Now the job title is taking a new turn. These days it signifies something quite different than a purchasing exec who’s been given a fancy title and a corner office. In fact, this individual could well hold the key to survival for many manufacturers.
Greg Iaquinto, product strategist with IBM Emptoris, says procurement has undergone a transformation over the last five years. Organizations are scrambling to adopt best practices for the purchase of everything from raw materials to office supplies. In the process, they’re shifting from an exclusive focus on cost to one that includes strategic considerations.
At the same time, the discipline is becoming more centralized. With their “new seat at the table,” as Iaquinto puts it, CPOs are suddenly being forced to interact with – and be accountable to – finance and operations. Everyone is expected to work from a common playbook.
Globalization is the prime driver. Companies today know that they can acquire materials and build product anywhere. To make it work, though, they need centralized control – a setup that places a far heavier burden on CPOs. From IT services to catalogs, from risk concerns to legal ramifications, “that person has to worry about all the different geographic organizations, and all the constraints and suppliers in that organization,” says Iaquinto.
Fear is a great motivator, and the newfound focus on risk management has many companies taking a closer look at the stability of their supplier base. What started out as basic supplier information management has become an emphasis on supplier lifecycle management, Iaquinto says. Not only must procurement executives assess whether a given supplier will stay in business; they must master a wealth of data about regulatory regimes, geopolitical trends, the possibility of natural disasters and other constraints, now and in the future.
Here’s one competency that is core to just about every major global organization. There are plenty of outside entities that can help – providers of intelligence on global trade, customs regimes and suppliers’ financial health and commitment to social responsibility. (Not to mention the universe of IT vendors whose apps help companies to manage that wealth of information.) But bringing it all together remains the job of an in-house executive. Oh, and by the way – that individual is still expected to keep a lid on costs and save the company money on an ongoing basis.
The source of those savings is changing, though. Up until five or 10 years ago, it was all about price. “Procurement’s job was to beat up the supplier for a two-percent takedown,” says Iaquinto. “At the end of the day, you’re a vendor, and that’s it.”
New techniques allow buyers to plumb much deeper than the sticker price of a component or raw material. Spend analysis is helping CPOs to see exactly whom they’re buying from, and which vendors account for the bulk of supply. They need to know that before they can assess their global risk profile, make the best deals or rationalize their supplier base.
Equally crucial to the CPO’s job today is the practice of contract lifecycle management. Once a supply contract is in place, companies must determine whether they’re reaping its full benefits. Are both sides abiding by the contract terms? Is pricing linked to a commodities index? Are vendors being paid too late, or even too early? And in the right currency?
With the proper analytics tools in place, CPOs can go about developing category plans for strategic sourcing. Each area needs to be examined from a SWOT (strengths, weaknesses, opportunities and threats) perspective. “They need to understand which suppliers can be put into auction, which need hand-holding, which are their top ten, and which can help to innovate reductions in packaging and costs,” says Iaquinto.
The resulting intelligence forms the basis of supply plans for the coming 18 to 36 months. At the same time, of course, the buyer needs to track the supplier’s performance to ensure that it’s living up to expectations.
Finally, there’s the new wrinkle of social media outlets, which are only beginning to realize their potential as tools for selecting and collaborating with supply-chain partners.
In the old days, says Iaquinto, supplier interaction was largely restricted to a quarterly business review. Now, with the proliferation of social media platforms, buyers can be in touch with suppliers on a constant basis. Even better, suppliers are being directed to “self-serve” sites, where they can proactively update customers on their behavior. In the process, they get to play a bigger role in product and service innovation – yet another part of the ever-growing job of the CPO.
Ever-changing, too. Procurement and supply-chain management are among the last disciplines to jump on the social-media bandwagon, Iaquinto says, so there’s plenty of room for improvement. Count on the CPO’s job to keep morphing, taking on greater responsibilities and making that individual an even greater factor in the organization’s success. It’s not just about buying stuff anymore.
Next: Is there still a place for supplier auctions?
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Keywords: supply chain, supply chain management, sourcing solutions, supply chain risk management, inventory management, inventory control, international trade, supply management, supply chain planning