The past several years have brought fundamental changes in the role
of the procurement function in countless corporations. Once often viewed as a "cost out"
role expected to deliver goods on time and at a low price, the function is now, in many
organizations, a strategic leader and advocate for greater operational effectiveness in
everything from inventory to manufacturing, product design, cash flow, outsourcing,
workflow quality and customer satisfaction decisions.
As part of this evolution, many companies across a variety of sectors have shifted
from a regional procurement approach to a center-led global procurement strategy.
Spencer Stuart recently interviewed a number of procurement leaders from around the
world to learn their insights on the changing requirements of the chief procurement
officer (CPO) role and their keys to success as agents of this organizational
change.
A BUSINESS IMPERATIVE
The shift from regional and business unit-based procurement in favor of a center-led
operation that can leverage the scale and support the strategy of the overall business
represents a profound change in the role procurement plays in the organization. And
while this trend has been building across various industries in recent years, most
procurement leaders agree that it has been accelerated by recent economic
challenges.
"There has to be a driving force within the businesses to make them willing to
undergo change," said Leslie Campbell, chief procurement officer for Reed Elsevier. "The
economic downturn has been a great catalyst for that. Even businesses that didn’t want
much to do with a centralized procurement organization are now willing to take help from
wherever they can get it."
And more organizations are becoming wise to just how big of a competitive advantage
strategic procurement can provide. "In the PC industry, material costs represent a large
portion of the total supply chain budget, and saving even a few percentage points can
have a huge impact," said Gerry Smith, senior vice president of Lenovo’s global supply
chain. "Companies in some industries with high gross margins will see, as their markets
mature, the profit opportunities in taking a holistic, end-to-end approach that
integrates procurement teams across the business."
Such an approach is based not on buying everything
globally, but on sourcing strategically based
on total acquisition costs and the overall needs of
the business. "We’ve seen plenty of industry examples
where people confuse 'central' with 'global' and
then assume everything should be global," said
Stijn van Els, executive vice president of contracting
and procurement for Shell. "The trick is to become
more centralized but keep what I call a
'global-local' mindset across the organization. We
previously did 40 percent of our purchasing using
global strategies and are targeting a level of over 80
percent. It doesn’t mean we'll buy globally, but that
we will have thought about these items on a global
level using a consistent method and will execute
the procurement on a global or local basis as is fit
for purpose for the category involved."
In addition to enabling sourcing decisions that are
more strategically sound, a center-led organization
also allows the CPO to leverage scale and drive efficiency
across the organization. "One of the CPO’s
key tasks is to reduce complexity and provide transparency,"
said Hugo Eckseler, chief procurement
officer at Deutsche Post DHL. "You can do that
only through centrally developed processes and
systems that create standardization and reduce the
number of providers. In the case of travel management,
for instance, that might mean going from
many providers to two or three to facilitate global
reporting to the business."
FROM PURCHASER TO INFLUENCER
To institute this procurement transformation successfully,
the CPO must become a valued partner
and recognized asset who collaborates effectively
across the organization. "It’s less and less about
being a master of the purchasing technique today,"
said Philip Duncan, chief procurement officer for
Novartis. “It’s far more about the ability to persuade,
to influence, to see the bigger picture and
have credibility with the business.”
According to Andy Koehler, global sourcing head
for adidas, one key to success in effecting change
as a CPO entering a new organization is to cast
an objective but understanding eye on the procurement
decisions that have been made previously.
"You need to show respect for what the company
has built up instead of assuming that you have to
come in and change everything. Then you need to
find the open-minded people who will be your
change supporters and find connecting points by
not criticizing what was not done in the past, but
by discovering opportunities."
Acting on these opportunities is easiest when
everyone feels that they own the decisions and see
the procurement leader as being there to support
them. For this reason, Bob Dandie, procurement
consultant and former CPO of CLP Power, advocates
the creation of procurement boards for larger
buys with the business group director as chairman,
the CPO as the process owner, and department
managers as board members. "I always try to bring
in other business group department heads, as well
— I call them 'K factors' because they ask the outof-
the-box questions," said Dandie. "The procurement
board creates an atmosphere free of fear and
full of confidence, so that the questions are all
asked and the procurement team can convince the
board that their actions are well thought-through
and proceed to the next gate."
CPOs note that building these strong collaborative
relationships with internal clients is critical to
gain a seat at the table in early-stage discussions
where procurement can have the most impact.
"Traditionally, if our engineers wanted, say,
a table, they would have designed it or told us
which table to buy," said van Els. "Now, we sit
down with them and figure out if we can design
one where we have a competitive advantage,
asking ourselves whether we need one in the first
place, or could better do with an 'office
solution' instead, before ending up 'buying
tables' — to make procurement itself a competitive
differentiator."
Early, visible successes in the role can also assist
the cause of procurement transformation. "The
best CPOs open gaps," said Tony Milikin, chief
procurement officer for Anheuser-Busch InBev.
"It’s not about doing one standard deviation, it’s
about going after two. It’s about stretching, about
causing the organization to be uncomfortable
and then executing."
THE EVOLUTION OF SUPPLIER RELATIONSHIPS
As CPOs take on more of a strategic role and
build stronger relationships with their internal
clients, they are also looking at supplier relationships
through a new lens. While negotiating skills
remain critical, the recent unpredictable economy
has procurement organizations more focused on
risk management related to continuous supply.
Lenovo, for instance, evaluates one commodity
a week, re-evaluating each commodity on a quarterly
basis, to complete a risk assessment from
a financial, technological, geopolitical, and supplybased
perspective for tier one, tier two and tier
three suppliers. "We have a simple grading system
to highlight the areas where we think there’s exposure,"
said Smith. "We’ve had some bankruptcies
in our supply chain, but because we anticipated it
and had contingency plans in place, they didn’t
cause supply disruptions."
This risk management extends to responsible
sourcing, something that has become a greater
priority in an age of conscious consumerism.
According to Dandie, part of the CPO’s job today
is to ensure that internal clients follow a bestpractice
process orchestrated from the center
when they make their own purchases to eliminate
the risk of rogue buying.
"It’s less and less about being a master
of the purchasing technique today. It’s far
more about the ability to persuade, to
influence, to see the bigger picture and
have credibility with the business."
CPOs are also working with suppliers to build
stronger, more mutually beneficial partnerships.
"We’re engaged in a fairly large ongoing program
with our suppliers around Lean Six Sigma," said
Joseph Meier, senior vice president of global procurement
for GlaxoSmithKline. "We’ve been able to create a true win-win by shaking cost out of
the supply chain, rather than always trying to squeeze supplier margins."
"It’s important to build the leadership team in a very intentional,
crossfunctional way, and to have a team that is regarded by HR as a team with
high potential. Otherwise you won’t have people who can get to the table,
let alone be effective at the table."
To strengthen supplier relationships, adidas brings
together an advisory board twice a year consisting
of roughly 15 business people from development,
marketing, purchasing and engineering along with
the business leaders of the company’s top six suppliers.
"We ask them to leave their company hats
at the entrance to talk as business people about
various subjects — like where they see the business
going, what trends they are seeing and what
they think adidas could do better," said Koehler.
"It’s an eye-opening exercise that builds stronger
relationships based on mutual trust."
But while procurement leaders make efforts to
forge stronger, win-win relationships with key suppliers,
they are also relying more on e-procurement
technologies for certain commodities to facilitate
competitive bidding, and are taking other bold
approaches to avoid being taken advantage of by
suppliers. "When we are leveraged by our supply
base, we will consider investing in verticalization
or collaboration with another company," said Milikin.
"We have our own glass manufacturing in
Brazil, Paraguay and the U.S.; our own malting operations
in Central Europe, South America and the
U.S.; and our own labeling and printing in other
areas of the world. We’re not in love with verticalization
but we are willing to invest if it will change
the market economics."
DEVELOPING PROCUREMENT TALENT
As the role continues to evolve, today’s supply
chain leaders are focused on developing procurement
executives who possess superior management,
business and financial skills in addition to
functional knowledge. "Leaders in this industry
must have a global mindset," said Smith. "CPOs
need to look beyond their procurement role and
develop an entire approach toward managing
teams, cultivating talent, problem solving with
Lean Six Sigma, building relationships with suppliers,
and running an organization in a borderless
economic environment. I’m looking for business
leaders, not just procurement leaders."
To develop these multifaceted leaders, companies
are creating more formalized development programs
and career path mapping for a function that
often lacked these initiatives in the past. Novartis,
for instance, recently launched a program called
My Career Procurement. "We’ve identified the
competencies and experience needed for each of
our different positions and have mapped out the
potential career paths," said Duncan. "If you’re
a junior buyer today and you want to be a CPO in
10 years, you can see the leadership and functional abilities and experience you need to
get there, and how to get them."
At Reed Elsevier, Campbell works to build open
relationships with her team so they feel comfortable
discussing the areas in which they need development.
"We talk about areas where they don’t
have the level of expertise they want to have, and
that requires a certain amount of trust, because
they have to feel okay telling me they have a blind
spot," she said. "They need to be able to say, 'I don’t
actually get the financial statements,' so I can make
sure they get that skill set before they’re so far into
their career that it becomes a black eye that they
don’t have those skills."
As they assemble their procurement teams,
the procurement leaders we spoke with expressed
an overwhelming preference for executives who
bring cross-functional expertise to the role. "You
want your leadership team to include strong
players from finance, engineering, and advanced
planning and strategic planning backgrounds who
also bring procurement experience," said Garry
Berryman, chief procurement officer for Sara Lee.
"It’s important to build the leadership team in
a very intentional, cross-functional way, and to
have a team that is regarded by HR as a team
with high potential. Otherwise you won’t have
people who can get to the table, let alone be effective
at the table."
Such diversity can also foster the innovative thinking
that is increasingly required in the function
today. "We don’t want a bunch of people who are all
the same personality," said Smith. "We want diversity
across the organization, because it makes you
stronger. You need different styles, people who
understand P&Ls and people who understand what
drives the sales team and the business units."
Recruiting promising talent from elsewhere in the
organization is one way to help build this crossfunctional
expertise. "I like to bring people in from
the businesses," said Campbell. "Someone from
the marketing department, for instance, won’t have
a lot of procurement skills, but we can teach them
that. What they do bring is deep subject-matter expertise
in marketing and a lot more built-in credibility
with that group than we necessarily have on
our own."
Campbell is also an advocate of exporting strong
talent to the business units. These employees also
then become ambassadors for the procurement
function within the business unit, in addition to
providing another benefit. "When you start exporting
good talent, you also become a magnet for
good talent," she said. "People in the business look
at procurement and say, 'That’s a place I might
want to work because I’m not going to get stuck
there forever, and some really good people have
come out of there and done really interesting
things in the company.'"
In some cases, this talent may even come back.
"We need to be sure that our people are constantly
challenged, and one of the key factors of building
a robust procurement department is not having
always been in procurement," said Emmanuel
Deligans, vice president and chief procurement
officer at Siemens China. "I recommend letting people try other functions that are
internal clients of procurement, and then come back later as procurement
management."
Most procurement leaders agree that it is feasible
for procurement talent to move across industries,
as well. While industry knowledge is certainly
helpful, some leaders we spoke with have successfully
made the transition. These leaders argue
that in procurement, many of the same rules
apply across industries, and as a leader it is
more about creating the vision, having the
mandate and motivating people.
To nurture the next generation of procurement
talent, companies such as GlaxoSmithKline are
also building partnerships with universities to
develop programs, particularly in major sourcing
markets. "Most big companies tend to put
ex-pats in senior procurement roles in the Far
East," said Meier. "We’re trying to develop the
capability using local talent, and I see that as
an important emerging trend."
Organizations are additionally starting to realize
the need for more procurement-focused business
school programs. "The presence of procurement
is not strong enough in boardrooms yet, and it’s
only going to get strong enough if advanced M.B.A.
programs start positioning procurement in
a much more meaningful way in combination
with a general education in business and industry,"
said Berryman.
THE FUTURE OF THE ROLE
As they look to the future, procurement leaders
expect green procurement to play a bigger role
for the function, and believe that outsourcing of certain procurement activities,
particularly on the indirect side, may become a growing trend.
Others see the business potential of taking on
some sourcing activities for other organizations.
"I personally believe that a company like ours —
a major player in the logistics area — is well-positioned
to do that because sourcing in best-cost
countries like China or India would add just
another service to the portfolio we can provide,"
said Eckseler of Deutsche Post DHL.
"When you start exporting good talent,
you also become a magnet for good
talent. People in the business look at
procurement and say, 'That’s a place
I might want to work because I’m
not going to get stuck there forever,
and some really good people have
come out of there and done really
interesting things in the company.'"
Moving forward, many of today’s CPOs also expect
to see even more general management talent enter
into the role. "The CPOs of the future will be people
who have multiple exposures to the different
angles of business management, notably quality,
innovation and production," said Deligans. "If you
can combine these three sensitivities with the
more commercial aspect of purchasing, you get
a really good cocktail."
While some feel that these cross-functional, multifaceted
business leaders possess the necessary skills to move more frequently onto other top
management roles, they also argue that a passion for the role and a laser-sharp focus on
supporting the business — not on building a career beyond procurement
— are critical to bring the maximum benefit to the company.
"I don’t think that the CPO should be competing
with the business group directors," said Dandie.
"If you want that kind of power, you should be
a business group director. If you want to be a CPO,
you’ve got to realize that your role is to be a trusted
adviser to the business. I think that will be the
model of the future. Organizations need someone
who can think things through, particularly when
it comes to low-cost country sourcing, and that
person has to sit outside the business."
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