 Hi everyone. Welcome to another life event of MIT MicroMasters in Supply Chain Management. I am Miguel Rodríguez-Gafia, a researcher at the MIT Center for Transportation and Logistics and the course lead for SE1x Supply Chain Fundamentals. So first, I just want to thank everyone for joining us today. And this is the first life event of the fall series, which is a series of cross-course life events for SE1x Supply Chain Fundamentals and SE3x Supply Chain Dynamics. And that's why I'm really happy to be co-hosting this life event today with my colleague, Paulo Sosa Jr., course lead for SE3x. Hi Paulo, how are you? Hey Miguel. Hi, hi everyone. Thank you for the introduction. It's great to be here with you all. We are excited to share some great insights about Supply Chain in this live event. So today we're going to follow this agenda. First, our guest speaker will give us a presentation that will last around 25 minutes. After that, we will have some time at the end when she will answer questions from you guys, from our audience. So we encourage you to participate and use the Q&A feature in Zoom, not the chat box, but the Q&A feature. Then Miguel and I will take those questions and channel as many as we can to our speaker. And before we introduce our guest speaker, we want to share something with all of you. Right Miguel? Yes, that's right Paulo. So we just want to remind everyone that verification for both courses SE1x and SE3x still open. We'll be posting the verification links on the chat right now. So remember verification is really important for those of you guys who are taking the courses because the only chance to get the certificate from MIT upon successful completion and it's also the best way to support the program. And that will allow us to keep us giving away this content for free to thousands of learners around the world. So if you like the content, if you like these events, please verify it so we can keep doing this for you guys. And without further ado, let's introduce our guest speaker Paulo. Alright, so today we are honored to have Niranjini Kumar as our guest speaker. She is a management consultant at McKinsey. As a consultant, she has experience across different industries. Most of her work focuses on operations strategy and procurement. That's why today she's going to be talking about strategic sourcing and supply chain. And she will be sharing with us how to elevate the role of procurement professionals to add more value to companies. Niranjini holds a master's degree in supply chain management from MIT. She was part of the 2021 blended cohort. So she's also a MicroMasters alumina, which means she passed all courses from the MicroMasters program, like many of you are doing right now. And as you may know, one among many other benefits from earning the MicroMasters program credential is that you become eligible to apply to the SEM blended masters program at MIT, just not just like Niranjini did and also to other universities around the world. So welcome Niranjini. Thank you Paulo and Miguel. Looking forward to, you know, meeting you all here. Yeah, thank you so much for joining us. So let's get started. The floor is yours. Awesome. So let me share my screen here. As Paulo mentioned, we're really going to be talking about strategic sourcing and supply chain. Okay, so before we go on, just a bit of quick introduction about myself. I saw some of the folks here are from Canada too. So hey to everyone in Canada. So I am from Toronto, Canada. As Paulo mentioned, I'm a management consultant at McKinsey. So prior to that, I've been in the industry at Restaurant Brands International, which is a consumer like food and beverage company, which owns Tim Hortons, Burger Kings and multiple other brands. So I used to work in their procurement strategy team for about six to seven years. So really familiar with procurement on the end to end basis. And at McKinsey, I focus more on the source to pay as a whole transformation, which we'll talk about in a few minutes. So really, a lot of my life has just gone into procurement. So I'm looking forward to this, having a great discussion with you all. And as Paulo mentioned, I went to MIT just like you all did MicroMasters, joined the blended program. And prior to that, I have a background in material science engineering from National University of Singapore. So in my free time, usually like paddling and cycling. So in summers, that's where you'll see me. Okay, so let's move on. So I thought I'll kind of start off with a quick poll or like a chat just to kind of understand the background of the folks here. So if you can just put in your chat, like which industry do you represent, just so that like Paulo and Miguel can kind of let me know like what the response is. So energy, I see energy industry, consumer. That's awesome. Then maybe we'll go into a bit more context on how familiar are you with procurement so that we can make sure we are covering the content accordingly. Okay, so it's a mixed group of people with different levels. Okay, that's perfect. So I guess we'll go into our objectives for today. So given that we have a mixed group of people, a diverse group of people across all the industries and different level of understanding. So I think the first objective is going to be pretty good. So it's really just understanding the end to end procurement process and like the different aspects of procurement and we'll just get a bit of get deep into that. And then once we have the end to end procurement process, I think the second one is going to be the more important chunk. I think that's what you're all excited about. It's really just what are the one or two like big opportunities that we can implement in our procurement function today to drive value to the business. And the third one is now that we know the process, now that we have the opportunities like where do we even get started, right? So that's kind of the framework of what we will cover today. And I hope this kind of like helps everyone get an overall view and key takeaways that you can take into your work and then start implementing pretty soon. So starting off with the procurement process. So like a procurement process, we usually call it the source to pay process. I know different organizations use different term, but I'm kind of just having a general like a general view of this. So a source to pay process includes all the activities from the strategic sourcing process all the way to the vendor is paid. So from the time you pick a supplier till the time the vendor is paid. So that is the overall source to pay process. The tricky thing about source to pay process is it has two main segments. One is the source to contract process and the procure to pay process. The source to contract is typically in organizations called the strategic procurement or the category management team. And the procure to pay process is usually it's probably not even in the same organization that the procurement team falls under sometimes under accounts payable. It's sometimes under supply chain. It is it is definitely it's a very different scope and it's a very different type of activity. So usually like source to contract and procure to pay may not be within the same function. So because of this, a lot of procurement professionals are not able to look at the process and optimize the process from an end to end perspective. Everyone's kind of focused on their role, what their team does, what their objectives are and therefore there is a there is a lot of opportunities lost because of that silo based approach. So which is why here we're going to start off with what does the end to end process looks like and where are the overlaps and how can we how can we navigate this and make sure we are looking at it holistically all the time right. So source to contract process. I think many of you saw are familiar with the procurement process. So this is probably the process that you're everyone's most familiar with which is the oops sorry category category and spend management. So here what you would do is you would understand the overall spend portfolio of your company and organize it by categories, which suppliers are you buying from what is the quality really getting a good understanding of your spend base. And then once you have a good understanding of your spend base, then you start analyzing opportunities. Do you have a tail spend? Do you have a non consolidated spend? Do you have anything that's not under contract which could go under contract? Do you have multiple suppliers each charging different prices? Is there a price arbitrage analysis that you can run and move everything to one supplier? So you are coming up with initiatives and coming up with opportunities on how to optimize your spend here. And once you come up with opportunities, that's when you draft your category strategy. Your category strategy could be holistic. It could have all these opportunities, which suppliers do you want to choose? Do you want to have a dual sourcing model? How critical is this to the business? And what impact do you wish to drive from this category? So the category strategy could be one year, it could be a three year category strategy, it could be a five year category strategy. I think that really depends on the procurement policies of the company. So once you have a category strategy, you move on to the next big step, which is the vendor selection negotiation. So here you will research potential suppliers that suit your profile. So this could be from any kind of data analysis or industry reports. You could have a third party report who could do a third party provider who could find new suppliers for you. And then you could also have like trade shows, but you can bring in suppliers and they can share the more innovative products and what they are working on. And once you have a list of suppliers that you've shortlisted to consider for this negotiation, you would then start looking at the supplier capabilities and track records. So in terms of supplier capabilities, some of the key things you would look at are, you know, as the suppliers, what are their service levels? What is their fill rate? And do they have a good quality and safety certifications? Are they capable of innovation and innovating with your company and partnerships? And then like, what was their performance record? Like last year, if there was an incumbent supplier, if they're not, if they're a new supplier, can you get any references from some of their other customers so that you really get a good understanding of what you're going to be getting into and what are the type of partnerships that you want to be establishing with the suppliers? So with this, you have a really good understanding of what you need for your products. You have a really good understanding of where your suppliers are and what you need from your suppliers. So with these two pieces of information, then you would go on to the next step, which is kicking off the RFP. And I know most of you are familiar with the RFP at some capacity or the other. So you would have different rounds of RFP and you would negotiate terms and this is where the bulk of the procurement or this is what people assume the procurement job is, which is really just the one step. People ignore all the other steps, but this is kind of that step that procurement is generally known for. And then comes the next part, which is contract management. This is again one of the parts that's usually missed out the contract management piece because once you have the cost, it's not just the cost that drive value to the organization. Do you have a good payment term structure? Do you have SLAs into the contract? Do you have KPIs? Do you have any penalties if the supplier doesn't achieve the fill rate? Do you have a quality standards that you're holding the suppliers accountable to? Because once you sign the contract, you're going to be fixed with that supplier for three to five years. So have you thought about your product strategy and your business strategy holistically and have you incorporated all the SLAs and the relevant KPIs into the contract? So that becomes a huge driver for category management. So this is kind of the source to contract or the category management side of procurement. But then once everything is done, it moves to the other side of procurement, which is procured to pay, which is technically the handoff happens in the master data management side. So this becomes very, very critical. I know a lot of category managers do the contract and then, you know, I've seen companies where the contract is done and then the invoices come in, there is mismatches, there's price discrepancy, not only is this value leakage, but it's organizational effectiveness impact. So this is where master data management becomes a very crucial part, which is preserving the value that is captured by the procurement team. So once you have the new suppliers onboarded, have you onboarded them onto your ERP or all the relevant databases? Have you updated the prices? Have you updated the payment terms? So that like, you know, you're preserving the cash flow. So master data management preserves all the values that's captured, all the hard work that's done is preserved in the master data management category. And once all your database are clean, and then goes to the procure to pay site, which is someone sends a requisition for a new product or services for those, I saw a lot of folks in the energy sector. So in this, someone from the field, from the field would place an order for, for a pipe or a valve. And then that would go into the buying team, which is the, which is consistent of the procurement buyers who would then generate and communicate purchase orders. And then once the purchase orders are received by the suppliers, the suppliers acknowledge it, and then it comes to the invoice processing. The invoice processing is also a very crucial part of the procure to pay process, because typically in large organization, this is an outsourced function. So how do we make sure our company's policies are translated or transferred to the outsourced company? And how are we ensuring that the standards are adhered to? And at the same time, we want to make sure the invoice processing is automated, it's efficient as possible, because if there are issues with the invoice, which directly impacts the supplier, because now it results in more rework for the supplier, and the supplier in curse will pass on that cost back on to you. So, and once the invoice processing is done, the invoice processing aspect checks, if the invoices are matching against the POS, sometimes matching against the contract, they do all the checks. And if it's all perfect, then it goes on for the payment processing. So this is how the whole S2P process looks like. So every decision that we make upstream in terms of category management, it's really important to think about the impact that we'd have on in the downstream. For example, if you do tiered discounts, or if you do a volume-based rebate, it's easy to put it on a contract, but then do you have the relevant features and fields in your ERP to capture those? Have you trained your accounts payable team to actually check for those volume-based rebates? Because you can negotiate a great volume-based rebate, put it on a contract, but if you don't have the infrastructure and governance in the procure-to-pay process to capture that, you are not going to see that value in your PNL at the end of the day. So this is why it's important to always look at procurement in a holistic fashion. So moving on, I think one thing that's very clear from that slide that I showed, from the example that I shared, is procurement is all about value. So every step has value associated with it. Every dollar that you're saving in one step, we want to make sure it moves throughout the entire value chain, and at the end of it, you're capturing at that last step. But I just want to pause here for a minute. Procurement value, it's not just a bottom line savings. We always talk about bottom line savings, which is very easy to quantify, and I think that's what we are mainly focused on. Yes, that is true, but there's also these other aspects of procurement, where there's value to the organization, which we need to think about when we are thinking about our RFPs, our category strategies, or our supplier selection. Quality and reliable products, are we engaging the right suppliers to make sure we are providing the good quality and reliable product for our organization? Do we have the right partnerships in place? Are our suppliers driving innovation for the company, which also drives to the overall revenue and growth of the company? Is it improving our company's competitive position in the market because we have better products, we have more innovative products, and we are able to get into the market faster than the others. Third one, productivity and efficiencies. Here I want to go back to the procure to pay process. When the supplier sends an invoice, are we turning around an invoice very quickly, and are we paying the suppliers on time? Is our response rate pretty good? If it's good, then it's going to be an efficient process for everyone, or are we getting stuck in process redundancies? That's a procurement contributing to the overall efficiencies of the company. Fourth one, running operations without disruptions. Do we have strong contingency plans in place, which you're going to cover in a bit as well? How can we make sure our business is running smoothly, and do we have the right infrastructure in place from a procurement standpoint to enable that for the company? The one that's becoming more and more popular is sustainability and CSR. We have a lot of sustainability governance in place. We have standard requirements. We have reporting requirements. They're all different for EU, for North America. As procurement professionals, we are making the decisions for the company in terms of sourcing strategy. We select the origin of the supplier. We need to understand the traceability. Are we selecting the right suppliers who can support the latest requirements and who can also evolve with the ever-changing requirements? And then, finally, compliance and governance. This is in terms of the contractual risk for the company. Are our contracts well protected? Do we have the right indemnification clauses in place? Are we being compliant with all the regulations and policies that are set by our different geography? Just to scale back here, procurement is not just about the dollar savings. It is really just a lot of factors that's enabling the business, growing the business, protecting the business from any disruption. So it's always important for us to just take a step back and think like, are we thinking about the holistic strategy? It's not just the end-to-end. From a value driver perspective, are we covering all the value drivers? Is our procurement enabling the business at the end of the day? So there's a lot of value in procurement. And we just need to make sure we're constantly pushing forward, constantly thinking about it. And today, there's three things that we can take on from there. The first thing is, how can we capture value? So we talked about different levers of value here. The first one is, how can we capture the value? This is new opportunities. And the second one is, how do we preserve the value? So once you have captured all these value, both qualitative and quantitative, how do we preserve it? And that's throughout the entire procurement lifecycle. And then the third one is, how do we enable value? How do we be an enabler to the overall business growth of the organization? So today, because of the time that we have, really just want to get into two main examples of capturing value and preserving value. And if time permits, we can discuss about enabling value. Okay. So let's come to the first segment, which is capturing value. So here is an example of a cost breakdown of any product, any widget, or it could be services. I don't have materials in here, but you could replace that with services as well. So here is a cost breakdown of the model. I think there's two questions to ask here. The first one is, do we have this level of understanding for all our products in the system today, or even for our critical products in the system today? So that's question number one that we need to ask ourselves. Second question we need to ask ourselves, out of this cost breakdown, how many, which of these breakdowns could we actually negotiate? Can we negotiate every single aspect? Or is there only like two or three items that we think we can negotiate? Here is the answer, right? You can pretty much negotiate everything in this cost, in this cost breakdown model. And we'll go into like one by one examples. The first one is the material, the material cost. This is probably like, you all probably thought you could definitely negotiate the material cost. You're absolutely right. Material costs are probably the most straightforward costs you can negotiate because we have commodity trends available. We have industry reports, there's benchmarks. And there's so many data sources online that if you know what material it is, if you know the raw material breakdown that goes into it, you can easily negotiate the material costs. And then next comes the tricky part, which is the labor cost. Can we really negotiate the labor cost? Labor costs, they are generally fixed because you might have minimum wage regulations and you might have certain other wage regulations or regulations, which is true. But the labor cost really pushes the thinking on how can we make the process better? How do we make the manufacturing better? Are there any wastage? Are there any time efficiencies? Are we running the plan as fast as much as we can? Is there automation opportunities available? There are so many opportunities that I've seen where sometimes packaging is not very automated. It's pretty manual, but then you get a tool and the tool probably costs $30,000 or $40,000. And then once you install the tool, the packaging process is automated, which makes sure the production moves faster. And at the same time, it saves on some of the costs as well. So here we're really just talking about automations and efficiencies. Next one is like utilities and maintenance. This isn't more of a negotiation, but it's more of really understanding how much of your product represents in the overall manufacturing process. So if there is a manufacturing plant and if they have five customers, if your production is running for 20% of the time, are you making sure that you are getting charged for that 20% of the overall overheads? Are you getting charged for something more than what is allocated? And if it's something more, then you need to ask the question with the supplier, hey, why is this higher? Then maybe the supplier would say, oh, there's a lot of changeover because you keep changing from A to B to C within your product portfolio. Then you have a discussion with the supplier, okay, can I run A for two weeks and then B for three weeks and then C for X number of weeks? In that case, I minimize the changeovers. So these are the discussions that you would have to negotiate this. Similarly for QA and testing, is the frequency right? Are you over testing it or do you have requirements that are the testing conditions are not easy to replicate and the manufacturing plant is struggling with it and therefore your costs are higher? R&D and sales, similarly like, is your R&D pipeline actually materializing into new products or are you just having the suppliers build innovation pipeline and it's not really materializing because you're not giving the right instructions? In that case, you can provide feedback to the R&D team to make sure that we are having a good pipeline that's materializing. And then finally, margins. I'm sure this is one of the things that you thought we could negotiate as well. With margins, it's benchmarking with other suppliers and here you could also give additional volume to the suppliers. Here is where you have a true discussion, right? If you're planning to give 50% of your business, what if you give 70% of the business? In that case, you can have a true discussion about like a partnership model where you can negotiate the margins. And then freight, again, that's a more straightforward one as well, where you could have another freight forwarder provide codes or you could look at your internal trucking company get the codes and you could really compare from like two, three sources on what would be the best cost for the lane. So pretty much you can negotiate everything in a should cost model and drive savings. So here when you see the should cost model and the supplier cost, there is opportunity over here. But then there's like, how can we really make this happen? This is not an easy task. I think the first thing is you need leverage with the suppliers. So do you have another option? Like do you have that volume leverage that you can actually have a discussion about their manufacturing plans? You can visit their manufacturing plans and actually like take a look at all these like labor costs, utilities and so on. The second thing is you need a partnership model. If you have a very transaction relationship with the supplier, they are not going to open up the books and give out the costing for you. So do you have a partnership model with them? What do they have to get out of this relationship with you? So you need to make sure you're establishing a win-win relationships when we are doing this. And the third one is our internal resources and time. Doing this is not easy. So having this level of breakdown for every single product for every single supplier is not an easy task. And this also combined with the benchmarks and you making a should-cost model, this is a huge time-consuming task. So we really need to prioritize which products are we going to do this for? And that takes time and resources at the company's end. So that is one of the key watchouts as well. So how can we actually capture this? I'm just going to quickly skim through this. So first step, we saw a cost breakdown that was in the blue color. And then we get the market insights and we understand the value drivers through research, through factory visits, and you take a look at your company's policy or R&D pipeline, you understand the value drivers of this, and then you build the should-cost model. And then once you develop the should-cost model, that's what you would incorporate in your RFP. And here is the main thing. Again, there is a value loss here, which is once you have a should-cost model in your RFP, it doesn't stop there. You need to maintain the should-cost model. And this is through your contract process. And once you have the contract process and also through your master data process, again, that's where the value capture gets lost. So preservation comes again in place. So every six months, maybe you take a look at commodity cost, every one year, take a look at the labor cost, maybe every one year, you take a look at your QA requirements. How do you preserve this? How are you sustaining it and driving this forward and forward? And not doing it as a one-off exercise. So otherwise, you're going to lose the value that you captured as well. So that's really like on one example of value capture. I started touching upon value preservation. And I think you're kind of getting the gist of like tactically, how are we preserving the value that we capture? But I want to change the direction a bit over here. I want to look at strategic value preservation over here. And I know with COVID, procurement has been facing a lot of challenges with the cost, with shortages and so on. So I want to like swap it to a strategic value preservation, which is contingency planning. So in contingency planning, are we ready to handle a disruption? I think the general answer would be yes, because I have dual source, I have a safety stock. There's so many things that, you know, in large procurement organizations, I have a contract in place, everything is great. So, but then here is really just understanding strategically, like, are we, how can we make sure we are ready to face a disruption? Right? So the first one is assessing the level of risk. The answer may be yes for everything. Yes, you may be able to handle a short-term disruption. In some term, a long term is a mid-term disruption. But what is a really long-term impact? So short-term disruption could anywhere be like a plan shutdown or like there's a small failure or there's a change over, so on. Mid-term could be anything from like labor strikes, power shortages, like prolonged power shortages. A long-term could really be something more on the infrastructure in and around the factory, like roads, transportation systems or there is a factory issue. And that would be like a long-term disruption. So when you're thinking about handling a disruption, it's not just a yes or no. It's really just yes or no for the different types of disruption. So it's really getting into the next level of granularity over there. And then once you determine if you're ready to handle a disruption, next thing is like assessing the level of risk or like impact of risk. So which is going to be a huge impact? Obviously the short-term might not be a huge impact. So there's no, you know, there's no point putting a lot of effort in there. But then we really need to start thinking about the mid-term and the long-term and what is the risk? What does this mean for our organization? Does it mean we just move on or do we replace another product or does it really going to stop our business and impact the revenue and the growth of the company? So that's the question we need to ask. Like what does this mean? What does the supply shortage mean for the organization? And this could be different for different products, right? So that's the level of granularity that we need to get to. Once you have that, you could do a stress test or run a data analysis or do a role play on like what would happen in these scenarios and how can my supply chain respond to it? Maybe we'll take an example in the next page, but really just getting into the details and then you draft a contingency plan. So you put a plan in place and then you contractually, either it can be a contract or you can make sure you have preventive measures in place or maybe it's an R&D plan to approve an alternate product. So how are you putting a plan in place and ensuring you're making sure that this doesn't happen in the future? So that's really like holistically how we think about contingency planning. So if I move on to the next page, here is an example. So we're saying we are seeing a line shut down due to a tool failure. So maintenance manager has advice if you take about five weeks to repair and reinstall the tool. So we know because of this, the production will only resume after six weeks. And this is a critical product for your business, right? So this is important to ensure we have consistent supply. So an example, we have an inventory about one week at the warehouse in transit half a week, when they're at a week, they have another line, which is great. And that can run at a regular capacity at 25%. So totally we have about four weeks of supply. But we're estimating a supply gap for about two weeks. So which is fine. And but this is an important product to your business. So what actions can we take over here? So again, depending on the level of impact and the shortages and depending on the criticality of the product, we can think about these are the preventive measures that we need to take in place, right? So it can be a dual source. Can we make sure it's a multi-sourced with other suppliers? How do we increase the safety stock both internally and externally? Can we increase the capacity of the production lines? Alternate products, alternate facilities, safety stock of the tools. So why don't we, if there's a tool failure, has this tool failure happened often, can we buy another tool if it's $10,000, but it preserves the growth of the business? So here are some of links. Here is an example, right? Here are all the things that we need to think about as procurement professionals. It's not just on safety stock, but there's a lot of other factors in terms of strategy and the level of detail to which we get to. But again, going back to the question of like what is the balance, right? Like we cannot do this for every single product. We cannot have multiple suppliers approved for everything. In that case, you are not consolidating your spend, you're highly fragmented. The balance is the probability of occurrence. Like what is really the more probable occurrence with this? Maybe it's a short-term and a mid-term. Maybe you think a long-term disruption is not going to be highly probable. The second one is supplier performance. Is the supplier consistently delivering or is supplier always running into issues? The third one is cost. You can buy tools, you can increase your safety stock, but safety stock is cost as well. How are you kind of balancing it? Are you having the right safety stock for the right products or are you having safety stocks for some of the transactional products that's actually not required? And how can we enable contingency planning? Just thinking about like a carrot and a stick approach. A carrot approach would be like having great partnerships with the supplier. Suppliers think it's a win-win relationships and they want to make sure that your business grows because they are invested in your business. And the stick approach here would be like contractual requirements. You just put it in your contract. You need to make sure you have tools for me. You have four weeks of safety stocks and that's the stick approach. Another example of how we can think about procurement holistically and not just limited to the cost constraints that we have. I'm going to quickly move on. I think we are almost approaching time. We saw two examples of value capture and value preservation. But like I said, that's a very one-off example for one of these pillars. We have so much value across the whole value chain. And we think about enable. Enablement is really digitization, automation, eliminating redundancies from the organization and so on. So when we think about it holistically end to end, I think we would be able to drive more value and also have a strategic play with the business, have strategic seat along with the right stakeholders and enable the growth of the business. And just thinking about like where can we get started? I think the first thing when you saw all these things is data. You just need a baseline data to start off with. And then second one is really just having the right metrics and targets. Are we tracking metrics regularly? Do we have the right targets? And are we constantly pushing our aspirational targets? And do we have the right processes in place to govern the whole end to end chain? And do we have the right governance? And do we have the right digitization and automation to enable the overall process? So these are kind of things where we should start thinking about so that we can take these information and start acting on an end to end transformation. Perfect. It was a great presentation. Thank you so much. You touched so many relevant topics here. Pretty sure the audience appreciate this as well. We have more than 300 people connected to us, which is great. So let's start sharing some questions. The first one I have here is from Poliniu. So he is asking about supplier relationship management. So is supplier relationship management as RM considered a part of source to contract, procure to pay, or is it a different process as a whole? And how can a company implement it to generate value? Okay. So supplier relationship management, they have, they almost have two aspects to it. One is on the source to contract piece, there's a supplier relationship management. So here what you're doing is you're creating supplier scorecards. And how are they performing in terms of QA, R&D? How are they in terms of cost, in terms of innovation capabilities? Do they have a contingency plan in place? So here is where you would have your strategic, so strategic supplier scorecard management. And then on the transactional side, you would still have a supplier management where here is where are they paying the invoices on time? Are they supplying the invoices at the right standards? Or are they submitting wrong invoices all the time, which is creating inefficiencies within your organization? And are the invoices price usually matching the POs at a good rate? Are the payment terms compliant? So you almost have two aspects of SRM in the company. But I think irrespective of what you have, I think they should all be, they should be talking to each other and working as silos. If it's in the strategic side, if you have an SRM in the strategic side, do you have the regular cadence in place to get the information from your transactional, the day-to-day people who are actually seeing the issues, are you feeding that into your scorecards? And sometimes you might have a supplier relationship just on the procurement, procure-to-pay aspect. So how are you consolidating your reports and sending it to the relevant category manager? So they are taking the relevant insights from it. So it can be in either organizations because it doesn't really matter. But what is usually lacking in organization is the two teams talking to each other. And that's what's really helpful in enabling. And to your next question, how can this inform strategy? So I think this is where having a more balanced scorecard would come into play. So when you're putting into supplier category strategies in place, have a supplier scorecard in every single category strategies. If you're putting a category strategy for let's say valves, have one page for each of the supplier scorecards in there. If there are five suppliers, have five pages for the scorecards in there. Review the scorecards before you make a decision on your supplier award. So in that case, you're using the scorecard. You're using the information to drive strategic negotiations. And if a supplier comes and tells you why you didn't pick, even though the cost was higher, show them the scorecard, be transparent with them on the scorecard. Say you're great on price, but compared to the other suppliers, you are not very collaborative on Q&A or your R&D capabilities are not up to the match. Are you able to invest in additional resource? Do you have pipeline opportunities? If you're able to do that, we will consider that you will consider you for the RFP. So this is really how you can merge your day-to-day information, your strategic information and take it to the contracting information. So information is just available everywhere in the same information across the whole procurement organization. Hope that. Thank you, Niranjini, for sharing. We have a lot of questions. We are not going to have time to address all of them. I'm just letting the learners know. But if you guys are okay, we can go to a couple more questions. So Nifasath is asking if you can clarify a little bit about the shoot cost model in terms of bottom line savings, because he wants to know more about that. And I also have a follow-up question, because I've been working in cost analysis my whole life. So I don't know if as a procurement expert, you have any kind of rule of thumb to guide procurement analysts where they should look first. Maybe it's just a higher cost, but maybe there is something else behind the scenes that can be also valuable for our learners where to put their efforts. Perfect. Sounds good. So great question. So on the shoot cost model, like how does it drive bottom line savings? So here is an example of what the cost you have received from the suppliers. So here, all the blue bars are the cost breakdown that the suppliers provided probably during an RFP. And the green ones are slightly different. I know they're not in the same page, but then the shoot cost model basically takes these costs and tries to build it up from the bottom up. So if I have, let's say, a plastic bottle. So a plastic bottle, if it's a dollar. So how much plastic goes into the plastic bottle? The supplier should be able to provide that. Your spec sheets will be able to provide that. So taking that amount of plastic that goes into the bottle. So that will be your material cost. And you can compare that with the plastic pricing depending on the type of plastic. You can get the index easily, like how much a pound of plastic would cost. And then maybe you add a yield factor, right? Because in the manufacturing, you have some manufacturing losses, maybe a 3% or a 5% loss over there. So with that, you can actually build up what a plastic cost should be. And then you have the cost that the vendor has provided. So if the vendor has provided $2 and your should be cost based on your index is $1, so that is your $1 savings. Can you take your should be cost to go to the vendor and say, hey, I looked at the plastic price and it's costing me only $1. Why do you have $2 in that? And that's the negotiation. You take that data into the negotiation and come back with some savings. And that's how it's going to drive bottom line. And how it would also work is the supplier is probably using a different range of plastic prices over 12 months. Maybe you can have a six months rolling average or you can potentially even hedge in like very measure procurement organization. You can have the supplier hedge at a particular price. So these are some of the ways that you can bring the model back in. And to your second question on where do you start, the basic things to start would be material costs, right? That would be the simplest things to start on a commodity, especially on commodity driven products, and then the margins. The margins are going to be really partnership driven. So if you have a good partnerships in place, you can really have an open conversation about it. And then if you're willing to give more business, if you have that piece of the pie available, I think margins would be a great discussion to start. Freight, again, a very, very easy benchmark. So as you run an RFP, you can get a bunch of quotes from your freight forwarder. So I think the top three things from like a effort versus impact would be material margins and freight. Thank you so much for the answer. Yeah, really insightful. Paul, do you want to take the next question? Yeah, sure. So we have two questions here, one I can answer myself and the other one I share with Niranjini. So the first one is from Shikhar. Shikhar is asking which SCX scores would be most relevant to build knowledge around the topics covered in today's webinar. So for sure, SC3X and SC1X supply chain dynamics and supply chain fundamentals. So Niranjini shared about risk management, interactions with suppliers, also when to place an order, make some calculations. So these topics are well explained and covered as well in these two courses, SC3X and SC1X. And you can enroll yourself, the verification deadline for 1X is Wednesday, right Miguel? Yeah, two days from today. In two days. And for 3X in the other week, so you can use the links we have shared in the chat box to enroll yourself. And now the question to Niranjini. So Siva is actually asking, can you talk about digitalization and AI influence in procurement? Yeah, no, awesome. So I think that's a great question because that is becoming more and more popular these days. So let me go to digitalization first and then go into AI. So in terms of digitalization, I think this is a lot of companies are moving towards it. There is still a lot of opportunities over here. Digitalization could be as simple as having a very efficient ERP systems that's capturing your spend base. You don't have to manually go over and do this. In a lot of advanced ERP systems or ERP interfaces, these should cost model can be done within the ERP. This is not a manual Excel activity that's going to take time and effort. So that's more on the category management side. And on the category, the procure to pay side, this is basically interface of invoices. So invoices and POs are done manually today. But with digitalization, you could generate a PO that would interface directly with the suppliers ERP. So they would directly receive the PO and they would can flip the PO into an invoice. So in that case, you're reducing a lot of manual. This whole invoicing process saying bucket is highly automated. This is becoming more and more touchless day by day. A lot of advanced company with high digitization have touchless invoices about 90, 95% targets, which means no single human being is actually touching an invoice. When the invoice is being touched, it's only to handle discrepancies and exceptions when the price doesn't match and so on. Otherwise, it's just seamless throughout. And when the invoice comes in, it gets automatically matched to the vendor. It does the price check automatically against the PO and it turns around and goes ready for the payment queue. So that's where digitization could have end to end. And then coming into AI. So I think with AI, there's a lot of, I think a simple, like in a more simple AI or like more traditional AI would be on your spend management. There's a lot of tools today on like spend cube tools that you can purchase or like you can, you can integrate into ERP, which does a lot of these analytics, analytics for you like a price arbitrage analytics, tail spend analytics. So those analytics, a lot of those that I even talked about, they can all be done by advanced analytics tools today. There's more and more coming up on gen AI with like chatbots for like negotiating, like transactional spend data, where you can find suppliers for like non critical aspect of it. There's chatbots and like gen AI for contract management pieces, just making sure your contract, like, you know, making sure the chat, like, you know, gen AI kind of highlights the risks that's associated with your contract. And then there's, you know, there's, there's more coming up these days, but I guess that's more evolving, but I think the fundamentals of AI would really be on the spend cube and on the procure to pay aspect, because procure to pay is very manual in most organizations today. So having a good ERP and having the right interfaces, like, like a vendor portal, which can incorporate even an RFP inside, like an Ariba or a Koopa can have, can kick off RFPs and receive invoices, they have the whole S2P process integrated within them. So that's kind of like some of the digitalization automation opportunities available out there. Thank you so much, Niranjini, for sharing so much with our learners. I think we, we probably have to leave it here because we want to be really respectful with everyone's time. And so, again, thank you so much to everyone also who decided to join us today. It's been a super insightful session in procurement. And before we say goodbye, I just want to remind the audience a couple of things. This was the first live event of the fall series. We still have one more upcoming webinar is going to be in early November, probably. So stay tuned for that. Also, Paolo mentioned enrollment for S1X and S3X is still open, but closing very soon. Actually, and if you're enrolled in one of those courses, verification also closes in two days for S1X and one week from now for S3X. So we encourage you to go ahead and verify right now by clicking on some of the links that we shared before. Finally, again, thank you Niranjini for the session. It was amazing. Thank you so much, Paolo, for, for everything too. So if you want to share any final words with the learners, feel free. Thank you all. Thank you so much, Niranjini. It was great to have you here with us. Thank you everyone. You guys have an amazing, great, great questions as well. Thank you everybody for joining. Have a great week.