Two clear themes shine through in this issue of CPO Agenda. The first is corporate social responsibility (CSR), and in particular the environmental effects of climate change; the second is product innovation. Five years ago, few people were talking about procurement’s role in relation to either issue, so the fact that both are now on the agenda is a clear sign of how the profession’s scope and stature is growing.
Last year, the Carbon Disclosure Project – an alliance of institutional investors – formed a group of major companies to look at how the carbon footprint of their supply chains could be measured. One of the first to join was Unilever, and in our “Briefing” slot its chief supply chain officer, Ian Midgley, explains why the company signed up, what it hopes to achieve, and how other firms can get involved.
This is just one of the ways that CPOs can take a leadership role in the carbon emissions debate, suggest McKinsey consultant Nicolas Reinecke and his colleagues. Because such a large proportion of the energy required to manufacture products is consumed by a company’s suppliers, procurement holds the key not only to making emissions transparent and working to reduce them, but also potentially in claiming a share of any cost savings that result.
A side benefit is that being proactive on the environment helps to make your function attractive to talented people whose choice of employer is now in part determined by its ethical credentials.
One company that knows all about the importance of image is the French cosmetics giant L’Oréal. Its CPO, Barbara Lavernos, has spent the past three years trying to ensure that its suppliers in emerging markets comply with its healthy and safety and labour standards. But the real value of CSR – and where things get interesting, she believes – lies beyond compliance in the realm of product development. “CSR can be a new lever of innovation, a new way to do business,” she says.
Innovation is certainly a key issue for global plastics firm Rehau. In our case study, its chief operating officer, Rainer Schulz, explains how four years ago it introduced a new role of “innovation scout” into its procurement team. One of the scouts’ tasks is to ensure that Rehau gains competitive advantage from new ideas generated by its suppliers.
Procurement’s role in managing risk and contributing to growth lies at the heart of executive coach Dick Russill’s vision for the function. But to carve out such a role for themselves, CPOs need to see cost savings as a byproduct of procurement’s efforts, not an objective in itself, and change the widely held view that it is merely a “support” activity. “Procurement cannot be a service and strategic at the same time,” he writes.
It’s a provocative statement, but one that I hope will spark a healthy debate.