Video Transcript

Paul: I’m going to through a little bit more about the background of the relationship of procurement in IT and FMC. Some of the things that we were doing right and perhaps some of the reasons for that that may ring a bell with some of you and you can kind of note it down and then talk about some of the things that we are doing right and frankly I may–I actually had some re-thoughts during the session that maybe be able to _______ [00:00:27].

So just a little bit about FMC, I didn’t get a chance to tell you much about that in the first session, but we’re a procurement and services company. We, in our market we’re number one. We sell not just equipment but essentially systems around the equipment so that differentiates us in the marketplace. This is a little bit old actually. I did this presentation. We finished it before we announced our 2013 results but we are $7.1 billion in sales and so we continue to see sales growth and that’s been going on for quite some time. We are about 20,000 employees now, not 19,000 and we are proud to say we’ve been recognized by Fortune. From time to time when there’s been enough input as the world’s most admired oil, gas and equipment services company. And there’s some very credible players in that marketplace, Schlumberger and Halliburton and Cameron and others that are very, very, very good companies. So we’re very proud of that.

So we are in 30 production facilities in 16 countries. This isn’t all of our facilities but when I talk about production facilities, they tend to be reasonably sizeable, they’re manufacturing or they’re service based and so when I bring you a perspective, I’m bringing you a global perspective in many cases as you might have caught on when I spoke earlier. Doing business in the United States or in Europe is reasonably easy. But as we do business in other areas and there’s a lot of growth in South America and a ton of growth off the coast of Africa. We are much more challenged and so I picked this up just in terms of perspective. When I’m looking at a relationship with sourcing, I’m thinking about sourcing in a lot of countries and a lot of areas in the world some of which aren’t very well developed yet. I’m sure that’s also the case in our direct procurement situation as well. But I’m simply not talking about what I need in terms of the source relationship just in terms of doing business in the United States but worldwide.

And then in terms of our business segment, the largest part of our business is in subsea. We’ve actually kind of think about what it takes to get oil and gas safely from the seabed and I think you’ve all seen what happens when it’s not safely done. It is kind of rocket science, in fact with budget cuts, federal budget cuts there’s been a lot of NASA people that have actually come to work for us, NASA being in Houston. And we find actually find a lot of synergies both in engineering and in the safety and quality areas as well and so it is pretty complex. We also do the same thing on surface. That’s actually where we started and it’s we found the oil in you know underground before we found it underwater. And then we have smaller businesses that kind of round things out in terms of metering services and that type of thing. So that makes up FMC technologies. Some of you may have heard of FMC corporation as well, they’re chemical, mining and process, they spun us out in 2001. So those of you that might have had past experience with FMC Corporation we’ve been spun out since 2001.

So I got a lot of advice from people about us speaking and humor is supposed to be a part of this. So I’ll give you a chance to look at this and there’s, the humorous part is not with IT, I’m just a little challenged in finishing the titles of slides before I get the content in there but does anybody, can anybody related to this at all? I mean you know working with the procurement guy and so on. I asked you to have a little I didn’t know I was going to have this story but all of you have met Joseph Richardson during this conference. He opened it up for us. And I had dinner with Joseph last night and you know Joseph recently retired. And so of course it was part of the topic of conversation right. Joseph, how is retirement going what’s it like and so on. He says you know I’ve only been retired for a little while. But I have to tell you that when I have to turn in my equipment, all the equipment I have back to IT and so I had to buy a new laptop. And I’m not too happy with it. And I had to get a new cellphone and I’m really not too happy with this either and I’m having a little bit of trouble with it. And I was a gentleman, I was smugly sitting there saying maybe the rules were revered and Joseph could have used a little purchasing help from IT in getting himself set up as opposed to IT meeting purchasing help from Joseph. And so I was feeling a little superior actually during a part of the conversation with Joseph, but I’m sure you all have stories something like this and I had to tell you that this is the, this outcome tends to be kind of the fear of a lot of CIOs especially in our company where explained in the first time you’re up here. We are on our own for the long time. It wasn’t an indirect procurement organization for it wasn’t very well organized, if there was it was not on a global scale.

And so we had to develop our own set of skills and to turn that to somebody who was incredibly difficult to be perfectly honest and we had nightmares about this same type of thing happening. And so IT began, IT in FMC technologies had to be its own purchasing organization for some period of time. Now in the beginning I can tell you that communications didn’t go very well. There was purchasing people on the side and frankly this happened really before the indirect purchasing group was formed. And so what we had when people were pretty good at buying steel and buying pipe and those types of things trying to help out with the IT buy. And so of course they used a lot of the same approaches. Steel is a commodity, I know your PCs are commodity, I can go down the block the Best Buy and buy a PC. Don’t tell me that I have a specialty type of thing and IBM makes this and Dell makes this and HP makes this. And so don’t really take care of those, don’t worry you’ll be fine. These are all good companies and everything is going to all right. So that is not quite right. So did anybody here think this stuff is a commodity? Because I’ll be doing counseling later on. There’s a round table tomorrow. We can talk a little bit about that.

But it’s not. We make light of it but there’s–hardware is not a commodity. It might feel like a commodity but there’s a lot that goes into these hardware considerations in terms of interoperability. Even more importantly the service levels that IT receives in various parts of the world and so and it’s not it’s very uneven. I can tell you that it’s very uneven. Some suppliers are better than others and so when IT tries to form of global standards so we can interoperate we’ve got to find the service provider that fits us around the globe and so we can’t take a country by country approach or business unit by business unit approach in the sense that we’re trying to run the company globally which is part of our strategy. So it’s not a commodity.

Outsourcing, what a lightning rod at least for me what a lightning rod. We’ve done some outsourcing it’s not the answer. You can’t outsource what you can’t manage and the worst experiences we had have been kind of with the big general outsourcers they can do it all. We have much better luck with managed services these days and with boutiques that focus in one area very effectively and are trying to go to the CEO’s office and sell the whole and effectively run the whole company for you. And so just to outsource it. Is it a particularly good approach for procurements to walk into the CIO’s and often say let’s help. I’ve got experience in this other company that I worked in and we had some pretty good look. And it’s pleasing suppliers, we had to work with these guys everyday and there was a period of time I heard it mentioned earlier this morning, period of time where reverse auctions were ________ [00:09:28] and so we’ll get these guys, we’ll just do a reverse auction and we will save a lot of money and then that’s going to work and in fact if it is really buys not a commodity then reverse auctions are pretty good way to go about doing things and squeezing suppliers wouldn’t may not be as well although I’m perfectly happy to get in and negotiate how and get good deals but we have to do it in the broader perspective.

So this was I mean this was how we were approached for all intents and purposes. This is how we’re approached by procurement. I can’t tell you how many, how many times I went to a meeting with a procurement guy and they wanted me to participate with a buying exchange that was sold PC cheap. They happened to be last year’s models and you know the overstock than anything else but they were cheap, there was no question about that. And the kind of attention that existed between the procurement guy who has a cost reduction target and IT again who has this uptime delivery group service mentality and so we have had to work hard to come together to get alignment on objectives, the purpose of those both functions and to kind of get past this notion if I can buy steel I can buy IT services as well.

So what happened? A number of things happened. We got big and so getting big I mean big for us so you know this kind of growth a billion a year has been going on for three or four years now. You’ve all always seem to grow in the energy industry and we’ve been lucky enough to participate in that and we couldn’t continue to operate the way we are operating. In addition to that the company itself endeavored to kind of bring a new perspective to what we did and it was all around a quality program. We call it impact quality. Well as I could speak all day on impact quality and we kind of teach but there were a couple of notions that resonated throughout the company, it didn’t make any difference what function you were in, it didn’t make any difference what job you had, the beginning part of it, there’s five absolute quality that we were thought and the very first absolute was requirements. And it was in any kind of customer supplier relationship, the quality is meeting requirements. They kind of think of quality of making somebody happy or you know there’s all those kinds of things about getting a customer excited and you know bringing quality jobs you know all those kinds of things. But fundamentally, fundamentally in our company we learned that quality is meeting requirements. And so we began to have conversations not just with procurement but with others about requirements. In fact this was a God sent to IT. You can’t really put in an IT system effectively if you don’t understand requirements. Maybe some of you have experienced failed IT projects, ERP systems have to be implemented two or three times because it weren’t done properly. It usually starts with requirements.

And to Joseph Richardson’s credit when he formed his group, he came to IT and we began to talk about requirements not strategic sourcing techniques like reverse auctions and that type of thing. And so we got to a point of understanding and we didn’t try to do it all at one time but Joseph began to help us and he began to help us in areas that we really needed help. First thing was–first really good one was actually a telecom contract. And he brought in help, sorry it wasn’t you guys, but in it was in fact very effective and set the tone for the work. He also hired a person with an IT background. I wasn’t sure about this. We had a lot of discussion and actually interviewed a lot of people before we settled on somebody. My concern of course is don’t go hire another CIO, put him at procurement and have him decide or he or she decide what I’m going to buy. It’s not going to work. We need to hire somebody with enough of a background to be conversant, to be a partner, to work with us and have skills that we don’t have to be perfectly aligned us and so if after several tries found the right person. So I give Joseph a lot of credit. And when he formed this team he formed a team with IT background, he also formed a team with a contract’s person and thank God he did that. I mean when it came to contracts, I was reading all alone, I was, I almost became a contract person. That’s not a very effective use of my time so Joseph formed a very effective group.

It started with requirements and then we had implemented a second principle. And this was, this one is actually harder to implement than understanding requirements. We can all kind of intellectually agree on yeah, if we start with the requirements, we’re going to be in a better position. But the second one is the principle of playing your position and so I had an entire global IT team that was very used to managing supplier relationships from top to bottom. From the very first discussion of negotiation and contracting and so on all the way through the service relationship. And with the creation of an indirect buying team that was going to begin to take that on, they had to give a part of their position, difficult thing to do, difficult for any of us. The behaviors that we were exhibiting in the beginning we kind of fill in the gap right. There was no indirect procurement group and there’s nothing really it makes an IT person a good procurement person. Yet we filled the gap because it wasn’t there. The company was focused on direct procurement okay, they try to help us with some direct procurement people, it didn’t work out very well, and so we continue to fill that gap until the indirect procurement group was formed and in fact they couldn’t, they weren’t big enough to take on all of it so we still had a few situations where we’re playing both roles.

But remembering to play our position and reminding each of us of that made the relationship much, much stronger at the end of the day. So we started with requirements, good discussions about requirements, play your position so what are those positions? Well to some extent now we got procurement taking the lead on negotiations. Think, again, this is great. The calls, the setting up the meetings, the approach to the negotiations, what the ground rules are going to be in any kind of negotiation, will there be an RFP, how many people are going to go, what are we going to do with the results from the RFP, what are the bidding process be like, all those things are now handled by procurement. We’re doing that right. It feels good. It feels right. We still have preferred suppliers. In many cases we still have kind of a sole source or single source approach. Not that the supplier knows it every time but in many cases, the switching cost is just a little bit too difficult to go through and so in so many in the entire circumstance is do we really move away from that supplier. But nevertheless the discussions are better, the negotiations are better. With procurement, providing these services to us, as I view it, this is kind of a service organization providing a service to another service organization and it’s taken us a little while to figure it out. And then now facilitating global supplier agreements and so with a purchasing organization that has a global footprint, they’re they do a pretty good job of catching things that I wasn’t able to catch around the world. So it’s off contract buying when we have a global agreement. It’s that type of behavior. It’s for those of you that weren’t here in the first. We were trying to catch cloud services being brought kind of outside of the influence of IT of some sort. And so the teaming up of IT and procurement in that area is working out well for us. So requirements, play your position, better foundation to work from.

The other thing that works against us in this area is I’m sure some of you have experienced it is that even the global providers and you can just imagine some of them in IT their sales teams aren’t really set up to be, to provide globally whether their commission structures aren’t set up for that and so it really works against us and you really have to work hard to force them into that type of model. Force them to sort out their commission basis to just kind of pushing you to the way you want to buy from them rather than the one that’s sold to you. And procurements really good at that. So when the more you work with them more examples you have of companies that can do it and the less argument they have and to be off this set.

And so where are we going next? Well asset management is a huge area of concern for us hardware assets, not so bad, software assets, horrible. The software police show up, you find out you’ve got unlicensed software. They all do it in the 4th quarter right at the end of the year. The CFO’s pulling his or her hair out because they got all these unpaid bills and they’re making the revenue for the year and you’re taking it on. So asset management is a big piece and license management as well you heard me discuss that the first time. What are the terms of licenses and so on. And one of the things that Reagan was surprised in terms of my answer is that do you think we can have category managers in IT? And I said absolutely I think you can have category managers. I think the more you know about the supplier’s models selling models, contract models, structure, how they charge your fee when they make their money, the more examples you have of that especially ones that work well for you, you can demand others to work that same way if they want to do business with you. So the better, the more examples you have of that and the more expertise somebody brings to that particular discussion better off. And then retain services. We haven’t done much in the space. We kind of buy project by project. And I think we could do a lot better and both retain services and in the cloud procurement of cloud services which is going to be a huge spend, absolutely huge spend going forward. So I don’t know if that was anything new. But that’s what I had to talk about today. Do we have time for any questions or we, I don’t know if I’m over. I’m red. I’m admitted in 22 seconds or over. But anything I can quickly answer? I’ll host a round table tomorrow, if any of you would like to stop by and just chat, I’m available to do that. Okay. Scott are we good?

Scott: Yup. I think we are good. Thanks, Paul.

Paul: Okay, thank you all.

[Applause]