What should CFOs expect from CPOs?

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ProcProcurement.jpgThe clue to the answer may appear to be contained in the job title. The narrow, traditional view of a chief procurement officer (CPO) is that they organise the buying of stuff – even if it is not stuff at all, but services – in a timely, efficient, and cost effective manner. The problem with this view is that it is wrong.

The CPO’s remit has changed radically with the advent of globalisation. Efficient procurement is now a strategic asset, as multinationals calculate where best to buy stuff – be it raw materials, manufacturing plants or labour. Digital technology has expanded procurement’s remit – and the demands on the function – exponentially. “In an environment where durable competitive advantage is the exception rather than the rule, those CPOs we see being highly successful, are those who fully understand how procurement can impact strategic business objectives, and align their teams to do this,” says Jamie Ogilvie-Smals, vice president at GEP - a global provider of procurement consulting, services and software to large companies across the world.

According Ogilvie-Smals, contemporary and highly effective CPOs have to excel at the following seven tasks:

1. Think strategically

Every company wants to get to market quicker, but how do they achieve that? Logic suggests that CEOs and CFOs would talk to the CPO, who runs the supply chain that delivers products to the customer. Yet too many boards regard procurement as a tactical function, albeit with spending power – so it is up to CPOs to show their strategic worth. You need the right mindset to do this: the best-performing procurement chiefs will have a broad range of issues (competitors, company culture, risk management, value creation) on their radar.

2. Align procurement to the business

You have to decipher your business objectives to succeed. This is not always easy, as organisations often have competing priorities, and sometimes the connection between strategy and day-to-day decision-making is unclear. CPOs however need to align their function to the business and - as a member of the managerial team driving the business - engage early in the decision-making process, so they may influence thinking.

3. Drive innovation

Innovation is not just about paradigm-shifting new products. As management guru Peter Drucker said, innovation is “a change that creates a new dimension of performance”. So, it can happen anywhere. It could be using the latest technology to simplify a process (or create a new one), or perhaps to apply a completely new approach to category management, collaborating with suppliers, customers and third parties to develop a faster route to market. Momentum is key. Truly innovative companies do not bask in their success, they build on it.

4. Dare to differ

Most companies think they know where they derive their value from. As a CPO, you probably have fingers on more pulses than anyone else in the organisation, so do not be afraid to conduct some forensic analysis and challenge the status quo. At worst, you will have proved you are not afraid to think creatively. At best, a bold new alternative may yield greater rewards than the customary focus on continuous improvement.

5. Promote procurement by storytelling

Managing upwards or sideward has not traditionally been one of procurement’s strengths. By collaborating with finance, sales, marketing and operations, procurement can help anticipate market fluctuations, make supply chains more resilient and save money. The better managers understand procurement, the more likely they are to invite you to shape strategy. CPOs need to be able to visualise procurement and the value that it brings to an organisation. In an age of decreasing attention spans, make sure to turn your successes into stories or sound bites.

6. Manage change

As CPO, you need to be at the hub of the conversations about value in your business. As such, you need to motivate people who do not report to you, and develop a network of contacts inside- and outside the business to keep you abreast of what is happening. Listening to the outside world is something most companies could be better at, and, by having the right conversations with suppliers and other third parties, you can take the lead in managing change. The role of change agent falls to you. As such, you should be able to identify the need for change before anyone else, and share it with stakeholders to create, or protect, the value of your business.

7. Recruit a diverse team

The biggest mistake you can make is to hire a team of people who are just like you. As the demands on procurement become more complex, varied and time-critical, you need a diverse blend of experience to cope. Diversity isn’t just about race and gender – though that is a large part of it – it’s also about diversity of background, experience and thought. You never know when a particular skill, lesson or thought process will prove valuable. Eclectic procurement teams, encouraged to share their different opinions, can also help stimulate innovation.

Reproduced from an infographic published by Supply Management.

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