Who would have thought that this often overlooked individual might achieve a level of recognition and importance extending beyond the ability to acquire materials at the cheapest possible price? All the same, there are clear signs of a transformation in the role of the CPO. In fact, a new wave of protectionist sentiment demands it.
For years, the CPO has labored in the back office, charged with the mission of minimizing procurement expense. And that’s still a priority in any company with a global supply chain.
Increasingly, however, top management is turning to the CPO for help in navigating the treacherous waters of international trade. At a time when trading relationships are in flux, the wrong decision about where to buy raw materials, parts or finished goods could prove disastrous. Having cut back inventories and waste to a bare minimum, organizations can’t afford any disruption that’s the result of a supplier mishap, unanticipated tariff or seizure of goods by customs authorities.
Change has been brewing for years. It began with visionaries such as John Paterson, the veteran CPO with IBM, who has helped to transform the company’s procurement function from a cost center into a profit center. “The celebrity CPOs have been the catalyst for real strategic change,” says Peter Cook, vice president of procurement and supply chain with The Smart Cube. Up to now, however, such individuals have been the exception rather than the rule.
Cook says the resurgence of protectionism, marked by such actions as the rejection of the Trans-Pacific Partnership agreement, has served as an impetus for redefining the role of the CPO. (Just because the title carries the designation of “chief” doesn’t mean that individual has always had a seat at the executive table, when it comes to crafting high-level corporate policy.)
Now, CPOs are becoming the go-to experts for advice on crafting optimal and innovative supplier relationships. It’s beginning to dawn on even the most controlling chief executive officer that CPOs have a central role to play in devising the customer experience.
New respect for the job of CPO comes hand in hand with companies’ increasing focus on supply-chain risk mitigation. At a time when the flow of goods can be interrupted by any number of unexpected events, good supplier strategies are key. Who better to figure out that piece of the puzzle than the CPO, with intimate knowledge of the sourcing picture?
Cook traces the latest wave of protectionism to 2012, when a survey found 75 percent of CPOs revisiting strategies around local sourcing. They were motivated by a string of natural disasters, along with numerous foodborne illnesses originating far up the chain. “People were becoming concerned about knowing the full supply chain of the products they consume and eat,” says Cook. Further contributing to the localization of supply chains were volatile energy prices and the uncertainties of maintaining a steady flow of product across long distances.
It’s a global phenomenon, says Cook, triggered by events such as the U.K.’s vote to withdraw from the European Union, as well as growing nationalist sentiment within other EU countries. Taken as a whole, these unsettling trends suggest that protectionism will continue to rise, and that procurement organizations will have to respond accordingly.
Still, CPOs have a ways to go before garnering the full measure of respect they deserve. Cook sees conversations about their role occurring within numerous companies. What he doesn’t see is that talk necessarily translating into real change in supplier development, of the sort that mitigates risk.
“They’re still back at defining the problem, what the scale is, and understanding points of vulnerability,” he says. Many questions remain unanswered. Should the focus be on raw materials? Final assembly? Product testing? Which stages are subject to tariffs under changing rules of global trade? What, at bottom, should be the true scale of a supply-chain transformation?
Of course, the answers are never simple. Reshoring strategies, triggered by any number of factors, rarely result in the wholesale relocation of all production from one place to another. Many products today, especially in the realm of consumer electronics, are made in multiple countries. Meanwhile, there’s a tremendous amount of uncertainty as to what kind of tariff and trade policy will finally emerge from the bluster of President Trump.
What CPOs need to be doing now, says Cook, is reaching out to suppliers to assess their level of vulnerability and specific strategies for mitigating risk. His definition of true supplier development is “when you’re collaborating with that supplier to potentially change its capabilities.” That could lead to an expansion of total capacity, or the evolution of manufacturing to align with a particular product or innovation that the company is bringing to market.
Another best practice in modern-day procurement is to acquire visibility over the multi-tier supply chain, says Cook. Often the source of a disruption will be far up the chain, resting with a subcontractor of whom the original equipment manufacturer might have little or no knowledge.
Meanwhile, back in the boardroom, CPOs are in a position to offer valuable advice on such matters as the right time to acquire a supplier, a step that could be necessary to protect a high-value, time-sensitive supply chain. Regardless of the decision that gets made, however, CPOs are being consulted on matters that never used to cross the procurement desk. Along with respect, appreciation and celebrity comes a significantly heavier burden of responsibility. CPOs will have to step up.