Tag Archives: chief procurement officer

Establishing the Right Business Culture for Procurement

Four tips to change and develop the right procurement culture

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It is the responsibility of the CPO to create the right culture for procurement. While there is a culture within the organization that reflects the overall values of the company, it is extremely important that a culture is built for the procurement team. A dedicated, hardworking, entrepreneurial, collaborative culture will support the CPO’s success in the business.

To be effective, procurement leadership must dedicate themselves to the culture and lead by example. Some cultures are focused on achieving cost reductions at the expense of anything that gets in the way. This is a challenging environment and costs the company in the long run. I always wanted my team to be very analytical with a total cost of ownership mentality, but I also expected that they would be open to ideas, suggestions and innovative ideas that would be of extreme value to the organization, while keeping the correct perspective on supplier relationships. When involved in a relationship for a category driven by competition and market share, they needed an arms-length relationship. In these markets where the balance, cost or opportunities could shift quickly, the sourcing manager must be flexible to shift with the marketplace. In more strategic situations with a sole source of supply for specification or technical reasons, where price is non-negotiable, it’s critical to build an organization-to-organization business relationship that will provide competitive advantage. The culture must also drive sourcing managers to build strong personal relationships, but at the end of the day, the business relationship always comes first.

In top class cultures, the procurement team should view every stakeholder as a customer who needs to be treated with an attitude of customer first. This requires the ability to sell the value of procurement and the ability to build fact-based presentations that influence, suppliers, management and stakeholders. It’s important to recognize that, in many cases, procurement does not own the expenditure, but it does own the procurement process.

On the outset, it seems difficult to instill these values in the culture. I’ve found these 4 actions are effective in cultivating a strong, value delivering environment.

  1. Engage, expect and prioritize the desired culture in your key managers and set the example at the top.
  2. Make the workplace great and when recruiting, keep the culture as a key attribute of your talent management profile.
  3. Where employees demonstrate the ability to meet the cultural norms reward them and the team on their adoption of the values.
  4. Develop a culture of respectful individuals, enabling them to respect ideas, challenges, internal customers and external suppliers.

Are you up for the challenge?

5 Things that Keep CPOs Concerned

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I was fortunate to be invited to speak at Ardent Partners CPO Rising 2016 conference at the Harvard Club in Boston, where an exclusive group of Chief Purchasing Officers gathered to share best practice, network with colleagues and understand the issues that will likely impact them as we see major shifts in our profession resulting from the digital disruption, changing workforce and continued globalization. Over the day and a half, I consistently heard these five key issues that keep CPOs up at night:

  1. The lack of skills needed to meet future needs
  2. The need to continually adjust processes to meet the constant changing business needs
  3. The need to align the supply chain with the organization’s strategy
  4. Risk management
  5. Managing mergers and acquisitions

I don’t see these issues being resolved easily and it is more evident than ever that the CPO must continue to adapt to change and develop the capability to reengineer business process as the environment changes with mergers, acquisitions, divestiture and business strategies impact the organization, process, systems and people.

CPO Rising 2016 was topped off with Andrew Bartolini inducting Tim Cook, Hal Good, and Gregg Brandyberry into the CPO Rising Hall of Fame. Congratulations to Andrew and his team on creating such an impactful event.

Can you help your CPO sleep better at night?

Role of the CPO: Designing and implementing an integrated supply chain

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There is little doubt that our customers and CEOs are demanding more value from our suppliers and supply chains. Andrew Bartolini, Managing Partner and Chief Research Officer at Ardent Partners, has found “In 2016, Chief Procurement Officers (CPOs) will seek to extract and deliver more value from their departments than ever before as they attempt to stretch the limits of their organizations while also maximizing the relationships they have developed with suppliers and internal stakeholders.” It’s an understatement to say that this is a difficult challenge.

CPOs are now expected to design and build a network of suppliers that align to the company’s business objectives, provide innovation, speed to market, agility, flexibility and complexity reduction. To do this, suppliers must be open to integrate business systems with automated source to pay capability, make investments and meet robust performance standards. This is a very different relationship than the traditional model of leveraging suppliers for price. Savvy leaders know that suppliers can only impact margins for the short term. They need healthy margins to reinvest, innovate and compete. The real opportunity is to impact the hidden costs often overlooked by inefficiency, productivity, waste, which can be addressed through the supply chain integration.

Clearly, the days of managing just at the tier 1 level are over and the requirement to architect and design a lean, competitive, well-financed network of suppliers must become a core competency of CPOs today. This requires a relational skillset, strong influencing skills, trust, full transparency and the development of a strong, well-defined and coordinated supplier relationship management program.

The CPO Rising 2016 summit March 29-30 provides an excellent opportunity to network and learn more about how CPOs can deliver the value expectations they face. I hope to see you there.

Are you up to the challenge?

Moving into the C-Suite

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You’ve made it! You’re now a CPO!

In last week’s blog, I discussed the short tenure of the CPO—what does this mean if you’ve just moved up to CPO? A recent McKinsey study focusing on executive transitions indicates that nearly half of top executives say they were not effective in earning support for new ideas when they moved into the C-Suite. One-third admitted that they have not successfully met their objectives during their tenure. While there is no predictor of success in a new role in the C-Suite, this blog is designed to provide some keys to success.

Many individuals want to start adding value quickly and make immediate changes; it could prove to be a career-ending mistake. The CAPS Research CPO study I mentioned last week and the related Korn Ferry Institute report highlighted the CPO’s tenacity in facing complex problems and ability to be calm and cool in a crisis. You know that procurement or supply chain professionals develop these skills through experience, so remember this is a strength that your fellow C-Suite peers can rely on. I’m guessing you don’t want a crisis now to show these skills, so following the Deming model of understand, plan do, check and act is a good recommendation for anyone taking on this new role. In the first hundred days, the new CPO should learn the business, business culture, political dynamics and pet projects of your other colleagues in the C-Suite.

It would be wise to evaluate the team and develop an assessment of the team strength, weak links, overall technical and relationship competence and develop a current state analysis. It always helps to get some meaningful metrics, benchmarks and a baseline of others in the industry. When comparing these performance indicators to your new organization, the gaps in team strength, organization and process will become apparent. Getting the team aligned to a shared vision, direction and focus will make your transition easier.

Developing a plan and getting input from your colleagues and stakeholders will assure your success when you present a comprehensive plan. The plan should include key activities, investment required, return on investment, key performance indicators, timelines and milestones and resources to be required and the change management process you will use to accomplish transformational change.

One thing to bear in mind, a transformational change of this magnitude normally takes about two years. If you make immediate changes without the preparing management and without the presentation of a complete program, you will not be considered part of the team. It’s always tempting to exercise your power and change things to show that you are there doing something, but it will be a disaster in the C-Suite.

The McKinsey study indicates that executives with the most successful transitions need more than 199 days to adapt to a new role. The four keys to success are:

  1. Build a plan focusing on internal alignment and the highest priorities of the business
  2. Create a plan that accommodates the business dynamics and culture
  3. Assess your team, understand the strong and weak players and get a perspective
  4. Every business has a business style, adapt to the style in the business.

You have made it, you’re in the game, make the right moves.

What’s the organizational life span of the Chief Procurement Officer?

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When I started working, the head of purchasing had a job until he retired and then next person-in-waiting usually took the helm. Today it seems that our Chief Procurement Officers have about the same longevity as a coach in the NFL or MLB. In the past year or so at least seven of my friends and colleagues holding the position of Chief Procurement Officer experienced unplanned exits from their organizations. Many of these CPOs had a very big public profiles, they all made a large contributions to the organizations they served, all were actively engaged on the Management Executive Committee in their firms and in some cases were driving key projects with Board of Directors visibility. I’ve discussed the short lifespan with industry experts and other consultants who have seen the same trend for the CPO. It’s been researched and reported by CAPS Research whose study of CPOs in 2014 reported that the more than half of the CPOs in Fortune 500 companies had been there for less than 4 years and that only 10.6% were promoted to the position from within. The study also found that very few CPOs were promoted to higher executive positions. What can be done to prolong the lifecycle of the Chief Procurement Officer?

The Chief Procurement Officer may be more vulnerable than the Chief Executive Officer with an average life cycle of about 5 years. There are ever increasing expectations that CPOs will deliver continuous deliver cost and value improvement, align with multiple business units and objectives, service the business in a matrix organization structure, manage myriad stakeholder demands, work globally across borders, accelerate speed to market, integrate the supply chain and manage merger and divestiture activity.

The longer the CPO is in place on the job, the more difficult it is to rejuvenate and create new strategies to continue the generation of continuous cost reduction, which is still the primary measurement in many businesses. As new initiatives become increasingly important, the organization expects the CPO to be proactively ahead of the curve on programs like risk management, sustainability, re-shoring, big data strategies, best country sourcing and leaning out the supply chain.
How can CPOs increase their lifespan? Here are 3 key strategies for survival:

1. Talent Management

To be effective in the organization, the CPO requires a top team to execute the global strategies, align and support the business, architect the supply chain, and drive the metrics that will change management focus from cost to value delivery. Talent is scarce and there is a lot of competition between CPOs to recruit, develop, and build a team capable of executing a world class results based global strategy. The inability to develop a world-class team as a prime objective is one factor in shortened longevity on the job.

2. Total Cost Focus

It is critical that the CPO educate management on the Total Cost of Ownership and value extraction from the supply chain. A CPO with a sole focus on continued price reduction is destined to fail. While everyone likes reductions, we know that suppliers are not a source of incremental margin for the buying company. All suppliers need a healthy margin to reinvest, innovate and drive industry changes. With the ability to conduct cost analysis, there is little doubt about the transparency of cost. If a CPO with a strong emphasis on price reduction will soon run out of runway and require new suppliers and additional sources to drive margins down forcing industry consolidation.

The real opportunity is value enhancement and true cost reduction through specification change, redesign, capital investment with faster cycle times and least cost sourcing. In addition reduced warranty, risk mitigation, speed to market, target costing and innovation will play a role of increasing importance in future CPOs. Ignoring these will be a sure way of sealing the fate of the CPO.

3. Get a Seat at the Table

In the future, the CPO will play an increasing role in business success. It is essential that they play a key role in the executive management of the company, report to the CEO and have some accountability to the Board.

Currently, purchasing expenditure accounts for about 50% of a business’ cost. I see this increasing with global sourcing, outsourcing, industry consolidation, and value maximization. The ability to integrate suppliers in the supply chain, drive for least cost production, and increased levels of value and supplier relationship management will ultimately drive the lifespan of the Chief Procurement Officer.

Time to take inventory and assess your phase in the company lifespan.

Change or be changed.