How Flexport balances preparing for a recession with long-term procurement goals

Running a finance or procurement group is already hard enough when you’re changing deeply rooted practices and building scalable processes. But add on a potential recession, and you need to adapt to the crisis of the day while still climbing toward your long-term goals.

Experienced leaders know the answer to this seeming contradiction is to seize the moment. In the spirit of never letting a serious crisis go to waste, the unraveling economic environment can actually be an accelerant for your larger initiatives.

This is just one of many lessons I learned recently from Lydia Lowe, Global Head of Procure-to-Pay at Flexport. Lydia is an experienced process builder and change manager, and in her role at Flexport she is weathering the economic environment with calm resolve. We recently sat down for an hour-long chat on how to address this topic, and I came away with four insights that can help you get revenue to the bottom line no matter what happens at the next Fed meeting.

1. Successful Policy Adoption is About Education

Especially in a recession, you need a clear procurement policy that prevents spend from leaking out of the business. But as any finance or procurement leader knows, a policy is only as strong as its adoption by line of business employees.

There are lots of ways to look at improving procurement policy adoption, but a critical insight Lydia shared was to first consider your mindset.

When she started at Flexport, one of her early initiatives was to set up a No PO, No Pay policy. The biggest challenge she faced was getting stakeholders like engineering, which previously had more flexibility to control areas like software purchases, to wrap their heads around a new way of thinking.

Winning them over came down to mindset: education, not enforcement.

“The key thing is to educate your internal customers — educating them on the impact of their action or lack of action and how that affects the business as a whole, how it affects the bottom line.”

With engineering, that meant showing them how many tools they had acquired over the years that had redundant functionality, or tools that hadn’t seen a log-in for several months. Most people are reasonable, and when they see the waste they were previously unaware of, they want to do what they can to help.

2. Build Your Priority List Using Top-Down Alignment

Inflation, geopolitical conflict, and supply disruptions have put finance and procurement groups on a swivel chair of priorities for the last few years. Unfortunately 2023 is no different. Yet as we saw in our recent examination of what CEOs are prioritizing for 2023, CFO and CPOs have a larger set of priorities they need to address if they want to see their businesses succeed.

Lydia is living this reality, too, but she brings a “proactive, not reactive” mindset to setting her goals. Specifically, she looks to what the scorecard of the larger business is measuring against for the coming year, and then works to reflect those objectives into her own spend- and supply-related OKRs.

“My strategy is to look at the supply chain as a whole — understanding where we are spending our money, understanding the terms, and, especially in this environment, realigning the suppliers so they are appropriately engaged.”

For Flexport, that means balancing supply availability and optionality with the resources available to maintain those relationships. During the pandemic years, Flexport accumulated redundant suppliers especially in areas like SaaS contracts. Some of those providers are now necessary to keep their own software running, but others could be consolidated or set to an appropriate tier 2 (backup) or tier 3 (emergency) status.

3. Best-in-class compliance comes from true stakeholder buy-in

Flexport implemented its No PO, No Pay policy in a challenging environment. After a previous rollout of a P2P system produced mixed results (about 50% adoption), the company was trying to boost compliance higher. Especially in the context of the murky economy, securing margins, management understood, would come down to pushing beyond that 50%.

Building that extra buy-in with stakeholders required understanding their mindset. In Lydia’s experience, line of business users were frustrated because they felt like they had no visibility into the purchasing process. When implementing their new system, Lydia focused on these elements to bridge the gap.

“They had excitement for what they were seeing, the aesthetics, the visibility that they have. They can go into their instance, they can see all of the requisitions or vendor onboarding requests that they have, they can see if an invoice has been posted and paid, they can see if they have a blanket PO and what the balance that’s left of there is. In our previous system, we didn’t have any of that.”

The difference was compelling, as Lydia is now reporting process adoption of 80%. That boost came from helping stakeholders feel the process was theirs rather than a burden:

“The Flexport stakeholders have really taken ownership of all of the transactions and procurement requirements that they have.”

4. Process Adoption is the Foot in the Door to Bigger Savings Opportunities

A high procurement process adoption rate is great, but it’s also just a beginning. This is the real lesson on balancing urgent requirements, whether recession pivots or any other disruption. Getting policy adoption is a major change management initiative, but the effort is doubly worth it if you lay the foundation for longer-term success, too.

As an experienced change management leader, Lydia was playing the long game. Getting higher adoption was a major victory for her team, but what she was really after was influence. She wanted to get involved with stakeholders earlier in their buying process, so she could be “involved in those conversations and understand what the needs are and what the wants are.”

This mindset hits on a major value lever for long-term savings opportunities: the ROI of early involvement. The earlier in the process procurement can influence the stakeholder, the higher the savings attainable.

One of my favorite proof points on this topic comes form a Spend Matters/ISM survey that put numbers behind this claim. If procurement gets involved only at the contract negotiation stage, the typical benefit is 6.6% savings. But if stakeholders bring procurement in to help parse those needs from wants, the study found, that number rises to 8.6% — or, speaking anecdotally, anywhere from 5%–20% higher depending on the scale of the influence, such as influencing the design requirements.

The benefits are self-reinforcing. Lydia now sees more engagement from her stakeholders, which leads to more opportunities for her to help as her colleagues change their perception of procurement:

“We’re all here for the same purpose. Everyone wants to be a good steward, everyone wants to help.”

Bringing the C-suite along for the journey

Like the last several years, this year is yet another “hard year.” The silver lining, though, is that finance and procurement leaders have been given the spotlight they sometimes had to fight for before.

Preparing for a recession is yet another opportunity, and done right it’s a way to communicate early and often with other executives about the support you need to get the results everyone wants. Every bit saved is a chance to retain difficult-to-replace talent or reinvest into new growth areas.

Thanks again to Lydia Lowe for sharing her insights on how she’s balancing today’s burning issues with Flexport’s own long-term goals. And if you want to hear more on how Lydia is tackling 2023 head on, check out the full recording of our recent chat.

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