Schneider Electric’s purpose is ‘to empower all to make the most of our energy and resources, bridging progress and sustainability for all’. With its DNA deep-rooted in creating innovative sustainable solutions, 2021 has seen Schneider named the world’s most sustainable corporation. Dan Bartel, Schneider’s Chief Procurement Officer, offers insight into the structure that places procurement as a key business partner, the value this adds, and how it continues to push the boundaries on all fronts.
Dan, joining the business as CPO in 2019 you found yourself in the enviable position of being asked to lead a mapped-out transformation strategy. The strategy is based around three pillars: ‘growth via supplier relationships,’ ‘driving bottom line results,’ ‘advancing sustainability goals.’ What would you point to as the standout achievements in each pillar thus far? What area has proved to be the most challenging?
In Schneider Electric, the procurement team is an integral part of the Global Supply Chain (GSC) organization. GSC is comprised of about 200 factories, 100 distribution centres, and global functions including procurement, planning and logistics. In procurement we have about 1,500 professionals managing about €13 billion in annual spend. The procurement transformation strategy is directly supporting the broader GSC STRIVE transformation.
Looking back over the past few years, I would highlight the following key achievements in Procurement supporting each of the STRIVE pillars:
Sustainable: Earlier this year, Schneider Electric was named the world’s most sustainable corporation by Corporate Knights. Procurement has done more than its fair share in supporting the sustainable development of Schneider’s supply chain. One example is The Zero Carbon Project, where we are working with our top 1,000 suppliers to cut their overall CO2 emissions by 50% over the next five years. By middle of this year, 91% of those suppliers agreed to support the program (with more commitments following).
Trusted: By providing superior quality of supply of materials and services, procurement has a real opportunity to enable the growth of the business. When done aggressively and properly, supplier quality development is a tremendous lever for creating a competitive advantage in the marketplace. However, small incremental improvements do not have a meaningful impact. Therefore, we have substantially “raised the bar” with how we qualify suppliers and their production processes in Schneider Electric. Through our Supplier Approval Module (SAM) process, we check all aspects of a supplier’s ability to meet our requirements.
Resilient: Like many industrial companies, Schneider had built its supply chains more for efficiency than resilience in the past. Especially with the lessons of recent years, we are now much more aggressive and strict about the need for at least two running sources for each critical part or material. We are also duplicating entire supply chains for critical products, typically in alternate regions or countries, and most often we leverage third party manufacturers so we can do this quickly and efficiently. Lastly, we collaborate very closely with R&D to design products for resilience.
Intelligent: This is all about Digital. The digital strategy in procurement at Schneider has been clarified and defined on four pillars:
- Data Management: Here we focus on perfecting our master data and becoming effective and efficient in managing the transactional data of procurement.
- Advanced Automation: This is all about taking that good base of data, automating the ongoing management through robotic process automation, and applying advanced analytics to gain new insights.
- Supplier Interactions: We’ve automated the procure-to-pay processes for direct and indirect and have fully digitised all strategic supplier management processes via a semi-customer supplier relationship management platform, raising the bar substantially with respect to how we are able to manage and develop those relationships.
- People Development: This is our most important differentiator in the area of digital – we assess and develop the competencies of the teams continuously, to make sure we have the right skill sets in the organization to not only deploy existing programs effectively, but to continuously stay on top of the latest developments in digital procurement so that Schneider stays ahead of the curve.
Velocity & Efficiency: At the end of the day, procurement must deliver on the expected cost and cash improvements. This is especially true in a company like Schneider where the spend is nearly 50% of revenue and 80% of COGS. We have consistently met expectations on cost and cash the past few years, and there is one big aspect we have changed to enable that…In the past, the job of procurement was done mainly by Procurement only. Today, we work much more cross-functionally on sourcing and negotiation programs, as well as technical productivity projects. I see procurement not as a support function, but as a business function. Therefore, we involve the leaders from the business in the critical things we do, including supplier negotiations, business reviews, etc. This brings our relationships with suppliers to a whole new level and enables us to unlock value we could not previously see, including sustainability opportunities and even B2B enabling Schneider sales to suppliers.
Has the COVID-19 pandemic directly affected the delivery of the transformation? If so, has it also reshaped or added another cog to the wheel?
The COVID pandemic and the subsequent global supply shortages that came with it have certainly had an impact on the STRIVE transformation. In the short term, we reacted by slowing down some aspects of the transformation, while speeding up some others. For example, in the Intelligent pillar: We slowed down the deployment of the procure-to-pay platform for indirect spend at the beginning of the pandemic, when there was a high degree of demand uncertainty. Like many companies we needed to decrease our discretionary spend, and that was one area where we had the flexibility. In contrast, we dramatically accelerated the deployment of our supplier relationship management (SRM) platform, going from only 1,000 suppliers to more than 10,000 suppliers connected and actively using the tool during 2020. This was very much need-driven: with everyone working from home and nobody traveling to meet suppliers, the SRM platform offered a convenient and efficient way to stay connected with our suppliers.
In the mid- to long-term, the pandemic has forced us to rethink and re-emphasize the topic of resilience. The level of investment and focus on building the power of two in all critical areas of our supply chain has increased — a much bigger emphasis is placed on business continuity planning with our strategic suppliers.
COVID has created many direct and indirect challenges, remote working environments, supply shortages and so forth. Such a prolonged period of disruption has created a supply chain world very different to the one that we saw at the early stages of the pandemic. How has your outlook changed during this period? If you had a crystal ball is there anything that you would have done differently?
I would have stockpiled masks in Q4 2019! Seriously though, it’s easy to look back and list all the things you would have done differently if you had only known what was coming. Today’s supply environment is tumultuous. Everyone knows the semiconductor story, with shortages expected to persist well into 2022. The global logistics network is completely overloaded and out of balance, with disruptions that will continue for many months to come. Many other supply markets are under similar, albeit less disruptive, strain. For too long we have been referring to our current way of working as “crisis management.” The time has come to realise that this is no longer a crisis — it’s just the way things are now. Procurement and supply chain leaders need to rethink how they organise their teams and the work they do, to be able to continuously react to the unexpected whether that’s super high demand, supply disruptions, or both — they often coincide. We also need to better anticipate the next waves of disruption by systematically building in resilience — ongoing supplier risk management, aforementioned business continuity planning, and power of two, extra inventory buffers, etc.
As a procurement function within a global supply chain operation consisting of 80,000 people you are stuck in a period of crisis management. This sounds dramatic or maybe drastic but in reality, you operate in a somewhat unique juggernaut which is built around agility and innovation. Procurement Is seen as a strategic partner within the business and has been for many years. How vital has your agile centralised structure been during this disruptive period and maybe more importantly how does it directly influence the effectiveness of your transformation plan?
As my great mentor Daniel Helmig puts it — world class, global procurement delivers not only economies of scale, but also economies of skill. When you have an integrated, well-connected global organization like ours, well aligned to the overall organization set-up of the broader business, it’s becomes much easier to deploy all kinds of best practices globally. The initial COVID crisis management is a great example of that in Schneider. When China locked down, our local procurement team, which of course is a part of the global organization, established a SWAT team to help suppliers maintain production, they accelerated digital tools deployment to improve remote working and improve supplier interactions, and they learned what works and what doesn’t to re-open suppliers and keep their production running. As the virus spread across the world we were able to systematically deploy the structure and lessons learned from China in all other geographies, tweaking it each time and making it even more effective. For me, this was a textbook example of economies of skill.
Schneider’s constant ambition is to deliver innovative sustainable solutions. Procurement plays a significant role in both. Your unique structure allows for and places great emphasis on driving innovation throughout the supply chain. One such arm the Offer Creation Procurement (OCP) team prove pivotal in sourcing innovation from start-ups. How important are innovations sourced from start-ups and what precisely does the OCP do?
One of the greatest strengths of Schneider Electric procurement is the OCP procurement team. It’s actually a collection of teams, physically located alongside our many R&D organizations globally. While it’s the smallest part of the organization, it has massive impact on the long-term performance of procurement and the business.
At the most basic level, the OCP teams support new product introduction (NPI). They are embedded in the line of business, but they link closely with the category teams to, on one hand assure the needs of the business are reflected in category strategy, and on the other hand assure supplier selection for new products is in line with the sourcing strategy. Many companies have one team doing both category management and NPI. As Schneider is very much a technology company with a clear strategy to remain the leader in the market, and since we have such broad offer of products and solutions, the decision was made many years ago to dedicate procurement resources within the R&D teams. As these people are solid-line reporting into the central procurement team, we are able to stay closely linked.
One of the things the OCP procurement team does is source technology on the market that the R&D team is not able to develop or decides they do not want to allocate the resources to develop. We have been tracking the number of supplier innovations adopted into finished products since 2012. In 2020 we began assessing the revenue impact of these innovations, identifying more than €150 million of value across over 100 specific projects. Analysis of the future opportunity pipeline, which is centred around six technology clusters, shows that 75% of new innovations now come from start-ups, rather than strategic suppliers. This is the reverse of the situation five years ago, and it requires a tailored procurement process and coaching support that is sensitive to small firms’ capabilities and resources.
Innovation within the supply chain is not restricted to suppliers. How important is the role of internal innovation within your procurement and supply chain teams?
In my view it’s imperative to continuously improve our processes, especially as the external environment evolves. Digitization overall is a great example, with innovative new procurement tools hitting the market regularly. However, core procurement processes also require constant innovation. Take supplier negotiations for example – quite a core process for any procurement team. Many companies are quite ‘loose’ in how they drive that process, but in Schneider Electric we drive a disciplined process with careful preparation and cross-functional and senior leadership engagement as core tenets. We first deployed this process several years ago and have worked with each round of negotiations to refine the approach. Local execution enables us to assure disciplined application of the approach, and again, our global footprint is a vehicle to spread process innovations across categories and geographies. The negotiation process started as a way to generate productivity in the short term. The process has evolved in several different directions – in some situations the teams have added a VA/VE element with heavy involvement of the design teams in Schneider and from suppliers. In other cases, we change the process to focus on supply assurance (i.e. negotiating for capacity, rather than price). Bottom line, the process is standardised globally, but teams have the latitude they need to innovate the process to solve the problem at hand. And when it’s successful, we copy and paste globally.
Globally recognised as corporate leader in sustainability Schneider recognised from the onset that the supply chain holds many answers to their sustainability questions. Some procurement and supply chain operations play a peripheral role in driving sustainability goals, your function is not one of them. How does your function directly push sustainability?
Sustainability is at the core of Schneider Electric – it is in our DNA. Our role in procurement is to start embedding it in the DNA of our suppliers. A bold statement, yes. This is how we see our responsibility in Schneider procurement.
In the recent past, procurement was focused mainly on compliance-driven topics as it relates to sustainability – REACH, RoHS and conflict minerals are good examples of material compliance. The French Duty of Vigilance requirement is just one example of social compliance. ISO26000 maturity level (which we measure for all of our strategic suppliers with the support of Ecovadis) is a very good comprehensive way to check the sustainability level of your supply based. In recent years, these topics have been driven aggressively in Schneider and we have consistently met our targets. And, these all continue to be important to improve indefinitely. However, many large industrial companies are doing much of the same, and we felt the need to set ourselves apart.
At the beginning of 2021, Schneider Electric issued the 2025 Schneider Sustainability Impact (SSI), a set of 11 aggressive sustainability targets for the next five years. Four of the 11 targets are either procurement-led, or heavily supported/enabled by the procurement team. Those four targets are:
Reduce CO2 emissions from the top 1,000 suppliers’ operations: This may be one of our most bold targets. To achieve it, we launched The Zero Carbon Project (TZCP) in Q2 2021. So far, more than 900 strategic suppliers have committed to the program and are now starting the process to baseline their carbon output and plan actions for reduction. Carbon reduction is our business in Schneider, so we are supporting our suppliers in this journey through customized training and coaching.
Increase the green material of our products: Here we focus on metals and plastics. Linked closely to the innovation topic, our plastic raw material suppliers are engaged in a score of projects to develop green alternatives (often recycled materials) to existing carbon-based plastics. We are working closely with our copper and steel suppliers to use more recycled materials and to decarbonize their operations (refer to TZCP).
Primary and secondary packaging free from single-use plastic and using recycled cardboard: Due to the nature of our products, Schneider uses a fair amount of primary and secondary packaging. In the past few years, we transitioned 100% to recycled or certified green sources of cardboard. Now we get even more aggressive with fully recycled materials and no more single-use plastics.
Strategic suppliers provide decent work to their employees: Schneider provides its employees safe working conditions, a liveable wage, limitations on overtime, etc. There is no reason we should not expect the same from our suppliers. Therefore, we set a new expectation for all strategic suppliers that they provide the same level of decent work to their employees.
One question I get often is, “Don’t those sustainability targets run counter to your productivity objectives?” Frankly, we do not live in a black-and-white world where everything is a trade-off, and these targets are important for reasons already mentioned. Plus, it gives our teams deeper purpose. In all the areas above, I have seen low-hanging fruit where the sustainability target could be advanced, and we save money. That said, there are many cases where the ‘green’ solution is more costly. In those cases, we need to make clear business decisions to balance our objectives — and achievement of the SSI is directly linked to the compensation of the entire procurement team.
During your career you’ve had the fortune of witnessing the rise of the procurement function. Rising from the perception of being an admin function to that of a true strategic partner. What one thing during this time has stood out as a real differentiator? What do you anticipate in the coming 3-5 years will be the big differentiator?
Indeed, I feel lucky to have had the chance to develop a career in procurement during this era of global business. Early in my career, in the mid-1990s strategic sourcing was in vogue, as CFOs and CEOs started to see the bottom-line cost savings impact through better spend management. This evolved then to category management, addressing not just cost but overall supply base performance. Today the best procurement teams are those that are well integrated to the business they are supporting. As mentioned, I see procurement not as a support function, but a business function — it’s our job not to just ‘buy’ the products and services supporting the business, but to also orchestrate the entire business around doing that buying work in the best possible way. Let me describe how the best procurement teams do this. For product development, we don’t just bring suppliers in to meet R&D. We coordinate between R&D and the suppliers to align technological roadmaps. In business reviews with suppliers, we don’t just have the category manager leading the supplier through performance results and actions — we engage senior leaders on both sides of the table to have out-of-the-box discussions about how to create a mutual competitive advantage. Finally, on the operational side of procurement, we digitize the processes to the nth degree, making the execution as efficient and robust as possible.
Getting to the question of things that stand out as a differentiator…Let’s take the current situation — many supply markets are in a state of crisis — semiconductors and global logistics just to name a couple. In our industry as in many others, there is growth available in the market for the first competitor that can serve the demand. The biggest constraint is upstream supply. In today’s market, in many cases, the growth of the business relies on the ability of the procurement team to secure supply, more than any other factor. It takes the whole business working together to win, but procurement is the orchestrator of enabling growth, and of enabling the business to take or defend market share. I cannot think of a situation that would make our great function more relevant.