In this episode of the Wonderful Work podcast series, we get to have a chat with Jarno Salomäki – a procurement expert with over 20 years of experience, who recently started his own startup Procurenode. Learn more about the wonderful world of effective spend management and why every enterprise leader should care about it.
From music to chemistry to procurement
Jarno’s curiosity and open-mindedness have definitely guided him through a very interesting professional journey. In his early years, Jarno’s biggest passion was playing drums. In fact, he still makes occasional shows together with his friends. After realizing that a music career was not for him, Jarno started working at a chemical company, which made him fall in love with chemistry. However, after studying it for a while, he got carried away with logistics and procurement while having a summer job at a production company. “I didn't know anything about machinery or anything like that. So it was, again, curiosity, that got me carried away in that space,” said Jarno.
Jarno’s view on what makes procurement challenging
Jarno is convinced that the procurement process itself is very straightforward and simple. “The complexity and challenges come from everything that's actually around it. You have a multitude of different stakeholders all around the company coming from different departments and having different backgrounds, having a different kind of exposure to building specifications and setting up requests for purchasing,” Jarno explains.
This gets even more complicated in global companies, where each country might have its own unique way of doing things. The key to successful procurement lies in collaborating and building trustful relationships with all of the stakeholders. As Jarno quotes his former manager, purchasing is selling and it requires a similar set of skills.
How has the typical procurement toolkit changed over time?
Jarno says that currently, the whole landscape is experiencing major changes. Indeed, with AI and other technologies, there are many emerging tools that can help make procurement easier. Some of the prominent ones are spend visualization tools and purchase-to-pay tools. The global pandemic also gave a good boost to contract management solutions. “However, procurement is quite often under-resourced and underinvested. It’s a bit more challenging to apply for the tools that really make all the difference in the work of a procurement manager,” Jarno reflects.
Jarno’s take on procurement digitalization in Finland
Overall, Jarno is delighted with the level of digitalization in Finland, which has been topping the EU’s digital performance ranks for a few years. However, there’s a gap between large and small organizations, claims Jarno. Large organizations have the resources and skills to invest in the digitalization of procurement, whilst smaller companies sometimes fail to even see the possible benefits that come with digitalization.
What should the data-driven approach to procurement be?
“Well, first of all, procurement needs to reach the level where they can be data-driven,” explains Jarno. For that, one needs to have readily available and good-quality data in the first place to be able to do the analytics and use emerging digitalization tools. Only after that can you gain a competitive advantage and move from “knowing what happened” towards “predicting what might happen”.
How does Jarno tackle the challenge of indirect spend management?
“Defining indirect spend is an ultimate challenge of indirect spend,” jokes Jarno. He says that it differs from company to company, The main difference between direct and indirect procurement is that in the latter, the need to purchase things comes from stakeholders. In that way, one does not directly create value for the end customer, but rather does it by helping other stakeholders.
One of the biggest mistakes enterprise leaders make here is being too focused on the price reduction and KPIs, forgetting the main point of indirect procurement. Jarno advises that you should perceive indirect procurement as customer service and see stakeholders as internal customers and try to help them succeed at what they do.
What can procurement leaders do to protect the company in times of inflation?
Cost efficiency is the biggest driver in procurement. Jarno says that one way of achieving that is through long-term trustful supplier relationships. “You need to understand what are the suppliers’ wants and needs there, what you can offer as a buyer, and what is the interest of the supplier in actually stepping and offering the services in the first place.” By bundling the products and services together, you can start offering higher-volume deals to the suppliers. This can be a win-win situation with the company having lower unit prices and suppliers getting a higher turnover.
Good relationships with suppliers can also help in times of supply chain disruptions and material shortages, where suppliers do not have enough supplies for all the customers and have to allocate them based on their preferences.
Digitalization should bring people together
Jarno believes that one of the most important things in procurement is connecting people and building tight-knit relationships. Digitalization of procurement should foster communication between different stakeholders, not stop it. He brings forth one of the best feedbacks he got, which said: “Don't build a solution that comes to stand between procurement and suppliers.” Human-to-human interaction is the single most critical criterion for how procurement should be.