CASE STUDY: Signify The Power of Creative Procurement

Arnold Chatelain: It is impressive to be here on the stage. I prefer to be on the other side. My name is Arnold Chatelain. I lead the procurement digitization for Signify, and I am as well a master trainer in advanced negotiations. So, I’m passionate about really about two things, it is technology and people. And most of the time we try to separate both, but I learn that a tool, a module, a software is not a solution; you need people to design it, to improve it, the software or the tool, and to use it at the right time and at the right place.

By the way, who know in this room knows who is Signify, what is Signify? I saw one hand, and two, three, four. Okay. I definitely need to talk to the marketing department. We are doing a bad job. Yeah. So, who is Signify? Signify is the number one, not only in US, now in the world for lighting. So, 7.5 billion Euro sales, 35,000 people is quite a big company, not the biggest, but it’s substantial. And the company already in 2020 is carbon neutral. So, sustainability, and we heard just before is really a key topic for us.

So, most of you don’t know Signify, maybe you know one of these brands. If you see a very beautiful bridge with a beautiful light or monument with this light, there is a high probability that Signify is behind it. If you go to a shop in Europe and you see Phillips, it is in fact Signify. If you go to US, if you see Cooper lighting, it is Signify behind. Signify went through a technological disruption a very heavy one.

Digital Transformation

So, before, if you remember, in your house you have this bulb with a filament and gas inside. And we move to LED. And most of the time the company have a lot of difficulty to make the transition and to stay the leader from the old technology to the new technology. If you remember, Kodak, for example, in digital photography didn’t manage the shift of technology; if you see Nokia for the mobile phone, for example, didn’t manage it. Signify managed. In 2022, at the end of ’22, we had 140 million connecting light points and we had 83% of revenue with the new business.

So, as we transformed in our business, if you want to transform your business you need as well to transform your organization. And I was leading the transformation, the digitization of procurement. So, we did this in almost three years, internally. We didn’t use consultants. So we build a boat, so a backbone, digital backbone, and we have a procurement platform in the middle. So in this procurement platform, we do e-sourcing, we do contract management, we do purchase orders of management, we do invoicing, we do savings management a lot.

Digital Procurement Platform

But most of the procurement platform doesn’t provide all what you need to survive in a stormy environment. So, you need on the side, several cloud applications to help you. So, we have for risk management, for example, Ellisphere, we have for innovation management, we use another application, and of course one of the most important, we use aPriori for should costing. But as I said before, tools, model software, cloud platform is not the solution, you need on top of it dedicated process.

So we have I would say one process, you see on the side of the cycle, which is dedicated to early supplier engagement. So every year we engage with our supplier, we create events. So we have 100, I cannot remember, but it’s quite huge when we gather together supplier, R&D, product management, and procurement, and we think how we can design to cost or design for sustainability. This we manage of course all the ideas; we merge them and we implement them. And we have another cycle where another process where we negotiate price with our new supplier.

I can tell you our supplier have a top journey with us, they need to invest with us, and they give… Need to give us better price. And of course you need as well dedicated people. So we have, for example, a team in procurement for sustainability. We count recently that we have 17 new regulations coming which will impact us. So we prepare ourselves, we prepare our data model, we prepare our master data, we clean them, we look at which investments we’ll make in the future to be prepared to be ready for the new regulations despite we are doing already a lot in sustainability.

Change Management

We have a team for data analysis, data crunching where… Because procurement is generating more and more data, and I can tell you it’ll be with the new regulations more, and you need specialized people to navigate to the data, extract the noise and make sense of it. And we have team as well to drive digitalization because, as I said, a tool alone will not help you; you need to do the change management and you need to have the people which have understanding of the business, understanding how the people are thinking.

So, most of the people are irrational, emotional, you need to move them and need to talk at the same time to the people from IT, which are a very factual, very process oriented. And of course we have dedicated people, buyers, and we have as well cost master which are the people which will drive the should-costing. As Signify so we build the boat to navigate this stormy weather that we think the water will remain stormy. So we build the platform to remain flexible and agile. So, another question to you, what is one of procurement key task? Not bad.

Procurement Organization Process
Yes. I will summarize in three words. Get more with less. And if you talk with the people from aPriori they will confirm. So when they are dealing with our procurement organization, we ask more and we want to pay less. Yes, it is what procurement is doing. Of course they look for suppliers, they innovate with them, but they prepare negotiation and negotiate. And what is basic of a successful negotiation?

And I made a lot and, as I said, I train the people on it. You can really have a good negotiation when you have access to the information. The information that the supplier doesn’t want to give you, he’s hiding it, because he’s afraid to lose his margin. And at the same time, if you want to have a successful negotiation, you need to understand and to listen to your supplier. And we find out that should cost is an extreme, powerful instrument for negotiation.

Strategic Sourcing

Maybe some of you will tell me, yeah, should cost can be wrong. Yes, it can be wrong, but you make your supplier reacting, you send him the should-cost. You tell him, okay, I think I’m paying too much, so it’s price that I should pay. And the supplier tells you, no, it’s completely wrong. And you ask him where, where I am wrong? Tell me more. And slowly, slowly the supplier is opening up, you know, more insight why he is spending so much money, and sometimes you can help him to reduce the cost. So you have, by using should costing, you are moving your relations with the supplier to another level; it is collaboration, innovation, we work together. At the end, the procurement doesn’t want that the supplier dying because we still need the product.

So it’s a really is improving the collaboration. And what we realize is each time that we do a should costing, we are getting savings. And most of the time in a lot of organizations still procurement is measured with savings as the performance of the organization. So maybe in the future it’ll be zero footprint, but currently still saving, so Euro, dollars. And I come to the problem why I’m here today to talk to you.

What is the issue with should costing is complex. So aPriori is a very nice tool, and don’t take me wrong, but it’s nevertheless it’s complex, you need dedicated people to use it, it’s like if I give you a hammer, you need to know how to use it. And it’s time consuming. And if you look at this, because you have only a certain dedicated people to the should-cost, you have less negotiation and less savings. So we can’t, we do thousand should cost per year, and we think if we do more, we’ll get more money. But so maybe the first thinking, yeah, maybe we need to increase the number of people.

Using Digital Technologies To Accelerate Outcomes

So, that’s what our dream, our aim, we want to multiply by 10 the number of should-costing that we are doing per year. So, to move to 10,000, so you make the calculation, if I have, let’s say 5% saving with thousand should costing, how much I would have with 10,000, much more. So is where the eyes of the procurement begins to shine when you see the Euro value behind the business case. And to do this, we have to remove two bottlenecks.

The first one, is this dedicating team doing the should cost? And the second bottleneck is buyers because when you have the should cost you need someone as well to negotiate after, you have to do bottleneck. So how it is working, how it was working in the past, you have a buyer who wants to have a should-costing because he wants to prepare for negotiation. He asks research and development, give me the 3D drawing. Okay. So get it, sometimes it takes time, sometimes takes day. The guy doesn’t know where he puts the drawing.

And the buyer after sending it to the cost master or the cost expert, the cost expert, which is using the aPriori tool, do the calculation and send back the calculation to the buyer. That was the whole process. And we changed this. We wanted to democratize the use of the should-cost. So what we create here is a simple web application where the cost master is no more needed. As a buyer, I enter the item number, I enter the factory in which I would like to produce, or the area of the world.

For example, I want to produce in Mexico, in China, in Europe, and so on. And enter of course the quantities, maybe the batch size. I click on a button and immediately I get my should-cost. It is what we have done. Maybe the should cost is not perfect plus minus 10%, but the speed is important in business, and we want it to gain speed. So the Browser app is taking the… With the item number is getting the 3D drawing from the Zeppelin system, send it to aPriori, aPriori calculate, and we send primarily the should cost to the buyer.

But as I said before, you have a second bottleneck is a buyer, because you are limited as well. We are in… But with Signify is a very competitive environment. Almost everybody can do LED, and so you have to be creative, innovative, you have to be quick. And you cannot increase the size of your organization as you want. So you have to be smarter. So, you cannot increase the number of buyers to negotiate the should-cost. That’s what we did. Let’s apply the Pareto Principle. So, 80% of your impact is done by 20% of maybe so should your should cost. And what we did is that we can’t send to aPriori, yeah, a mass request. So, instead of going, asking for one should-cost, we asked for 100, yeah, for product category.

Data Analytics

As a result, the tool is working during the night, calculate everything, and the same day, in fact, this doesn’t take too much time, you get a report, you get a report when for each part of different scenario, what is your should-cost? And we compare this with the data that we have in our SAP system how much we are currently paying for the part. We look at the quantity, we make a very simple multiplication, and we size the opportunity.

Okay. Here there is a 400,000 Euro opportunity, we need to negotiate for it. So what we did is to find opportunity in the knows. We don’t spend some time to negotiate everything but negotiate what matter. So originally, we started one year ago; when I look today, we made it. We have simple and simple to use, simple to access, so the people are using it. We democratize the should-costing because not everybody was doing. And we have a mass request, as well, we could tear the should cost when the people were not asking for it.

Of course, we have this challenge, yeah, with like all the transformation. For example, we make some acquisition, but in US and the company doesn’t have another PLM system, so we don’t have all the 3D drawing. But in general, it works, and partly for all the mechanical parts, we have still some issues when, for example, the tolerance is missing on the 3D drawing, but I can say it is a success. And at the end as well we track the savings because we want to show that the investment to our shareholder is valuable.

The Digital Transformation Journey

So, now where we do we want to go? Because it was one step, what is our next step? As you can see on the wall, yes, Signify is number one in term of sustainability in industry. And we are a leader, and we want to remain a leader. We got a lot of awards. And naturally, yeah, is our next target is to increase the research and development usage of aPriori, yeah, to have more design to cost, more design for sustainability. That will be of our next step. And I’m exploring as well if we can automate the negotiation, yeah, with AI, but that is another story, maybe next year. So, that’s all what I wanted to share with you. I wanted to thank you the audience to listen to me, and I wanted to thank aPriori to inviting me to this conference and helping me this transformation journey.

Thank you very much.