Challenge
Building a stronger, joined-up procurement function
The business landscape has changed. With proactive risk mitigation now a necessity, new technology enabling process efficiencies, and growing demands from internal stakeholders for the function to act in lock-step with the wider business, the world of procurement is changing faster than ever before. To keep pace, procurement leaders are constantly reassessing how they should structure and organize their teams. One such company facing up to these challenges was Cargill, the 150-year-old agriculture and nutrition company, which has a global footprint and generates more than $100bn in revenue each year. With work underway to transform the wider business’ structure, beginning in late 2018, Cargill’s procurement division took the opportunity to reconsider how it would best be structured to support the company in future-proofing its success.
Transformation drivers
Watch: Todd Stohlmeyer, Vice President – Global Strategic Sourcing and Procurement, on the drivers behind Cargill’s transformation
Historically, Cargill had been run as a holding company with dozens of operating businesses acting with relative autonomy while procurement was spread across these units. While this enabled the function to be agile and deliver strong savings, it also led to inefficiencies, including:
- Duplication of resources, as procurement worked within each business and required their own leadership structures and support functions
- A lack of coordination between each business’s procurement strategies
- Disparate processes, such as different procurement policies in each region
- A complicated technology structure, as 70 of the individual functions had a separate enterprise resource planning (ERP) system, making it difficult to take advantage of advances in procurement technology
Todd Stohlmeyer, Cargill’s procurement and transportation leader, says: “You had more than 100 independent businesses that had full functional expertise within them and really did not leverage the scale. “We had the ultimate flexibility and agility but, in the changing marketplace and the changes in what the company needs from us in terms of value, we were missing out on the scale. We weren’t leveraging the opportunities and the knowledge we had across the globe, and the risks were increasing dramatically.” At the same time, both the challenges procurement faced and the organization’s expectations of the function were changing:
- Business partners were demanding ever greater levels of insight into their markets to generate competitive advantage above and beyond creating cost savings, helping them to understand their markets and how they fit into that.
- The risks and opportunities associated with the supply chain were growing. While some suppliers could be a source of huge insight, innovation, and value, others could prove to be a liability if they ran into difficulty. Having the ability to identify and mitigate these risks on both a local and global level was key.
As the business moved towards a more centralized structure, procurement used this shifting business setup to embark on a transformation journey to build a truly integrated, highly efficient function; one closely aligned with the business to deliver greater value beyond savings.
Procurement’s transformation objectives
Watch: Todd Stohlmeyer on what Cargill procurement was aiming to achieve
As it embarked on its long-term transformation project, Cargill procurement aimed to become:
- Globally connected: In the past, procurement had not been able to leverage the scale of its purchase volumes and skills around the world. The function wanted to be able to connect its various teams while maintaining agility on a global level.
- Leading to win: Understanding what winning meant for business partners and then designing and implementing the right strategies to support them. Procurement wanted to be able to present stakeholders with a spectrum of solutions that would allow them to make a choice based on their needs.
- Disciplined and agile: Defining and understanding what processes could work, establishing clear accountability and deploying the right enabling technologies.
- A destination for talent: With people being procurement’s most important strength, it was important to be able to offer enhanced career opportunities and support the team to develop skills and expertise.
While, historically, procurement had been seen as a place for people who did not fit elsewhere in the business, it aimed to be seen as a leading function capable of attracting the most talented candidates. In addition to these broad objectives, some specific aims of the transformation included reducing cost-to-serve, freeing up working capital, and increasing overall value delivery in support of the company’s wider aims.
Winning sign off for the transformation
Watch: Todd Stohlmeyer on how procurement won sign-off for the transformation
To press ahead with such an ambitious project, procurement needed the support of Cargill’s board. The team used several methods to build the strongest possible case for change:
- Benchmarking: By taking the time to research and understand the structure of procurement functions in other companies, with the help of Procurement Leaders, the team was able to explain its plans in this context to show what could be achieved.
- Engaging with stakeholders: Procurement conducted more than 100 interviews with key stakeholders across the business, including the heads of many of the individual business units, to understand their attitudes to a potential transformation, which helped to inform the function’s case.
- Understanding and being honest about the risks: Proactively considering the challenges that would be faced as part of the transformation allowed the team to anticipate and respond to any questions.
- Emphasizing its track record: Even in its previous configuration, the function had achieved demonstrable success in delivering ROI and savings, which helped to give the senior leadership confidence in its plans.
Approach
Principles of Cargill’s transformation approach
Watch: Binh Tran, North America Sourcing and Procurement Leader, on the key pillars enabling value delivery at Cargill procurement
The procurement team devised five key strategies that would be central to its ability to deliver greater value for Cargill. The five key pillars for enabling value delivery:
- Larger projects: Prioritizing fewer, larger-scope, category-level projects would allow procurement to deliver greater impact than its previous approach of focusing on many smaller projects worth less than $50,000.
- Holistic value: Applying strategies that deliver value across holistic value levers, expanding beyond the function’s historical focus on price to look at the total cost of ownership.
- Process and technology: Standardizing and automating processes across the function, enabled by modern technologies to drive economies of scale. This includes integrating and updating Cargill’s technology systems, as well as modernizing and cleaning up its data to support larger projects.
- Optimized activities: Optimizing the mix of regional, local and global activities, putting resources in the right places to drive efficiencies.
- Strengthened connections: Closer collaboration with businesses, suppliers, and between procurement staff, to leverage scale and support the sharing of best practices, positioning procurement as a strategic business partner, rather than an administrative function.
Creating organizational alignment for value delivery
Watch: Binh Tran on how procurement ensures its objectives align with the rest of the business
Bringing procurement together with the rest of Cargill was a vital element of the transformation that would enable the function to take a more strategic role and help the wider business to deliver on its goals. With stakeholders asking for a greater level of insight into their markets and given its extensive connections with a variety of internal stakeholders and suppliers, the function had the opportunity to position itself as a “connector,” linking ideas and initiatives between a range of parties, and ultimately helping the wider company to deliver on its goals. To build these closer relationships and generate trust in procurement, the team took the following steps:
- Aligning with corporate objectives: Participating in the company’s overall strategic planning process to stay connected with executive leadership, as well as reformulating the function’s objectives to keep them in line with changing corporate priorities.
- Creating a dedicated business engagement team: This team of five sits within procurement and is responsible for ensuring the function’s sourcing capabilities connect with the business’s overall strategy.
- Inviting stakeholders into the category process: Representatives from internal business teams have been invited to participate in the category management and supplier selection process to help procurement ensure their requirements and preferences are considered when making sourcing decisions.
- Customer focus: Category managers were encouraged, through training and changes to the category management process, to change their mindset away from pushing their ideas and objectives into the business towards seeking to understand stakeholder objectives and responding accordingly.
The metrics and levers used for value delivery
Watch: Binh Tran on delivering and measuring value beyond savings
Historically, cost savings and cost avoidance have been the main measures of procurement’s contribution to the business. However, reflecting its increasing focus on delivering value beyond savings, the function is now also measuring its contribution to income generation and EBITDA as it helps develop new products, as well as improvements to working capital and capital efficiency. While there was no single initiative that allowed it to deliver against these, the team empowered the function to boost value delivery by leveraging technology and creating a more proactive culture within category teams. Procurement staff were encouraged to think strategically, rather than focusing on individual projects in isolation, to adopt more proactive rather than reactive mindsets and to make category reviews less linear and more focused on scenario-planning.
Upgrading digital systems to boost efficiency, insights and user experience
Watch: Prasad Madiraju, Global Process and Enablement Leader, on Cargill’s approach to modernising its digital systems
Modernizing and standardizing the function’s use of digital technology was a key plank in procurement’s transformation, allowing it to improve the experience for both internal stakeholders and suppliers, generate stronger insights for category teams, and ultimately reduce the cost-to-serve. The three pillars of Cargill’s data and technology transformation were:
- Leading industry practices shaped by insights, technology and data
- Advanced analytics, reports and clean data from a common data lake
- Process and policy to standardize source-to-pay and increase automation
- Collaborating with suppliers to create holistic value:
- Delivering an enhanced supplier experience through robust vendor onboarding, website support and supply chain financing
- Intuitive digital buying experience:
- E-marketplace for low-value products and services
- Global purchasing cards
- Automated digital procure-to-pay
- Global expense management system
Building a more sophisticated suite of digital tools and systems has allowed procurement to deliver a lower cost-to-serve as a result of:
- Greater adoption of self-serve: Making it easy for internal colleagues to make low-cost purchases through the provision of self-serve marketplaces and e-catalogues has reduced the time and resources procurement needs to dedicate to such transactions.
- Improved efficiency and automation: A standardized and automated S2P process, based on Ariba, reduces friction in the purchasing process and helps to eliminate exceptions that would otherwise have to be resolved by a member of the procurement team.
This has also allowed procurement to redeploy these resources to more complex tasks with shared services staff moving up the value chain to undertake low-value sourcing and tactical sourcing teams moving upstream into category management tasks, leaving category managers with more time to forge closer collaborations with business partners and work more closely with suppliers on innovation.
Key steps in Cargill procurement’s digital transformation
Watch: Prasad Madiraju on the main elements of Cargill’s digital transformation
With data playing a vital role in procurement’s ability to provide greater insights for business partners, the initial stage of this transformation focused on building the foundation of procurement’s technology, including:
- Defining processes and policies to govern how its systems function.
- Fixing its master data management practices.
- Removing bottlenecks in the end-to-end P2P process to make it more frictionless.
- Deploying Ariba in alignment with its processes.
Next, the team focused on deploying a data platform and visualization tools that will allow it to deliver greater insights and joining different elements of the P2P process so that they seamlessly connect.
Building talent and capabilities to match changing demands
Watch: Eric Vandercammen, Senior Director Strategic Sourcing & Procurement on how Cargill has bolstered its talent and capabilities
With demands on the function developing rapidly, procurement wanted to ensure that as well as transforming its policies, systems and processes, it would also have a world-class team with the necessary technological, analytical and business partnering skills that could support it in delivering its objectives. Part of the process of building that team was defining the capabilities that it needed to invest in. Procurement has six key capabilities (see Figure 1, below), two of which, portfolio strategy and analytics and business engagement, were newly introduced and a key focus of investment as part of the transformation. 
Portfolio strategy and analytics give the function visibility into projects and initiatives throughout the business allowing it to allocate resources effectively. This also includes an external view of the market and competitors that will help to inform procurement’s strategy. Meanwhile, strengthening business engagement will allow the function to work in a more aligned manner with the rest of Cargill ensuring the wider enterprise’s strategy is infused in procurement’s and vice-versa. To build these capabilities, procurement:
- Invested greater resources in its team, creating new roles in data analytics, process design, portfolio management, technology enablement and business engagement, providing an opportunity to hire new, diverse talent.
- Implemented a new roster of training programs with a curriculum including category strategy and negotiation delivered through a mix of online courses and live workshops.
As well as ensuring procurement has the right skills and capabilities, the new roles and expanded training approach have helped the function to become more of a destination for talent by providing new joiners with improved opportunities for progression and development.
Outcome
Impressive results have already been achieved
Watch: Todd Stohlmeyer shares the benefits delivered by Cargill’s transformation
By overhauling its processes, forming closer relationships with the business, upgrading its systems and building new capabilities, procurement has been able to dramatically increase the value it delivers.
- Doubling the function’s ROI in 18 months, half the time it had initially aimed to deliver that result.
- A 10% reduction in cost-to-serve through technological improvements which is expected to decrease further as the digital transformation journey continues.
- Delivering on demands from within Cargill to improve working capital. By leveraging its new global structure and interconnectivity the function was able to extend payment terms with 30,000 suppliers and strengthen its payment processes freeing up $550m of working capital to support the company’s growth.
- Increased revenue generation, 5% of the function’s value delivery now comes from these activities, up from zero before the transformation.
More broadly in line with the aims set out at the start of the project, procurement has become:
- Globally connected: Reforming its category processes will align its strategy with the wider business and make it easier for suppliers and internal stakeholders to make use of digital systems.
- Leading to win: Overhauling its relationship with the business and developing new capabilities will enable it to support its ability to deliver value and insights to stakeholders. Stakeholder surveys show that business partners were pleased with the level of new value and business engagement driven by procurement.
- Disciplined and agile: By introducing process discipline and revamping its technology platforms, boosting efficiency and enhancing its data-based capabilities it will deliver much stronger insights for the benefits of stakeholders.
- A destination for talent: Introducing new roles and enhanced training schemes will offer more substantial opportunities for progression and development. Stohlmeyer says internal engagement scores have been “off the charts” as staff have started to feel like they are having a greater impact on a global level.
Lessons learned from challenges Cargill encountered
Watch: Todd Stohlmeyer on how the team overcame challenges encountered during the transformation
Having successfully led the transformation, Stohlmeyer shared some of the challenges procurement faced along the way and how they dealt with them:
- Getting the data right: The process of overhauling procurement’s data systems began in earnest but was initially too much, too fast and ran into difficulty. The team decided to pause the project for a month until changes to its ERP system were implemented to focus on ensuring data was clean and that it was following the optimum approach.
- Resourcing the transformation: Stohlmeyer says it is vital not to overlook the scale of resources needed to bring the transformation to fruition. “[Initially] we were penny-wise and pound-foolish, we tried to stay lean and make it part of somebody’s job,” he says. But this led to the project being under-resourced and it was necessary to dedicate some people to focus specifically on the transformation.
- Failing fast: Procurement had to overcome a past focus on perfection to reach the outcomes it was aiming for. Instead, the function experimented with different options and failing fast to determine what would work. “The ability to move fast and develop a culture and mindset of continuous improvement that is all about failing fast, taking the knowledge and adapting as you go became paramount for us.”
Next steps
Watch: Todd Stohlmeyer on where the function is heading next
With the bulk of the transformation complete, Cargill procurement is not resting on its laurels, adopting a continuous improvement mindset to ensure it can constantly adapt to changes in the market. “A healthy dissatisfaction with status quo is my mantra,” says Stohlmeyer. “As soon as it was implemented I was already benchmarking what we needed to do next and having the team focus on next levels of the strategy.” The function’s next areas of focus include:
- Implementing tools for supplier relationship management
- Fostering new opportunities in supplier-enabled innovation
- Identifying opportunities to redeploy internal resources more effectively
- Creating a more joined-up data system
- Exploring ways to measure its contribution to income generation
- Generating insights from its data to support Cargill’s customers
“You’re never done,” Stohlmeyer adds.
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