Focus on value, not cost, to beat odds

| 0 Comments

 

BillMichels.jpgChief Procurement Officers (CPOs) have a very short window of time in which to make their mark at a company (the average tenure of a CPO is less than five years), and the terms of engagement are brutal: corporate mandates to reduce costs in the supply chain set up procurement officers for failure since costs can’t be reduced year over year indefinitely without a breakthrough change, which is hard to achieve, said Bill Michels, CEO and founder of Aripart Consulting.

 

The problem stems from the need to ensure that supplier margins are sustainable over the long term, said Michels at a CPO Rising Summit. “You don’t want to run the supplier out of business. We want suppliers to reinvest in the business and innovate, continue to give us improvements year over year and we need them to be healthy to be able to do it.”


But CPOs still need to reduce costs, he said. “Here’s where you’re most vulnerable as a CPO. Unless you can come up with ways to come up with innovation, breakthrough, change the specs, change something, you’re not going to do it.”


By the third year of a CPO’s tenure, “if you haven’t changed… your team, your process or the way you’re going about it, or educated management on the value [of the procurement team], you’re in a danger zone,” said Michels.


Value can be demonstrated by protecting the supply chain as a whole and supporting business imperatives to make more money. One example: A biotech company that Michels worked with was less concerned about cost reduction and more concerned about making sure that its supply chain continued to function.


Michels explained, “[management said], ‘build me a risk management system that works’. They built a predictive model of all their suppliers and their supply chain. They identified which suppliers were going [to fail].” As a result of that analysis, the biotech company’s board of directors made a decision to spend $100-million to protect its supply chain, since that supply chain was feeding a $7-billion business. That decision obviously resulted in money being spent rather than saved, but because the expenditure protected the company’s ability to continue making money, the board of directors quickly approved the expense.


Michels predicts that value will trump price in the future. Citing a 2014 study from the Institute for Supply Management, he said that CEOs are looking for CPOs who can deliver shareholder value, integrate the company’s supply chain, capture innovation and speed the process of getting products to market. CPOs who focus on cost reduction at the expense of these other key requirements will be the first ones looking for a new job.


Beyond the need to deliver value to the company rather than simply cutting costs, chief procurement officers also need to prepare for digital disruption. Michels told the story of a client of his who’d envisioned using artificial intelligence to identify suppliers around the globe, help produce RFIs and RFPs, and then make sourcing recommendations. He said that much to his surprise he learned that there’s a project underway at Stanford University to deliver such a capability through artificial intelligence.


He also suggested that the Internet of Things (IoT) will have a major impact on the supply chain. “We’re going to have connected suppliers who are going to be able to transfer demand all the way through the supply chain automatically, and we’re going to wind up having perfect inventories and perfect solutions. I think the IoT is going to change your life,” he said.
 

This article first appeared on techtarget.com 

 

Leave a comment


 

 

Career opportunites

Tutor and Coordinator

  • Gauteng Operations, Planning & Inventory Permanent Procurement Management Supplier / Business Development
Purpose of the job: To plan, coach, advise

Commodity Manager

  • <500 000 Commodities Gauteng Procurement Management
Are you a Commodity Manager looking for the

Supply Chain Professional

  • <500 000 Gauteng Procurement Management Supply Chain
I specialize in placing professionals in the Supply

Supply Planning

  • <500 000 Gauteng Operations, Planning & Inventory Supply Chain
Seeking dynamic candidates to take to the market

Industrial Engineer

  • <500 000 Gauteng Industrial Engineer Procurement Consultant
Are you an Industrial Engineer looking to make

Logistics Manager

  • >500 000 Gauteng Logistics & Warehousing Supply Chain
Seeking vibrant industry specific individuals seeking new opportunities

Operations Manager

  • <500 000 Gauteng Operations, Planning & Inventory Procurement Management
Looking for an Operations Manager to take into

Supply Chain Systems Administrator

  • >500 000 Gauteng Procurement Management Strategic Sourcing Supply Chain
One of South Africa's leading, mining companies is

Logistics Manager

  • <500 000 Gauteng Logistics & Warehousing Procurement Management
Are you an experienced Logistics Manager looking for

Continuous Improvement Manager

  • >500 000 Gauteng Procurement Management Supply Chain
I specialize in placing professionals in the Supply

Warehouse Assistant

  • <500 000 Gauteng Logistics & Warehousing Operations, Planning & Inventory
I am currently looking for ambitious Demand Planner,

Internal Procurement Officer

  • <500 000 Gauteng Permanent Procurement Officer / Specialist Strategic Sourcing
Position Available: Internal Procurement Officer Status : New ...More

Supply Chain Officer

  • <500 000 Gauteng Procurement Officer / Specialist Supply Chain
Seeking dynamic candidates to take to the market

Supply Chain Planner

  • <500 000 Free State Operations, Planning & Inventory Supply Chain
Seeking dynamic candidates to take to the market

Senior Buyer

  • >500 000 Buyer Gauteng Procurement Management
Tech-Pro specialises in placing professionals in the Supply

Industrial Engineer

  • <500 000 Gauteng Industrial Engineer
Tech-Pro specialises in placing professionals in the Supply

Warehouse Manager

  • >500 000 Gauteng Logistics & Warehousing Operations, Planning & Inventory Supply Chain
Seeking hands on individuals that come from an

Manufacturing Purchasing Specialist

  • >500 000 Procurement Officer / Specialist Supply Chain Western Cape
A leading auto manufacture company based in Cape

Procurement Sourcing Specialist

  • <500 000 Gauteng Procurement Consultant Strategic Sourcing
A Leader in the Supply Chain industry is

Planning Manager

  • >500 000 Gauteng Operations, Planning & Inventory Procurement Management
Looking for Planning Managers to take into the