud, iTunes, or look for us wherever you find your podcast. Be sure to subscribe, and rate us. You can find current and past episodes by searching BeEpic Podcast, one word that's B-E-E-P-I-C podcast. And now, be epic.

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Matt WallerMatthew A. Waller is the dean of the Sam M. Walton College of Business, Sam M. Walton Leadership Chair and professor of supply chain management. He is also the host for the Be EPIC Podcast for Walton College.

 

Walton College's EPIC values -- Excellence, Professionalism, Innovation and Collegiality -- are the heart of Dean Waller’s podcast. Since the beginning of the series, Waller has interviewed business professionals, industry experts, CEOs and Walton College students to bring listeners first-hand accounts directly from the entrepreneurial world.

 

Waller is an SEC Academic Leadership Fellow and coauthor of “The Definitive Guide to Inventory Management: Principles and Strategies for the Efficient Flow of Inventory across the Supply Chain,” published by Pearson Education. He is the former co-editor-in-chief of Journal of Business Logistics. His opinion pieces have appeared in Wall Street Journal Asia and Financial Times.

 

Waller received an M.S. and Ph.D. from Pennsylvania State University and a B.S.B.A., summa cum laude, from the University of Missouri.





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We're sitting down with innovators and business mavericks to discuss strategy, leadership and entrepreneurship. The Be EPIC Podcast is hosted by Matthew Waller, dean of the Sam M. Walton College of Business at the University of Arkansas. Learn more...

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