Procurement: From Chaos to Control with David Cho

Made with speech-to-text software, so a few words may be off.

0:00You're listening to the Contract Heroes Podcast, your one-stop shop for all things contract management. And now here are your hosts, Marc and Pepe. Hello everyone, and welcome to another episode of Contract Heroes. Today, joining us from the University of Massachusetts, the chief procurement officer and managing director, David Chou. David has an extensive history ranging from organizations like BlackRock, KPMG, and Deloitte. Our conversation today will revolve around how David and his team have built their procurement contracting processes from the ground up. So without further ado, let's jump into the episode. Well, David, thanks so much for joining us today. You know, before we flip things over to Pepe so he can give you a little bit more information on, on obviously what we're gonna be speaking about today, I was hoping you could give our listeners just a bit more information about your background and how you ended up working for, for UMass. Thank you, Marc. A real pleasure to be here.

0:59My name's David Chou, the chief procurement officer for the University of Massachusetts system, which covers the president's office, five campuses, Amherst, Boston, Dartmouth, Lowell, and medical school. I was the global head of sourcing and vendor management, um, the, the CPO at, uh, BlackRock, an asset management firm. I joined UMass about three and a half years ago. On January 2020, we launched a platform that serves all the campuses. The- there were legacy procurement functions on each campus, and we, we centralized that function. It covers about a billion dollars a year in third-party expenditures. We have about 17,000 institutional suppliers. Uh, it, uh, it supports 75,000 students by faculty and staff. That is about 25,000 employees, which makes, uh, UMass the third-largest employer in the state of Massachusetts.

1:58I've, um, have about 25 years, uh, in strategy and operations, management consulting and, and industry experience. Served over 50 different enterprises in that consulting world, but then got a, got a real job in industry in serving in BlackRock for about six years. The opportunity to shape and work with a, a very progressive group of folks to launch this platform at UMass, it's very unconventional for higher ed. Was a really exciting opportunity. So we l- when we launched it in January 2020, obviously the pandemic shelter in place orders took effect in, in March, so just a couple months later. So we've learned a ton and, you know, we, we've launched a, a lot of, I think, progressive platforms, which, uh, is one of the benefits when you launch something new like this. And so, um, really happy and excited to talk about.

2:48I know it's something that m- many people might not find exciting, but for me it's, it's incredibly exciting to talk about some of the risk-adjusted approaches in contracts and how we, we've reshaped how we institutionalize partnerships. So really looking forward to this conversation. Well, we're excited as well, actually. You know, we've been talking a lot recently with our previous guest about, uh, how important is the procurement role, especially in every organization. Especially when they're, like, very close with the legal team or the contract management team, especially with companies with large, you know, supply chains, departments. And it's very interesting on how important is to have all the process mapped, how you can streamline them in order to, you know, like, have all these commercial and internal processes and all the different departments in place, you know, so, so, so you can avoid risks and save cost and time. So Dave, can we just start on your experience in how you build this procurement process from the ground up? Yeah, absolutely.

3:53Uh, you know, we were lucky in, in that there were quite a few experts that served the campuses and, you know, we were fortunate enough to take a lot of that horse- intellectual horsepower and, and bring them on board into this new platform. So it was interesting because procurement had the same outcome for every campus, but how it was rolled out, how business was conducted was done differently, so we were conducting business six different ways. And the first and foremost was to ensure we have the right singular vision. And, you know, we, we simplified that message by saying, "We are going to provide procurement services and work with partners better, faster, cheaper." Better, faster, cheaper in the sense of better partnerships, being able to create more strategic relationships where it makes sense. Faster in terms of using technology enablement, catalogs, doing a lot of work up front so that people can point and click buy instead of building relationships ground up.

4:56And certainly cheaper by using science, using data, and m- market intelligence where it applies to get, uh, competitive costs and, and derive value. We've changed the policy as well to modernize this. A lot of the policy documents hadn't been touched in decades, so it reflects the spirit of the way we're conducting this business, showing that we're not always looking for the cheapest cost. We're looking for great value, which includes quality of service, which may include some of our social values as well, supplier diversity and environmental sustainability considerations. So shaping that vision first, reflecting that in the policy d- documents so that it's all harmonized and standardized, then creating operating procedures that reflect the spirit of those policies so that we're conducting business in one way. And then using the technology to be able to operationalize all of those processes. It was all created by great people.

5:54I really wanna emphasize how culture really mattered, particularly in, in launching the, the platform. I could really- We announced that we shared Sir Richard Branson's view, the CEO of Virgin, that we are gonna train people so that they can leave, but treat them well enough that they wanna stay. And I think we've been able to cultivate an extraordinary team that is very forward-thinking, that is willing to take calculated risks and make change happen in a very tough environment. Uh, higher ed is very democratized, and it's going to be tough to, to... w- when you've got 24, 25,000 staff and faculty, to change the way they work in one manner, right? And so, you know, I think, uh, the team has reflected that spirit, uh, to operationalize this, this single platform, and, you know, there's a lot of conviction and belief to roll this out. We're seeing the benefits of it, but we still have a long way to go.

6:45Yeah, I, I think, I mean, you know, we always talk about it on the show, but making sure that you have the right people in places is just so key, right? Before you're rolling out any piece of technology, or before you even look at a piece of technology, you need to make sure that you have the people in place to, one, make that change management happen so that people are excited about using a new tool and are, are going to continue to use the new processes that you're laying out as well. So, you know, that's amazing to, to hear. And I guess I'm curious, how did you get every- everybody on board? Because everybody was siloed, doing their own, their own processes before this. How did you get everybody on board to make that change from what they were doing to what everybody now needed to do moving forward? And let me add just- Yes... one little thing, Dave. Yes. Like, in, when you answer this question, like, can we talk also a, a little bit about, like, what were, like, the main pain points? Like, maybe just, like, two of the main pain points that, that were there that you are, like, focused to solve when you, uh, start implementing this process. Yeah, great, great nuances.

7:47Um, you know, I think right out of the gate, the design of the function included what we call service and quality. The service and quality team is separate from operations, separate from strategic sourcing divisions of the, of the organization. It has a contact center component to take calls, email, emails. Uh, we, we generate cases just like an IT helpdesk so that there's accountability. There is, uh, certainly an analytics component so that there's science behind what we are recommending. What's the empirical evidence to say this is, you know, the likely way to go? And the training and communications is, is tremendous. It's, it's such a critical piece of this. The change management dimension that you, you speak of is, is an incredibly important piece, you know, where we have weekly, what we call Coffee with UPSC. UPSC is the Unified Procurement Services team. That's, that's our brand. And we have town halls, both virtual and physical when we're able to.

8:53We have office hours, just like some faculty may offer up based on particular domains that we wanna hone in on, newsletters that are issued, videos. So a significant proactive effort to provide outreach and access to training and, you know, a, a significant effort on job aids so that we document what are these procedural changes, and try to do the best we can to answer the question of, "Well, why? Why are we doing it this way?" It's not perfect. You know, when you're building something of this scale, and this was not a transition, it was really a significant cutover. It was on this date we're, we're launching this, right? I mean, there wasn't... There was quite a bit of planning, but to quote Mike Tyson, you know, everyone's got a plan until they get punched in the face, right? So there's a significant amount of business that's conducted.

9:44We have, uh, you know, 250,000 transactions per, per year, and, uh, it's because we have 17,000 suppliers and, and this many stakeholders who have these questions and requests that come in, right? So... And I could... You know, just, just payments alone, there's 25,000 or so a month. So just a lot of scale. So if we are not offering ourselves up to say, "You know, here are some tools, here are s-" And, you know, people learn differently too, so we did a lot of videos. And whenever we do trainings, we record them. And, you know, I think our training team, they're very forward-thinking. They've got tough skin. They are able to compartmentalize that, you know, sometimes folks struggle with this stuff, and, you know, they're not procurement experts by any means. But when we're asking them to change and use different technologies, if we don't provide them the tools and support, then it's not fair, right?

10:38So it required a lot of patience, I think, from the campuses as well, but we're learning, right? We're, we're, we're three years in, and, you know, from where we s- where, where we are seeing things, and, and third parties have kind of validated this too, we have the maturity of a function that still has a long way to go, but we're exceeding expectations and probably working at a, at a level that many organizations that took 30 years to build their programs are conducting. So, you know, i- in that sense, we're, we're not sitting idle by any means, but I think the combination of strong team members and an audience that is not afraid to give constructive feedback to a group that actually responds to it, right? We will take that feedback, we will summarize it, let them know, "We heard you. Here are the next steps in terms of our maturity path." We've even sho- shared our scores in terms of self-assessments. A maturity model is very helpful in knowing where are we relative to the market, what's foundational, intermediate, advanced in terms of maturity.

11:40And then by every functional area, whether it's bank cards, procurement requisitions, contracts, sourcing, where do we stand on that scale, and where should we be? We don't have to be fives. You know, we don't have to be best in class in everything that we do. This is not the business where that's required. But if we view ourselves as a 1.5 on a scale of 5, but our aspirational targets are to achieve a 3- Knowing where you wanna be and where you are today, it's then easier to bridge that gap. And so we've been able to share that, that empirical evidence even to our communities, basically saying, "We know we have a problem here. We're working on this. We're targeting to get this done in the next year." Right? So a lot of that communication, I think, has helped people understand that while we're not perfect, we have the intent to continue to cultivate ourselves. So that has been very helpful in, in producing that change. Hopefully that provides the kind of context you were looking for. No, it was great. That was wonderful. And you know, David, I guess w- something else that, you know, I, it just kinda came to mind here is y- how did you go about implementing the piece of technology that, that is being used to, to help with this? Was it something that the team already had that you, you know, built out in more depth?

12:59Or, or was this a new piece of technology that the team brought in to specifically help with, with these issues that you were facing? Well, since we're talking about contracts, right? 'Cause there's l- there's a very broad portfolio of technologies that we're using across the board, but when we looked at contracts, n- that was one of the chronic areas where we felt we were very immature. And there were inconsistent contract processes, you know, as I was alluding to before, six ways of conducting business, complex contract types. I believe we had over 160 contract templates, which made no sense. So we're now down to about a dozen. There was certainly friction between the stakeholders and all of the different internal counterparties that work on a contract during the review and approval process, and it was really a combination of, "Hey, let's use some tribal knowledge, and we're gonna email these things back and forth." It was just an absolute spaghetti factory. And then because of that, you have a lack of visibility in terms of, well, where, where is my contract? Where, you know, how long is it gonna take before I can get it done?

14:06You know, give me an estimated timeframe. And f- people felt that it was in a, you know, in a black hole whenever these contract requests were made. So I think creating a solid, uh, current state view was very important first, and then where we wanted to be in that maturity model helped us develop that gap analysis to say, "Okay, well, guys, if we can track a flippin' pizza on the Domino's app, we should be able to track where a contract is." And so we sketched this out on the board, basically saying, what are some of the methods that people use to buy today, you know? And if you think about ideally, you know, bank cards may be very low risk, commoditized stuff that people go out and buy something real quick. There's no need for any kind of due diligence. Catalogs are, you know, kind of preset. Purchase orders, you know, have their, their place.

15:00But then when you get to building a, a contract, you have to factor in what is the inherent risk associated with the scope of services that you're purchasing. And based on that, you can... You know, we created a logic tree that said, well, if we know that there's PII or PHI, if we know that there is hazardous materials that we, we might have to factor in, you know. Believe it or not, one of the campuses actually has a nuclear, a small nuclear power plant, a nuclear facility on, on the campuses. And then there, uh, is this our paper or do we have to review the agreement terms and conditions of a, of a supplier? You know, is the money there to actually fund this, right? Some basic questions. So we were able to create this logic tree that said, well, which counterparties should be involved? And legal doesn't have to be involved with everything, so neither does tr- Treasury, insurance, InfoSec, controllers, budget, budget and planning, so on and so forth. Right?

16:05When are they needed so that we maximize their value at the right time as opposed to conducting a review the same way for every single contract, whether it's high value/high risk or otherwise? And so after sketching this out and getting all of those parties together to say, "Let's change the way we work. Here's, um, a combination of technologies that we're going to use that will create that front door so that folks can populate a certain questionnaire." That questionnaire triggers the kind of risk formula and will bring in the right parties to be involved with conducting their due diligence of that contract. And what that did was when we stitched all of these systems together, and it's a combination of our core procurement contract system, you know, our even Salesforce we use to keep track of, of the, um, entire workflow, and we kind of adjusted our Jaggaer buy way system to help track some of these items, you suddenly had better speed. We even tracked, well, how many of these contracts are legal bypass eligible, meaning same terms and conditions. It's just commercials you're working on.

17:23There's, we've already accepted the terms in the past, and all we're doing is renewing this thing and maybe we're extending this a year or two. We don't have to bother the attorneys. And if the attorneys... You know, they can have, all the counterparties have access to read anything that they want, right? So we've kept this very transparent. But just being able to say, you know, "This isn't where your, your value is required," it, it decreased, uh, cycle time. It allowed folks to, to just focus on 12 contract templates so they become experts of what UMass paper looks like. We were able to also put in fallback positions in terms of the contract terms and conditions, so our folks in procurement could fight for certain terms and conditions that they traditionally went to the attorneys to say, "Well, what's our fallback position?" Right? So now they can drag and drop and say, "Okay, if you, if you don't believe in this position, then how about this? You know, here's our concession."

18:16So it empowered our, our team members And remember that whole, you know, track the pizza, you know, we now know where's that contract sitting? Who has that right now in case we need to pick up the phone and, and talk to that person? So when we rolled that out, we, we received a ton of icons and memes of pizzas, right? Just because folks now obtain that visibility. We have a better view of contract analytics, what's our production like, and every transaction now also is an opportunity for us to optimize the relationship. So there's even a checklist of, here's how I provided value to this contract, whether it's, um, did I get additional training? Did I get some professional services and extended warranties? Did I waive late fees? Is there new auto-renewal language here that is something that UMass endorses? Are there performance penalties tied to the service levels? You know, you can't...

19:12Service levels mean nothing without the teeth behind them, and especially during these market conditions where inflation is rising, did we cap the escalation or even remove the es- escalation clause in its entirety so that there are no year-over-year increases? And frankly, having that technology and being able to check those items off also allowed our team members to not just use tribal knowledge, but look at the technology and say, "Oh, you know what? These are the things I could fight for," right? And is this partner willing to invest into UMass to provide those concessions? Because if so, we might even give them more contract term length, right? So I think that stitching of the systems to promote better behavior, to promote better collaboration, our collaboration with the teams has never been stronger. We, we even host, uh, certain sessions where we're breaking bread with, you know, our, our attorney partners, you know, uh, big fans of all of the different groups that have just said, "You know what?

20:13We're gonna change the way we work together." So it's something that we, we called it Project Met internally for a project metamorphosis, and we're seeing significant payoffs today, but still, again, more, more to grow. Well, that's great. I... And actually, you answered my next question that I was going to ask you, like, how did this piece of technology empower the team? But yeah, and, and we've seen this, right? Uh, we like to call it, like, becoming a self-service contracting teams, you know, because, you know, legal does not need to touch every piece of contract. You know, like, I really like this view that you had on in, in order to have, like, this, uh, tree, decision tree in, on, in how to calculate the risks of the contracts depending on the vendor and depending on the service that you're contracting. But can you give us a little bit more, in your experience, like, how those contract an- analytics looks like?

21:08Like, which kind of KPIs is your, is your team able to measure now that, that they have this piece of technology implemented? Absolutely. So one of the cool things about this workflow setup that we changed, just an example of how we're trying to promote efficiencies, because contract cycle time is a big, big one, right, is many systems require you to do things sequentially, and so you cannot do something until the party before you conducts their work. There are areas in the workflow where, you know what, if you look at a contract, InfoSec is gonna look at one piece, insurance is gonna look at another, right? The attorneys will look at the indemnification, the limitations, li- liability considerations, stuff like that, right? So people can work on it at any time that their schedule allows for it. So we have parallel instead of sequential approvals in certain areas. So we have seen contract cycle times.

22:07We see how long these contracts are sitting with certain counterparties, so that visibility is re- really important. There is even a metric which I, I find very powerful is what's the percentage of this pers- particular contracts person or the team, what's the percentage of contracts that have been improved, right? So if you just signed off on the same terms, conditions, pricing and everything, and you just extended it, there are reasons for that, and that's acceptable too. But if, if all those examples that I gave you earlier where we have an incumbent provider and we're willing to optimize this and they're willing to invest a little bit more effort, more account support, more maintenance, more service stuff, we can track that now as well. And then we certainly track the savings associated with it, right? So if there is a cost benefit, we have different flavors of cost benefits, right? It could be hard dollar savings.

23:07You're reducing the per unit cost of everything you buy, so there's clearly a budgetary impact. There could be new projects. If you're doing capital builds and it's new money in a sense, and you're creating a competitive environment so that the cost of that new project, a construction project, for example, that is a cost avoid. And a cost avoid, you may not feel it exactly right away on, on your P&L, but there's value there, right? And then are there contracts that generate rebates, refunds, revenue, right? So those analytics are able to show what every department does, every campus, and certainly the value of the counterparties, legal, UPSC, right? Because I think being able to demonstrate that this is how we add value to the bottom line or, or how we mitigate risk, I think is very powerful. Visibility we've never had before. And, you know, to your point, that increased self-service, when you stitch all this together, folks understand, oh, I see. This is why. There's a privacy concern.

24:12There's gonna be more due diligence required for this because maybe there are back- background checks or, or student data that we have to protect, right? And, you know, folks are able to connect the dots a little bit more as to, as opposed to, well, this is just a quick change order. Why is it taking so long, right? They can understand the nuances, uh, behind it. And then just through all of this data, we were able to say, "Okay, well, it's a heat map of the traffic that we have, the types of contracts." And we realized there's a lot of contracts that ju- just don't add a lot of value, and we, we need to upgrade our policy because at, at a certain point it was something like anything over $10,000 would require a contract. So we increased that ceiling, and we also replaced a lot of contracts with our POs, so the purchase orders, our contract, and we made those terms and conditions much more robust. So once we lit that up, cycle times went much faster as well, and then we could measure that.

25:08Taking out 2,000 sub- uh, contracts that we would have normally done and replaced them with the PO process, what did that do, right? So that's also empirical evidence of efficiencies that we're trying to extract out of the system. Yeah, I l- I love it. I mean, there's just so much, so much maturity and fantastic processes that you've, you've been able to put in place. And David, did you roll all of this, what we're talking about today, you know, obviously around the contracts, but did you roll all of this out at once? What did that look like? Was it, was it weeks? Was it months? I know that there was kind of a, a flip of a switch, right? Saying, "Hey, we're, we're moving away from our old processes and now we are- we're doing things this way." But everything that we've talked about today, was there... Was it a slow roll, or again, was everything, did you really go live and, and all these processes were put in place? It is a series of sprints, Marc. There's one thing about, you know, it to- it took in some cases a couple years to modernize certain policies, right? But then we like to projectize very robust initiatives, right?

26:12That may require a lot of change management, a lot of technical enablement changes, stuff like that. So, you know, in the case of Project Met, you know, it was done actually very quickly, but it was after we collected a lot of information. We had a lot of data behind it, and we, we kicked the tires and figured out what can these systems do and who are the partners that we wanna work with to conduct it. So once you get all that design and planning, there's a lot of upfront that we can certainly execute very quickly. Now we're already thinking about, well, what's next, right? Because now we have a good foundation with Project Met. What's the future state after this, like... And, and as we get more data, it's another set of projects. So we, we run a lot of programs. You know, I, I, again, I... There's so many good people we work with. I, I, I, um, at the risk of sounding like a bit of a sycophant, uh, I, I really admire working with my manager, the CFO. The CFO of the system, she doesn't wanna be complacent. So when we propose these ideas to say, "These are more changes we need," you know, she'll ask about the ROI. She'll ask about, well, what's the benefit we're gonna be able to harvest, right?

27:21And for us to be able to make these changes, and we have leadership sponsorship, not just from her, but campus CFOs, or they're called the vice chancellors of administration and finance. You know, when you get that kind of top-down support to say, "Go ahead, operationalize it," and there will be pain. We will feel pain upfront and, you know, the change management aspects are tough. But to have that endorsement top-down always makes a significant difference so that we can continue. That's, that's perseverance. Just a, a series of sprints, right? So, but it was not necessarily one big bang, Marc. I, I just con- consider this a continuous improvement culture. And Dave, now that you mentioned ROI, I'm very curious because I really like this metric. Like, what is the percentage of contracts that have been improved? You know, like, it's easy to know a value once a contract have been improved, right? Because you can know we save this amount of money, right?

28:19But we, when, when you are in a, just like building a business plan to implement this type of technology or, or services, what are like the best ways in order to do this ROI calculation? Like, how can you bring a figure or a number for things that you still have to know in the future? Yeah. So there are, there's the traditional ROI, the true meaning of ROI, where, you know, we look at our budget and we see the savings that are generated with the collaboration of all the campuses, and we're u- able to say, "Hey, you're getting a six X return on that investment," right? Based on cost reduction benefits, so on and so forth. And frankly, that six to 10 X is very attractive, and over time it starts to shrink. But especially when market conditions are the way they are, and there's, there's a bit of a downward defensive rather, uh, posturing that a lot of institutions have to take right now to defend their capital, then those figures are very, very important.

29:21But then we have very robust dashboards that show other qualitative benefits as well, right? So those improvements in contracts, we may just be starting off at around 5%, right? Just 5% of these contracts are being improved. Supplier diversity was maybe 3.5%, right? Again, not an ROI, but empirical evidence of doing the right thing. After a bit of time and looking at the work, then you can actually create targets, right? So we're now closer to 6.5% in supplier diversity, and so the way we've been trending, and based on other programs that we have lined up, could we aspire for a 10% target over the next five years? Perhaps, right? And it's something that we're, we have significant leader-- You know, our president of, of the university, Marty Meehan, is a big fan who's ready to build that accountability and sponsorship.

30:23So I think you can start creating those targets, those aspirational targets, once you've launched these metrics. And then you're able to say, "Okay, that's the kind of-... illustrative ROI that we're gonna strive for, right? Here are these targets, here's the tangible evidence that we're gonna try to go for. And so I need everybody's help to change behavior to get us there, right? So, you know, I think for one contract at a time, sure, the savings number's great, and that, that ROI is easily calculatable. But, uh, there's other areas that I think are just as impactful that isn't just about pure dollars and cents. Yeah, and y- you know, we talk about that a lot, right, the tangible and non-tangible things that, that are ROI and, and how important it is to, to be able to measure both of those. And, you know, we're always curious to, to talk with organizations and folks like you to get an understanding of what is important to you. And I think you gave us some great insight there.

31:18So David, before we wrap up, I just had, you know, one other question for you. If, if you could go back in time, is there anything differently that you would've done while building out these processes? I guess, you know, I probably would have focused a lot more on that change management piece, right? 'Cause y- you can never do enough. And, you know, we have some terrific team members and, and new folks who also came in to just transform that platform, right? And it takes folks who are willing to take calculated risks as well, to put themselves out there. And, you know, that, that piece, I think, is, is, is absolutely critical. But when you have, you know, literally thousands of different transactions and processes and policies, uh, and stuff in a short period of time, it's hard to do a lot of that pre-socialization, you know, in advance. But we could have always done more. But, you know, like everyone else, we, we did what we could do with the gunpowder we have, right? And, you know, we didn't have unlimited resources by any means.

32:15So, you know, it was really about stretching every dollar we could. And our team members had to stretch themselves to reinvent themselves. So many of them, uh, had never done projects like this before. So I think that's it. And probably, probably my expectation that I might grow my hair back, you know, that I probably, now knowing what I know now, I, I can give that up. Awesome. Well, Dave, this has been a, a fantastic conversation. I think there were so many awesome takeaways for folks that are either in the middle of a, a project like this, or, or maybe, you know, they're looking to start this evaluation process and really need some tips and tricks on, on where to even start, right? Because I, I think this is a massive undertaking that, that organizations might be a bit scared of. So thank you so much for joining us. Uh, really, really appreciate you, uh, coming on to, to have this conversation. Thank you for having us, uh, Ben, and, and the time. I really love talking to people who share the same passions in this space. Uh, and keep doing you.

33:13You, you guys are, are certainly, uh, promoting the right things here. Thank you. Awesome. Well, thanks. Thanks everybody for listening to another episode of Contract Heroes. We hope to have you back here real soon.