How Fannie Mae initiated a procurement transformation with a customer focus

How Fannie Mae initiated a procurement transformation with a customer focus

A number of companies struggle to establish the bridge between their business aspirations and priorities and the procurement space. However, procurement is undergoing a sea of change at the moment with many businesses no longer viewing this service as merely a back-end function. Rajeev Karmacharya, Managing Director, Strategic Sourcing and Category Management at Fannie Mae, sees his role in procurement as much more business facing.

“A lot of times procurement organizations tend to be too focused on the cost,” he explains. “However, that's often not what the businesses are really looking for. Obviously everyone wants to be competitive with price, but there’s more to be had from procurement.”

Karmacharya has over two decades of experience in procurement, supply chain and technology roles and has seen the procurement function evolve over time. He worked as a management consultant for over 12 years, including as a Principal for AT Kearney, a global management consulting firm. He consulted for a number of leading Fortune 500 firms where he often worked just as closely with the CIO as the CFO. “I really got to see how the priorities and perspectives could sometimes be different between the two groups,” he explains.

Fannie Mae is a U.S. government-sponsored enterprise (GSE) that supplies financing to mortgage lenders. Fannie Mae celebrated its 80th birthday in 2018. Karmacharya joined the company in 2013 and has been working on transforming the procurement space through a more business-facing function rather than a traditionally administrative process. “When I joined Fannie Mae, we didn't have a category management type of function here and what I found talking to senior executives across the company was that they didn't see value in procurement that does just transactional work. Obviously, there are trade-offs with minimizing cost, minimizing risk and speed of delivery. This interesting dynamic gave me a perspective on how you should really design a procurement organization. How can a group be really effective?”

Future procurement

Fannie Mae was keen to recruit procurement experts that could supply market insights and industry knowledge to the organization. “Our business stakeholders are not expecting procurement to tell them whether they should buy this product or that product, but they certainly wanted us to bring in insights as to what was happening in the marketplace. What are the trends? Who are the key and emerging players?  What types of innovation are happening in the industry?

“Obviously, the transactional part is important, as is the supplier management and all the traditional procurement functions, but we have moved to a model where we are the category experts. Our category managers have a full understanding of their categories, including historical spend, contractual terms, key sourcing levers as well as industry knowledge – more than anyone else in the company. This creates a partnership, and even though the organization may change on the business side, it enables us to provide continuity as well as an enterprise perspective.”

Fannie Mae’s sourcing and procurement transformation journey is about customer service. “For us, our internal business unit stakeholders are our customers. Some procurement organizations don't like to call their internal stakeholders ‘customers’. I think we've been very deliberate about viewing our business stakeholders as customers and really putting them at the center of everything we do. We seek to understand their business so we can see it from their perspective.  We help our customers achieve market competitive costs and help identify and mitigate supplier risks, but our customers’ business objectives and priorities are at the core of what we focus on. Sometimes, that may mean higher cost for faster speed-to-market, or taking on a slightly higher level of risk. We may challenge them from time to time if we believe that’s in their best interest, or the company’s. Ultimately, we want our customers to have a positive experience in their interactions with procurement while knowing that we have their back. That's the kind of model we’re building.”

Like many internal operations, procurement has undergone a digital recalibration of its architecture, functionality and efficiency as Big Data, machine learning and AI technologies start to filter into the procurement space. “We have totally digitized contracts and can do a lot more with contract authoring and contract analytics, among others. We have started to test RPA (robotic process automation) where it makes sense – and I'll be honest: RPA doesn't always make sense for smaller scale operations, where there is a lot more thinking versus doing. From a business case perspective, the promised land of true digitization is full collaboration and transparency that enables harnessing the full potential of technologies, such as machine learning and artificial intelligence. For our customers, that means greater efficiency and better analytics and insights.”

A procurement transformation

With any digital transformation, robust technology solutions are key to continued success. “If you looked at the technology solution we had a few years ago, the context diagram of our procurement system and integrations was outdated. This complexity meant higher opportunity for errors and impacted our cycle times.  We also didn’t have a good way to tackle approvals outside of Procurement – much of this was done via emails and lacked consistency. We had multiple sources of records for supplier data, but no direct integration between contracts and purchase as they were on different systems. So, we needed an end-to-end solution that was flexible to meet our unique needs, yet scalable to handle our volume. After assessing a number of established players, Fannie Mae chose an innovative, emerging supplier in source-to-pay space. We now have a more user-friendly procurement system that allows for integrated requisition and contract approval workflow and now, along with the adoption of e-signatures and mobile approval capability, we have cut down cycle-time for standard purchases by 50%.”

Karmacharya’s team utilizes an end-to-end procurement solution where all of the contracts are in one contract management system. The key metadata is captured and stored. Contract authoring has been piloted and the company is looking to expand its contract authoring and contract analytics capabilities. “Much of our contracting work happens electronically,” he explains. “Key contract meta-data is captured and we utilize e-signature for execution. We continue to be focused on ensuring data quality, capturing additional metadata, and some of the innovative things you can do with digitalization to drive efficiency. We have full spend visibility that really enables us to do all the associated analytics. Catalog management and automatic deal approval with the full workflow is also built into the tool, which makes the process very efficient. Moreover, with the workflow built into the tool, it is easier for customers to see where things are – with increased transparency, procurement is becoming less of a black box.”

Karmacharya believes trusted relationships with suppliers are equally important to bring value to internal customers. The team has worked hard to build strategic partnerships with key suppliers.  “We believe suppliers can help bring innovation and best practices with the right partnership and accountability. For example, we work collaboratively with them to drive efficiency and cost competitiveness. Annually, we work with them to plan out future demand so they can plan their resources accordingly and we get the benefit of readily available, qualified resources in areas of our greatest need.  We also work with a company that helps us with benchmarks, and on key hardware and software deals, which helps bring a unique perspective into supplier pricing models we might not normally have.”

Besides unit cost optimization, Karmacharya’s team is also focused on managing demand and seeking out substitution opportunities. For example, the procurement team worked collaboratively with the enterprise data team to manage data purchases and allocation. Prior to establishing an asset management program, budget planning, forecasting and cost allocation was challenging due to the fragmented nature of the purchase across multiple business units. A new data management solution enabled the company to effectively manage its data purchases and reduce duplicative purchases.

It’s Karmacharya’s customer service mindset that is driving tangible value. “I tell my team every day to think about the value we are bringing. You can always take the easy path, or you can take the path that drives the most value even though it may be a little more difficult. Sometimes you have to challenge your customer and say, ‘Are you sure you want to do this? Because here's what the data is telling me.”

“There are valuable insights you can draw from analysis of not just spend and buying patterns, but also from trends in the marketplace. What resonates with the customers might not be cost savings. It might be other things you, and the customer, might not be thinking about.”

“I think the key is understanding business needs and viewing things from customer’s perspective,” he adds. “On the flip side, by having this analytical insight you really understand what the opportunities are and, in turn, are better able to challenge the customer. Do you take the easy path, the path of least resistance, with minimal value or would you rather be someone who is really helping drive the business? I choose the latter every time.”

Fannie Mae