Five Disruptive Forces Keeping CPO's Awake at Night



lisa malone.jpgBusinesses today have more exposure than ever before to trade, investment, jobs, people movements and especially flow of information. This represents a threat to some and an opportunity to others, says Lisa Malone, General Manger at Procurious in this month’s SmartProcurement.

“Opening our companies up to a globally connected market has had enormous commercial benefits and uncovered new consumer and supplier markets. But, for all this benefit, the enormous geographic and economic shadows our organisations’ now cast leave our businesses far more exposed to risk” explains Malone.

Over the next 12 months, CPOs can expect to see five disruptive forces impacting sourcing, negotiations and supplier relationships.

1. Markets

It would be naïve for any CPO to expect market volatility to settle any time soon. Over the last 12 months,the Rouble depreciated 50%,the Australian dollar depreciated 20%, oil prices dropped 50%, iron ore prices dropped 40% and the Rand spiralled lower still on the back of this volatility.

Add to this, the current instability in the Eurozone and further weakening economic figures out of China and it all paints a concerning picture for global markets and businesses who have built their models on Chinese growth of over 6%.

Our businesses are now, more than ever, exposed to the instabilities of the global markets. CPOs must now decide how to either protect or profit from this volatility.

Stakeholders are looking to you to be knowledgeable of how changing macroeconomic conditions will impact not just your commodity and supply base, but also how it will impact your organisation and its competitors.

2. Ethics.
Some leading global retailers had their reputations shattered last year with revelations about unscrupulous tactics used to bully suppliers.

CPOs need to have a clear conscience that their people are using squeaky clean negotiation techniques and are taking demonstrative actions to ensure their team, and the entire organisation, has a healthy and ethical approach to managing suppliers.

Conversely, just as poor ethical behaviour can be a source of criticism, CPOs should work with Marketing to highlight examples of innovative supplier partnering for reputational advantage with both consumers and suppliers.

3. Transparency.
Increasingly socially-aware consumers now view a company’s supply chain as part of its direct responsibility and use social media to hold businesses to account.

Responsibility for transparent procurement practices stretches well beyond first tiersuppliers;CPOs need confidence they know what is happening much further upstream.

Discovering that a third or fourth tier suppliers is involved in corruption, using child labour, or substituting lower quality ingredients or parts is the stuff of nightmares for CPOs.

With new apps allowing consumers to trace materials back to their source, and businesses like Icebreaker and Patagonia providing full transparency of their supply chains, plausible deniability is no longer an option.

4. Optionality.
Its well documented that consumers have change the way they access and pay for goods and services. In this age, the customer interface – the experience - is everything.

As customer-centric technology increasingly becomes the product, procurement teams need to keep their contractual options open to take advantage of break-through technologies, often from innovative SME suppliers.

With agreements still being 3-5 years long, Procurement must build greater optionality into contracts to ensure the business has the agility to adopt new technologies, to ensure the business isn’t left behind.

5. Organisational alignment
Procurement teams today are well versed at “finding the money” and negotiating great deals that result in bottom line savings.

The trickier challenge has always been to ensure contracted savings actually make their way to the bottom line.

Today’s CPO has to work harder than ever to make sure all staff – often outside Procurement - are utilising negotiated contracts and treating every dollar as if it were their own.

Creating a cost-conscious culture is a huge change management exercise that requires a vastly different skill-set from the CPO’s traditional tool kit.

Successful CPOs will drop the procurement chat and start talking the language of the business. They will have a clear understanding of what success looks like for stakeholders and frame initiatives in these terms.

The silver lining
Fortunately, as supply chain complexity has grown, so too has the connectivity of the procurement community. Accessed via social media, there is now a global wealth of knowledge and information to be leveraged, allowing CPOs to pull back the curtain on the supply chain and mitigate against these threats.

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