In this episode of the Contract Heroes Podcast, we have the pleasure of speaking with David Cho, a C-Level Managing Director & Chief Procurement Officer at the University of Massachusetts System. Previously, he held key positions at BlackRock, KPMG, and Deloitte, showcasing his expertise in finance, procurement, and strategic planning. During our conversation, David shares valuable insights on building procurement processes from scratch. We delve into the challenges of implementing new processes, the role of technology in procurement, and the importance of measuring ROI. David explains how he and his team centralized the procurement function, simplified the message, modernized policy documents, and used technology to operationalize all processes. We also discuss the significance of change management, communication, and training. Discover the remarkable story of David's team, who not only surpassed expectations but also accomplished a level of work that typically takes organizations three decades to attain.
Procurement, the backbone of any organization, holds the key to efficient operations, cost savings, and sustainable growth. Whether you're part of a multinational corporation, a government agency, or a budding startup, the significance of establishing robust procurement processes cannot be overstated. However, embarking on building procurement processes from scratch can feel like entering a labyrinth—a daunting task that demands careful planning, expert knowledge, and a sprinkle of creativity.
In this episode of the Contract Heroes Podcast, we have the pleasure of speaking with David Cho, a C-Level Managing Director & Chief Procurement Officer for the University of Massachusetts system. Previously, he held key positions at BlackRock, KPMG, and Deloitte, showcasing his expertise in finance, procurement, and strategic planning.
During our conversation, David shares valuable insights on building procurement processes from scratch. We delve into the challenges of implementing new processes, the role of technology in procurement, and the importance of measuring ROI. David explains how he and his team centralized the procurement function, simplified the message, modernized policy documents, and used technology to operationalize all processes. We also discuss the significance of change management, communication, and training. Discover the remarkable story of David's team, who not only surpassed expectations but also accomplished a level of work that typically takes organizations three decades to attain.
Audio V1 - David Cho - Contract Heroes.mp3
Intro [00:00:05] You're listening to the Contract Heroes podcast. Your one-stop shop for all things contract management. And now hear your hosts, Marc and Pepe.
Marc [00:00:14] 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 Cho. 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 and give you a little bit more information on obviously what we're going to 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 UMass.
David [00:00:57] Thank you, Marc. A real pleasure to be here. My name is David Cho, Chief procurement officer for the University of Massachusetts, 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, the CPO at BlackRock, an asset management firm. Joined UMass about two and a half years ago. On January 2020, we launched a platform that serves all the campuses. There were legacy procurement functions on each campus and we centralize that function. It covers about $1,000,000,000 a year in third-party expenditures. We have about 17,000 institutional suppliers. It supports 75,000 students by faculty and staff. That's about 25,000 employees, which makes UMass the third-largest employer in the state of Massachusetts. I have about 25 years in strategy and operations management. Consulting and industry experience served over 50 different enterprises in that consulting world but then got our got a real job in the industry and served in BlackRock for about six years. The opportunity to shape and work with a very progressive group of folks to launch this platform at UMass, it's very unconventional for higher education, was a really exciting opportunity. So when we launched in January 2020, obviously the pandemic shelter-in-place orders took effect in March, so just a couple of months later. So we've learned a ton and we have launched a lot of, I think, progressive platforms, which is one of the benefits when we launch something new like this. And so really happy and excited to talk about it. I know it's something that many people might not find exciting, but for me, it's incredibly exciting to talk about some of the risk-adjusted approaches and contracts and how we've reshaped how we institutionalize partnerships. So really looking forward to this conversation.
Pepe [00:03:02] But we are excited as well, actually. You know, we've been talking a lot recently with our previous guest about how important is the procurement role, especially in every organization, especially when they're like very close with the legal team or the contact management team, especially with companies with large, supply chains, and departments. And it's very interesting how important it is to have all the processes mapped, and how you can streamline them in order to e have all these commercial and internal processes and all the different departments in place. You know, so it's so you can avoid the risks and save cost and time. So, Dave, can we just start on your experience in how you built this procurement process from the ground up?
David [00:03:53] Yeah, absolutely. You know, we were lucky in that there were quite a few experts that serve the campuses. And, you know, we were fortunate enough to take a lot of that course intellectual horsepower 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 in six different ways. And first and foremost was to ensure we have the right singular vision. And we simplified that message by saying we are going to provide procurement services and work with partners better, faster, and 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 catalogues, doing a lot of work upfront so that people can click buy instead of building relationships, ground up and certainly cheaper by using science, using data and market intelligence where it applies to get competitive cost and the right values change the policy as well to modernize since the policy documents hadn't been touched in decades. So it reflects the sort 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 as supply, diversity and environmental sustainability considerations. So shaping that vision first, reflecting that in the policy documents so that it's all harmonized and standardized, then creating operating procedures that reflect the state 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. I really want to emphasize how culture really mattered, particularly in launching the platform we announced that we shared Sir Richard Branson's view of the CEO of Virgin, that we are going to train people so that they can leave for cheaper while not they want to 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. Higher Ed is very democratized and it's going to be tough to do when you got 24, 25,000 staff and faculty to change the way they work in one manner. And so, you know, I think the team has reflected that stuff to operationalize this, the 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.
Marc [00:06:45] Yeah, I think I mean, you know, we always talk about it on the show, but making sure that you have the right people and 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 going to continue to use the new processes that you're laying out as well. So, you know, that's amazing to hear. And I guess I'm curious, how did you get everybody on board? Because everybody was siloed doing 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?
Pepe [00:07:26] And let me add this one little thing. Like when you answer this question today, can we talk also a little bit about what was like the main pain points, like maybe just two of the main pain points that were there that you were focused to solve when you start implementing this process?
David [00:07:45] Yeah, great, nuances. 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 the strategic sourcing divisions of the organization. It has a contact centre, and components to take calls and emails. We generate cases just like an I.T. helpdesk so that there's accountability. There is certainly an analytics component so that there's science behind what we are recommending. What's the empirical evidence, for the services? The likely way to go. And the training and communications are tremendous. This is such a critical piece of this. The change management dimension that you speak of is an incredibly important piece where we have weekly what we call coffee, which is a unified procurement services team. That's our brand. And we have town halls virtual and physical. When we're able to. We have office hours, just like some faculty may offer up based on particular domains that we want to hone in on, newsletters that are issued videos. So a significant proactive effort to provide outreach and access to training and, you know, 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 why? Why are we doing it this way? It's not perfect. You know, when you're building something of this scale and this is not a transition, it was really a significant cut over there was understanding where we're launching this and there wasn't. There was quite a bit of planning. But to quote Mike Tyson, everyone's got a plan until they get punched in the face. Right? So there's a significant amount of business that's conducted. We have 250,000 transactions per year, and it's because we have 17,000 suppliers and this many stakeholders, we have these questions and requests that come in. Right. So, you know, 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 here are some tools, here are, you know, people learn differently too. So we did a lot of videos and whenever we do training, we record them. And 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 and it's not fair. Right. So quite a lot of patience, I think, from the campuses as well. But we're learning, right? We're three years on from where we were. We are seeing firms 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 level that many organizations that took 30 years to build their programs are conducting. So in that sense, 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, we will take that feedback, we will summarize it, let them know we heard you. Here are the next steps in terms of a maturity path. We did, in short, 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, and advanced in terms of maturity. And then by every functional area, whether it's bank cards, procurement, requisitions, or contract sourcing, where do we stand on that scale and where should we do? We don't have to be fives, [00:11:51]we don't have to be best in class in everything that we do. This is not a business where that's required. But if we view ourselves as a 1.5 on a scale of five, but our aspirational targets are to achieve a three, knowing where you want to be and where you are today, it's then easier to bridge that gap. [18.2s] And so we've been able to show 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. 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 producing that change. Hopefully, that provides the kind of context you're looking for.
Marc [00:12:38] Now was great. That was wonderful. And you know, David, I guess something else that just kind of came to mind here is. How did you go about implementing the piece of technology that is being used to help with this? Was it something that the team already had that you, you know, built out in more depth? Or is this a new piece of technology that the team brought in to specifically help with these issues that you were facing?
David [00:13:04] Well, since we're talking about contracts because there's a very broad portfolio of technologies that we're using across the board. But when we looked at contracts, 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 with 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 going to 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 going to take before I can get it done? You know, give me an estimated timeframe. And people felt that it was, you know, in a black hole whenever these contract requests were made. So I think creating a solid 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 slip of 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? And if you think about ideal bank cards, maybe very low-risk commoditized stuff that people go out and buy something real quick, there's no need for any kind of due diligence catalogues or, you know, kind of preset purchase orders have their place. But then when you get to building a contract, you have to factor in what is the inherent risk associated with the support services that you're purchasing and based on what you can we created a logic tree. Well, if we know that those people are or if we know that there is hazardous materials that we might have to factor in about, one of the campuses actually has a nuke. They're a small nuclear power plant, a nuclear facility on the campuses. And then there is this our paper, or do we have to review the agreement terms and conditions of the supplier? What 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 you know, the Treasury Insurance infosec. Controllers, budget plans, and so on and so forth. Right. When 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 a combination of technologies that we're going to use that will create that front door so that folks populate a certain questionnaire. That questionnaire triggers the kind of risk formula and will bring in the right parties to be involved with conducting the due diligence of their 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, our sales force we used to keep track of the entire workflow. And we kind of adjusted our Jagr billing system to help track some of these items you suddenly had. Better still. We even track well how many of these contracts are legally bypass eligible. Meaning? Same terms and conditions. It's just commercials are working on those. 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 the attorneys 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 is a world where your values require it decreased cycle time. It allowed folks 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, in terms of 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, do you don't believe in this position? And how about this? Here's our concession. So empowered are our team members. And remember that old track, the pizza, You know, we now know, where does that contract sit? Who has that right in case we need to pick up the phone and talk to that person. So when we roll that out, we received a ton of icons and names of pizzas. Just because folks now obtain our 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 did I get additional training, did I get some professional services and extended warranties, did I waive late fees? Is there a new honor renewal language there that is something UMass endorses? Are there performance penalties tied to the service levels where you can't? Service levels mean nothing without the teeth behind them, especially during these market conditions where inflation is rising? Did we cap the escalation or even remove the 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 also allowed our team members to not just use tribal knowledge, but look at the technologies. You know, 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 have to give them more contract timelines. Right. So I think that stitching of the systems to promote better behavior, promotes better collaboration, our collaboration with the teams has never been stronger. We even host certain sessions where we're breaking bread with our attorney partners, you know, big fans of all of the different groups that have just said, you know what, we're going to change the way we work together. So it's something that we call the project internally for a project metamorphosis. And we're seeing significant payoffs today. But still, again, more to go.
Pepe [00:20:25] Well, that's great. 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 we've seen this, right? 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 contracts, you know, like a real like these few that you had on in order to have like this a trade association 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 analytics looks like, like which kind of KPIs is your team able to measure now that they have this piece of technology implemented?
David [00:21:16] 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 with the contract cycle type was a big, big one, right? Many systems require you to do things sequentially. And so you cannot do something until the party before you conduct their work. There are areas in the workflow where you know what? If you look at a contract, InfoSec is going to look at one piece. Insurance is going to look at another. Right. The attorneys will look at indemnification limitations, liability considerations, and 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. We see how long these contracts are sitting with certain counterparties. So that visibility is really important. There is even a metric which I find very powerful what's the percentage of this particular contract 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 you just extended, there are reasons for that and that's acceptable to you. But if all those examples that I gave you earlier were. We have an incumbent provider and we're willing to optimize if they're willing to invest a little bit more effort, more account support, more maintenance, and more services. We can track that now as well. And then we certainly track the savings associated with it. So if there is a cost-benefit, we have different flavours of cost benefits. It would be hard dollar savings. You're reducing the per unit cost of everything you buy. So there's clearly a budgetary impact that 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 costs of that new project, construction project, for example, that is a cost of across the board, you may not feel it exactly right away on your PNL, but there's value there. Right. And then are the 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 because of being able to demonstrate that this is how we add value to the bottom line 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. There's going to be more due diligence required for this because maybe they're about background checks or student data that we have to protect. Right. And, you know, folks are able to connect the dots a little bit more as opposed to, well, this is just a quick change order. Why is it taking so long? Right. They can understand the nuances behind it. And then just through all of this data, we were able to say, okay, well, it's a heat map of traffic that we have the types of contracts and we realize there's a lot of contracts that just don't add a lot of value and we need to upgrade our policy because, 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 peers. So the purchase order is our contract and we made those terms and conditions much more robust. So once we lift that up, cycle time is much faster as well, and then we can measure that taking out. 2000 contracts that we would have normally done and replaced with the IPO process. What did that do? So that's also empirical evidence of efficiencies that we're trying to extract out of the system.
Marc [00:25:21] Yeah, 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, obviously, are the contracts but did you roll all of this out at once? What did that look like? Was it was it weeks? Was it a month? I know that there was kind of a flip of a switch, right? Saying, hey, 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, it was there. Was it a slow roll or again, was everything? Did you really go live? And all of these processes were put in place.
David [00:25:55] It is a series of sprints. Smart was one thing, but it took in some cases a couple of years to modernize certain policies. Right. But then we like to Project has very robust initiatives that may require a lot of change management, a lot of technical enablement changes, stuff like that. So in the case of Project Not, 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 would kick the tires and figure out what these systems do and who are the partners that we want to work with to conduct this. So once you get all that design and planning, there's a lot of 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 for the project. What are the future state activities like? And as we get more data. So another set of projects we run a lot of programs guide. There are so many good people we work with. I at the risk of sounding like a bit of a sycophant, I really admire working with my manager, the CFO, the CFO of the system, she doesn't want to be complacent. So when we propose these ideas to say these more changes, we need you know. She'll ask about the role, she'll ask about, Well, what's the benefit we're going to be able to harvest, right, for us to be able to make these changes. And we have leadership sponsorship not just from her, but campus CFOs or the vice-chancellors of administration and finance. And 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 the change management aspects are tough. But to have that endorsement top-down always makes a significant difference so that we can continue. And that's perseverance. Just a series of sprints, right? So, but it was not necessarily one big bang. I just consider this a continuous improvement culture.
Pepe [00:28:00] And Dave, now that you mention 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 we saved this amount of money, right? But when, when you are just building a business plan to implement this type of technology or service. What I like the best way is in order to do this ROI calculation of how can you bring a figure or a number of four things that you still have to know in the future.
David [00:28:40] Yeah. So there is the traditional online shooting of all online where we look at our budget and we see the savings that are generated with the collaboration of all the campuses, and we're able to say, Hey, you're getting a6x return on that investment, right, based on cost reduction benefits, so on and so forth. And frankly, that 6 to 10 X is very attractive and over time it starts to shrink, especially when market conditions are the way they are and there's a bit of a downward offensive, rather posturing. But a lot of institutions have to take right now to defend their capital then those figures are very, very important. But 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%, might just be 5% of these contracts are being improved. Supplier diversity was maybe three and a half per cent. Right. Again, not at all right. But empirical evidence of doing the right thing After a bit of time and looking at the work, then you can actually create targets. So we're now closer to six and a half per cent in supplier diversity. And so the way we've been trending. And based on other programs that we have lined up, could reach the spire for a 10% target over the next five years, perhaps, or something where we have significant president of the University of Miami. And there's a. Big fat who's ready to build that accountability and sponsorship. So 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 drive that we're going to strive for right here at these targets. Here's the tangible evidence that we're going to 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 numbers are great and our way is easily calculated. But there are other areas that I think are just as impactful that aren't just about pure dollars and cents.
Marc [00:31:01] Yeah. And, you know, we talk about that a lot, right? The tangible and non-tangible things that are or why and how important it is to be able to measure both of those. And, you know, we're always curious 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. So, David, before we wrap up, I just had one other question for you. If you could go back in time, is there anything different that you would have done while building out these processes?
David [00:31:26] I guess I probably would have focused a lot more on that change management piece because you can never do enough. And you know, we have some terrific team members 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 that piece, I think, is absolutely critical. But when you have literally thousands of different transactions and processes and policies and stuff in a short period of time, it's hard to do a lot of that from socialization in advance. But we could have always done more. But, you know, like everyone else, we did what we could do with the gunpowder we have, right? And we didn't have unlimited resources by any means. So it was really about stretching every dollar we could, and our team members had to stretch themselves to reinvent themselves. So many of them had never done a project like this before. So I think that's probably my expectation that I might throw my hair back about probably not knowing what I know now, I can give that up.
Marc [00:32:37] Awesome. Well, Dave, this has been a fantastic conversation. I think there were so many awesome takeaways for folks that are either in the middle of a project like this or maybe, you know, they're looking to start this evaluation process and really need some tips and tricks on where to start. Right? Because I think this is a massive undertaking that organizations might be a bit scared of. So thank you so much for joining us. I really, appreciate you coming on to this conversation.
David [00:33:05] Thank you for having us. And the time I really love talking to people who share the same passions in this space and keep doing. You guys are certainly promoting the right things here. Thank you.
Marc [00:33:19] Awesome. Well, thanks. Thanks, everybody for listening to another episode of Contract Heroes. We hope to have you back here real soon.