The Art of Digital Procurement

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GoDaddy offers a roadmap for digital supply chains.

Imagine helping 19 million people to shift ideas into action, share knowledge, turn adventures into business ventures, build brands, realize dreams.

Chances are you know someone who uses the world’s largest cloud-based platform created for small, independent businesses. Maybe your domain name is registered there, or that’s where your website lives.

Any way you slice it, you know GoDaddy.

In the past six years, GoDaddy’s customer base has nearly doubled; they have 78 million domains under management, and operate in over 50 markets in 29 languages. The company’s three revenue sources are domains, hosting and presence, and business applications. Their business applications, anchored by strategic partnerships with the likes of Microsoft and Amazon, include a suite of productivity tools, such as Office 365, to help businesses operate easily.

We recently spoke with Keith Tice, Chief Procurement Officer for the Scottsdale, Ariz.-based enterprise, to get a grip on how digital businesses like GoDaddy (NYSE:GDDY) approach supply chain and procurement functions.

Late of consumer packaged goods giants Henkel and IBP, Inc. (now owned by Tyson Foods), Tice came from a very traditional procurement background. The notion of working for a tech company hadn’t occurred to him until GoDaddy came calling. “At the time I was making the decision, the spend responsibility at my former company was larger than the revenue at GoDaddy. It was kind of a backwards move in that sense, but with the ability to come in and create something and learn a new industry.”

As part of building a foundation for the company’s new procurement operation, Tice held stakeholder engagement meetings, where he found significant resistance to the concept among the ranks.

“I realized I had to crack this, and I’d done it many times before, so it was just a matter of learning how the tactics were functionally different ... you can’t go in to every department and say it's one-size-fits-all in terms of strategy. For the IT folks, it’s about making sure that they stay engaged as subject-matter experts, and that you are taking away that commercial aspect of their role and allowing them to focus entirely on what they're paid to do, which is highly technical.”

Reframing the purpose of procurement was key to getting staff buy-in. “By putting procurement in the context of, ‘I'm here to take this off your plate and allow you to do what you were paid to do,’ you open the door. Then it becomes proving your worth to those internal stakeholders. Then you have to meet with suppliers and understand what's going on and start creating those wins. In some cases it takes small ones, but sometimes it takes large ones. The IT folks eventually came around.”

The marketing department was a tougher sell. “I’ve had conversations with people in procurement in the past, and when you start talking about marketing you step into the most difficult area of all of procurement, at least in one person's opinion, which would be mine. Marketers look at procurement people like creativity limiters,” he mused. “That's not it at all. It's a matter of convincing them that they still need to be relationship owners, they still get to be creative, in fact they traditionally have limited budgets and we unlock some of that budget for them by restructuring the fees they're paying to get them more for every dollar.

“You can never walk in and say, ‘I'm a marketing expert.’ You do that, and start challenging credibility, and if you're not a marketing expert you'll get challenged really quick on that. You just have to be a partner, and you have to make sure, just like with IT, that they understand entirely that you are not here to hinder and you're not here to limit creativity.”

Culling the supplier herd

Unlike procurement operations in durable goods manufacturing and other traditional industries, tech doesn’t exactly have a supply chain. Commodities exist, but they are much less prevalent.

“There are some, if you look at hardware and some things like that, and we run data centers around the world that have hardware in them so when you boil it down and look at the component level it's commoditized. But if you separate that out, there really isn't a supply chain. It's more about virtual products. We buy things in the tech world that could be online, in the cloud, or on premise in a data center. It may be a subscription and/or a professional service, but there are a lot of intangibles. The outcome is certainly tangible, but we don't have umpteen trucks delivering to our docks every day, unloading and preparing for manufacturing, warehousing, shipping, and distribution.

“We buy products that help our team, the full GoDaddy team, do their work in terms of developing applications or coding or creating something that makes our customers’ lives easier or enhances the way business internally for some system or process. It is very, very different.”

To determine the state of GoDaddy’s supplier base, Tice and his team categorized them by the amount of value they provided against the money being spent with them. This initially took looking backwards at the supply base to see who was buying what and from which suppliers. Through the use of advanced analytics tools supplied by Sievo, Tice was able to gain transparency into the details. Then the work began by combing through the 28,000-plus suppliers to break them down. This all began in an unexpected area, facilities.  ISS Facilities Services met the challenge in this area and helped break down and manage a complex, but not technical, area for GoDaddy. Next came the categorization.  The high value, and potentially impactful suppliers are the challengers. “A challenger is somebody, or some company, who comes in and is able to bring something new, innovative, or unique, meeting a need we haven't been able to meet, or is an incumbent to either unseat another supplier or augment and add some additional value that another vendor may not be able to bring to us.

“Challengers are the ones that I expect my team to go out and find. Go find the innovation and find suppliers to jump in and take a risk with us and we'll take a risk with them to create that value.”

Core suppliers are virtually indispensable. “They know our business plans, we know theirs, we are totally open book with them about what we are going to be doing and how we can use their services. They let us know where they can or can't help. It's a foundational relationship that we manage closely. In my world there are less than five suppliers out of 3,000 that currently fit that category. If you look at the area of media buying, the options are almost endless in terms of suppliers. We work closely with Northern Lights Direct as our top media buying partner globally. They won our business because they are flexible and can be nimble with us, which is required given the nature of when, where, and how we go to market. And you have partners like TVSquared who help us tremendously in optimizing our TV campaign performance.”

Developer suppliers are also needed to run the business. “They may not be bringing the highest levels of innovation, they may not be adding significant numbers on the value side, but we need them. If you're running any type of computer on your desk you need Office 365 or you need Adobe or something to run it. That's a developer supplier. That’s somebody who is going to be there; it's not commoditized, but it's also not something that's heavily competitive with us … lots of our suppliers fit into that developer category.”

High spend, low value suppliers are the bottlenecks. “These are the suppliers that you need to look at as given but not wanted. It's a tough scenario, because we do tell suppliers this is where you fit. You are a bottleneck and we will do everything we can to de-bottleneck you if you can't de-bottleneck yourself and increase the value you bring to our business. There are typically very few in that category.”

Local jewels are low spend, low value suppliers that are necessary for everyday office operations, such as florists. Last, and least are the expendables, whom Tice refers to as happy underperformers. “You'll get suppliers that are making decent money and have a good margin, but they're not doing anything for it or adding any value, just getting that frequency of a paycheck from the company. They're expendable so we get rid of them.”

Tice and his team also created a push system for procurement. “The businesses will push things to us because they shouldn't be doing it, or they don't have the ability, versus procurement having have to reach out and pull it away from them, and that's the ultimate win for us. When you start thinking about creating the high-performance type of organization in procurement it's about getting a push from the business and dropping things over to you.”

On Tice’s first day at GoDaddy, the company’s brand new CTO, Elissa Murphy (now of Google) told him that procurement is an art. “It’s a short, simple statement, and I’ve thought about its many times since. It is an art. It takes talent to perform at a high level in these roles and to do it right while making sure that you're doing what's best for the company — and of course for our customers — what's best for your stakeholders, and in most cases what's best for the suppliers,” he said.

“GoDaddy is more than domains. We’re here to help every single small business succeed. We’re here to walk the journey with our customers, we’re here to inspire customers along the way. … we love to coach and counsel our customers, but the most important thing we do is living the life of helping our customers fulfill the ventures that they’ve always dreamed of. That’s what we’re about.

“And in procurement, it’s hard to link what you do to the customer. I tell my team all the time, ‘If you innovate something, change something, save a dollar somewhere, think about how that can go to benefit one of our customers.’ If we’re able to make sure the economics and financials are done correctly from our end, we can pass that on to those 19 million customers. That’s what procurement does.”