Is the work of the chief procurement officer (CPO) changing?
According to Raconteur’s report in The Sunday Times on the Future of Supply Chain & Procurement, constant problems in the supply chain have proved a real headache for many businesses over the past two years.
And, as firms struggle to deal with a succession of disruptions, the role of the CPO is becoming even more important, with a share of CPOs citing the below activities as focus areas (American Productivity & Quality Center, 2022):
- 42% Vendor/supplier relationship management
- 29% Automation and digitisation
- 27% Procure-to-pay
- 25% Analytics
- 24% Talent acquisition and retention
- 24% Purchasing
- 16% Sustainable sourcing 8% Contracting
For Procurement Heads‘ first CPO Spotlight, we spoke with Richard Trower, CPO, to hear his thoughts on the role and what he sees as upcoming priorities for people who hold the position…
Broadly speaking, in companies that have got mature and well-trained procurement organisations, CPOs have always run a balance scorecard, they have always looked at the assurance of supply, quality, service, cost, innovation and environmental sustainability criteria.
The emphasis will always change – one year it might be on savings, another it might be a little bit more on risk, market intelligence, innovation and so on.
But that balanced scorecard has always been there in the best procurement organisations.
Great businesses have always looked to procurement for a balanced scorecard across the strategic planning cycle.
What I think has changed more recently is organisations that have previously been more of a purchasing or buying function – as opposed to a proper procurement organisation – have come to realise that purchasing and buying are much more than that. It is procurement and there is a lot that the procurement function can bring to the table.
This is particularly the case where businesses are looking for answers across the organisation to some of the challenges they have – whether those be inflation, supply security, availability of raw materials etc, the organisation is asking, ‘Who can help us explain what the situation is to our customers and consumers?’ ‘Who can help us solve some of these problems?’
Businesses are looking to procurement to come forward with the solutions.
Organisations that have less mature procurement functions are currently viewing procurement as a valuable part of the decision-making process which is ensuring procurement is being actively consulted and involved across the business priorities – particularly with commercial, and that is a significant change.
What I think you will find will happen is that as the disruption lessens over the course of the next year or so, those organisations that are less mature will probably revert to type. They will probably go back to not having the time to listen and understand market intelligence or understand the problems in supply security. It will be viewed as procurement’s day job, and will only be properly discussed when issues arise.
The more mature organisations will still maintain the importance of that balanced scorecard and will drive to ensure that procurement is delivering across all the necessary metrics. These businesses will continue to ensure that the balanced scorecard is properly discussed, reported on and monitored.
I do think there is one angle that is interesting to see how it is going to play out and that is the combination of innovation and responsible, environmental, ethical sourcing.
Commercial functions are beginning to see the benefits of being really specific with suppliers. Targeted requests for specific innovation or specific environmental requests are yielding positive results, and suppliers are responding well to this.
I do think that is something that has changed, and I think that businesses are looking to grow this capability with procurement. This is very positive and demonstrates that businesses are seeing beyond Brexit, Covid and geopolitical disruption and the associated challenges they continue to bring.
What are the upcoming priorities for CPOs?
Businesses will react to the prevailing problems, the danger, to be avoided, is to prevent businesses from over-reacting. While there have been significant supply issues that should not mean that security of supply is the only important criterion. It is true that you can only do cost reduction, innovation, and quality if supply is secure. This, however, should continue to be properly risk assessed, and businesses should not ignore significant opportunities across the balanced scorecard because supply security is of such significant importance currently.
Businesses are potentially perhaps knee-jerking towards taking actions that they may regret in years to come. We need to continue to ensure that we have diverse supply bases from multiple places in the world. We just need to ensure that we pay careful attention to lead times and stock levels – which will affect working capital.
It would be unfortunate if we became too focused on our home markets as we would lose innovation and new ideas from around the world. This is an area where businesses need to think carefully about how they progress.
I understand why businesses are looking to localise, but I think there needs to be a little bit of caution. This will end up in a better more balanced place.
The best organisations look at procurement from a functional excellence point of view.
Procurement functional excellence has delivered outstanding results and will continue to do so.
Those organisations which are less mature perhaps have less of an emphasis on functional excellence. When you weave the matrix organisation over the top of functional excellence, you end up with very powerful results.
I think if you try to make the matrix work before you have got functional excellence you can end up having challenges and sub-optimal results.
Trust, confidence and delivery come through functional excellence, which will be seen across the matrix.
We asked some of the procurement leaders in our network their thoughts
Here’s what other procurement leaders had to say about the role of the CPO…
More than ever, the core role of the CPO as a trusted advisor to the business, executive and the board, is to take the lead on clearly communicating and putting into action what the business needs to do to proactively navigate through the many and varied supply chain risks that have emerged over recent years risks that if they firm up could materially threaten the performance and future of the organisation.
This is through working closer than ever with our supply partners, being present with key decision-makers in the business, supporting and training our colleagues and ensuring investment in technology and process improvement is prioritised.
The key priorities are:
- These are all under the heading of supply chain risk, but in effect ensuring we’re proactively managing the fallout from a combination of Brexit/Covid/Ukraine including:
- Supply shortages of key technology components, products, and labour – addressed through better forecasting, closer collaboration, building in buffers/strengthening commitments
- Increasing input costs and output prices: addressing through re-evaluating demand needs, specification re-designing, supplier consolidation/sourcing change, negotiation
- Geo-political market access/logistical blockages – addressing through short-term alternative transport with mid to longer-term resourcing to ‘safer’ more local geographical regions.
- Increasing threat of financial distress of core suppliers – addressing through deep finance to finance deep dives and leveraging a broader range of leading indicator technology and cross-community insight
- Cyber-attack threat – strengthening external perimeter defences, enhanced supplier assurance
- Talents retention and recruitment – we’re in a very hot market and offering colleagues the flexibility they require, stretch assignments, training and a competitive reward package is key
George Booth – Group CPO, Lloyds Banking Group
For years we’ve talked about the value of procurement and making procurement more of a strategic and valued partner to the business.
I think that argument is now so well-rehearsed, that we have to acknowledge the question needs to change; if you’ve not won it yet then maybe you never will.
The challenge for us now is that we have to show what we can do and are doing to navigate the current difficulties.
To take our businesses along with us.
The world is more dis-united than I have known it in my professional lifetime, with far more complex challenges.
And at the same time, there is generational inflation that some in my team have not experienced in their entire lifetime.
So, if we cannot demonstrate the case now for the value of procurement then we might as well shut up shop and let the business get on with it.
We have to be demonstrating the response to these challenges, not trotting out the same category strategies and six-month templated processes that suit no one other than procurement.
All of the below are valuable things to be doing, but in my mind, there are some core issues that need addressing:
- The battle against inflation
- Supply chain risk – both physical and digital
- Sustainability – this may have been knocked off the headlines, but it remains a core issue. If you look to solve problems 1 and 2 and ignore problem 3 then you are going to lose.
If you aren’t engaged on these topics now with active plans endorsed by leadership that procurement is seen to be leading, then what are we here for?
David Ford – Group Head of Procurement, Freshfields
The function of procurement needs to evolve to become much more dynamic/ strategic/futuristic.
Too many CPOs sit in their ivory towers providing no real direction for the businesses and their professionals.
Of course, in times of stressed supply chain challenges the need to engage/empower the total workforce and suppliers is of paramount importance to identify short /long-term solutions and options.
Clarice Camacho – Head of Global Energy Procurement, ARLANXEO Netherlands B.V.
It would have been nice to see the words leadership and development as a key activity.
Too many senior leaders get to the role at the top and forget that’s their main responsibility.
The clue is in the word ‘chief’.
Tom Mills – Head of Procurement, Bibby Financial Services
Procurement has become recognised as a key strategic element in operational success.
Highly efficacious procurement and commercial risk management have never been more critical than it is currently.
Golden thread fintel data and thorough due diligence are absolutely paramount to survival.
Smart businesses are engaging with procurement more on a strategic level, as the critical import of ‘buying right’ becomes recognised and acknowledged, and proactive risk management better protects organisations from damaging outcomes.
There’s never been a more challenging time in procurement.
Highly efficacious procurement is becoming the essential survival tool, and businesses will succeed or fail on how effective their buying activity is.
Every penny counts and securing optimal value is absolutely essential.
Murray Ambler-Shattock – Strategic Operations, Research, Development and Innovation Manager, KM Holdings Group
What is the role of a Chief Procurement Officer?
The Chief Procurement Officer directs and coordinates all aspects of an organisation’s procurement.
They are responsible for developing policies, procedures and short and long-term organisational goals.
The CPO designs, establishes and maintains the procurement organisation’s structure and staffing to effectively achieve the company’s goals.
They’ll be responsible for the overall procurement budget and implement strategic plans across the function.