The economic downturn offers a unique opportunity for the procurement profession and CPOs to gain wider recognition
The economic environment brings unprecedented, almost overwhelming, challenges for procurement. But things look much more encouraging for the CPO when he or she steps back and takes a selfish view of the current situation.
What’s in it for our function? Quite simply, a lot. Not only can CPOs make a huge difference in addressing external supply challenges, but a more holistic contribution to their companies’ crisis management efforts may help to open doors to broader recognition and influence later on.
As CPOs, we know all too well that procurement is typically recognised for its bottom-line contribution through cost reductions, cash-flow improvements and the like. Other functions expect stellar bottom-line savings. This leads to the perception of procurement as a cost-cutting function that is acknowledged by business colleagues but not necessarily highly valued by them. The fact that so many procurement leaders report into a CFO underlines the bias in expectation towards cost contribution.
The current environment, however, allows procurement to step out of its traditional role as companies rely increasingly on a broader contribution. Getting the right balance between short-term results and longer-term strategic imperatives will be the toughest challenge for CPOs.
Procurement will be asked to drive stronger savings immediately. When these demands conflict with strategic imperatives, the CPO must seek dialogue with senior stakeholders. He or she must educate them about the trade-offs in prioritising the short term over the long term. Furthermore, the CPO will not make friends when explaining to senior business stakeholders that inflation and scarcity of resources may soon return as a result of the lack of necessary investments in capacity and infrastructure.
I recommend a proactive approach with internal stakeholders. CPOs should give them an early education on the mid- to long-term mega-trends: the return of scarcity (tight supply and commodity price inflation); the shift in economic power to emerging economies like Brazil, Russia, India and China; sustainability issues that are driving changes in business models; and the intensifying war for talent.
Addressing these trends allows a CPO to reposition procurement’s equity away from cost containment towards a broadly based, strategically driven business discipline that is both externally focused and commercially savvy.
Building on these strengths, CPOs can navigate towards contributing to top-line performance. For example, they could lead the acquisition process for external innovation, help the sales team on negotiation strategies with customers or engage in general business strategic planning, such as growth strategies.
The current conditions also allow CPOs to remove historic barriers – for example, by influencing untouched indirect spend areas. In my own company, we were able to position procurement as a competent force to manage media and marketing spend. Areas typically owned by R&D may now become accessible as budgetary pressures drive budget-holders to reach out to procurement for help.
In this environment, it is also easier for CPOs to raise the outsourcing issue. Instead of asking “why should we outsource?”, the current environment begs the question “why should we do it ourselves?”. At the same time, procurement should not be shy of driving vertical integration when severe supply risk requires it.
Lastly, it has become increasingly important for procurement to manage risk holistically. Unprecedented volatility means that supply disruptions need to be prevented before they happen. Doing so is demanding but will bring the CPO closer to the board’s agenda. Providing the company with a fair degree of predictability when volatility is highest will move our function into the core of broader business decision-making.
Nevertheless, CPOs would be ill-advised to forget that the first expectation is that they contribute to the bottom line. Today, this is top of mind in many boardrooms. It puts procurement under severe pressure. But it also means there has never been a better time to be in procurement.
Ralf Garczorz (firstname.lastname@example.org) is chief procurement officer for the EMEA consumer division of Johnson & Johnson, based in Zurich