Procurement at the Forefront

This is an excerpt of the original article. It was written for the May-June 2020 edition of Supply Chain Management Review. The full article is available to current subscribers.

May-June 2020

Most of the time, when I sit down to write this column I look at what I wrote for the previous year’s issue for perspective or inspiration. The truth is, nothing I’ve written before, or experienced in my 64 years, has prepared me for COVID-19. I’m sure that most, if not all, of you can say the same. Yes, it’s a global crisis, but closer to home, it’s a supply chain crisis. Quite simply, even the best supply chains, at least those that are still operating, are broken.

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Anyone who has ever participated in a quarterly earnings call or a board meeting knows that company performance (and by extension, CEO performance) is ultimately measured along two dimensions:

1. financial results and,
2. progress against strategic objectives. To be immediately relevant to CEOs, procurement functions must report their performance in terms that tie directly to those metrics.

Few currently do. As a result, CEOs often lack clear understanding of procurement’s potential contributions beyond reducing the company’s external spending—which most CEOs view as the main CPO metric. This relentless focus on costs is now being severely tested as the COVID-19 pandemic reveals that many supply chains designed to minimize costs were ill-prepared to manage the volatility and supply risk in these unprecedented times. Only by making a rock solid, CEO-relevant business case can procurement garner the CEO attention and investments it needs to be ready for future crises and fulfill its true value-adding potential.

It can be done. We have the honor of working with highly capable CPOs who serve on the top executive teams at respected companies. One such CPO has led procurement to a documented record of sustained cost reduction. But under this CPO’s leadership, the function pursues far more extensive
ambitions. Procurement is at the forefront of the company’s drive for sustained competitive advantage, superior financial results and rapid progress against strategic objectives—and so enjoys unusually strong support from the CEO.

In this company, an end-to-end external spend governance approach interlocks procurement benefits into budgets and avoids leakage. Simultaneously, procurement is a hub for innovation, creating exclusive arrangements with ecosystem partners to take advantage of new technology, improve the bottom line and enable sustainability—one of the company’s strategic pillars. It has innovated new economic renumeration for, and sustainable uses of, byproducts, rather than simply negotiating a cheap price for disposal. In sum, this procurement function delivers value that goes far beyond pure deal-making by embracing new approaches to the supply market, actively advancing the company’s sustainability agenda and pursuing radical process engineering.

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