What is the role of a chief procurement officer and the function they lead? The traditional answer is pretty simple – to manage the company’s spend better and save it money. That’s still procurement’s “core competence”, without question. But increasingly, as we’ve shown many times in this publication over the past three years, those at the forefront of the profession are using their commercial skills and knowledge to add value in other areas of business operations.
This more expansive role is clearly not for everyone. Many CPOs I meet seem quite happy just getting the “basics” right. And in their article on leadership, Gerard Chick and Mike Lewis note that there is uncertainty among CPOs about the nature of the “strategic” contribution they can make, as well as among CEOs and other senior executives about what they really want from their procurement departments. But drawing on recent interviews with leaders in both camps, they argue strongly that CPOs need to be more than “corporate goalkeepers”, sitting back and watching the action unfold around them.
Two areas where ambitious CPOs are beginning to make an impact are top-line revenue growth and the closely linked hot topic of innovation. Participants at our roundtable discussion in Frankfurt – reported in this issue – were convinced they could contribute on both fronts, although they recognised that this is still uncharted territory in most industries.
They also agreed that if procurement is to play its part in delivering innovation, different attitudes and behaviours are needed to manage relationships with a company’s most strategic suppliers.
This theme is picked up by Marc Day and his co-authors in the last of a series of three articles on SRM. They report the findings of a major global research study, which suggests that there is, on average, 23 per cent additional value to be gained from closer collaboration. That compares with less than 5 per cent available from traditional annual cost-out activities. The question they go on to explore is how CPOs and their teams can begin to extract some of that value in practice. (A detailed case example of this is described in the follow-on article by Lynette Ryals and Andrew Humphries.)
In sectors such as banking, they point out, some of the most critical relationships are now with providers of outsourced (and, in some cases, offshored) services. Managing these is a key strategic task, but first you have to decide on the right sourcing option for the service in question. George Yip and his colleagues at consultancy Capgemini offer a model designed to help evaluate the choices along the three dimensions of ownership, location and the degree of management control required.
Expanding one’s influence in new areas of business certainly carries risks for CPOs. But as Chick and Lewis remind us: “Bravery is a prerequisite of success.”
Geraint John
geraint.john@cpoagenda.com
