One idea that has not changed, nor will ever change for procurement, is the importance of managing cost. In fact, procurement’s raison d’être, headed by the Chief Procurement Officer or other procurement executive, is and always will be focused on controlling cost; but it increasingly requires the adaptability to adjust to the world around it.
Evidence of the importance of cost to procurement executives should come as no surprise to anyone. A recent report, The Deloitte Global CPO Survey of 2016, shows that 74% of global respondents note cost reduction as the top priority to sustain growth in a slowing market.
If one were to have read this a decade ago, it would appear as if the function of procurement has not changed at all. But for those of us who look at procurement both as practitioners and technologists, it most certainly has. For instance, according to the same study, the CPO participation in risk mitigation has grown from 16% in 2013 to 25% in 2015.
In this regard, consider the following pressures and uncertainty that face procurement organizations in 2016:
- Weak global economic growth in both developed and emerging markets
- Political changes (e.g., Brexit) creating uncertainty in global labor and financial markets
- The rise of isolationism/protectionism in countries traditionally open to global trade
- Ongoing unrest/terrorism in the Middle East, with no evident end to the crisis in Syria
- Commodity volatility putting pressure on economies dependent on Chinese growth
- Increased government regulations increasing the cost of managing compliance
With all these forces coming to a head from different directions, understanding cost in some ways has become more important than ever. So, in procurement’s new world, the new mantra needs to not only be focusing on cost, but being “agile” and “flexible” enough to respond to cost in the context of these cost pressures.
This requires procurement as an organization to leverage a combination of process and technology to adjust to the constantly changing environment. And this starts by changing the game internally. Creating an environment that promotes agility and flexibility starts with some of the following efforts that need to be spearheaded by procurement leaders—
- Acquiring Better Talent – addressing how procurement practitioners of the future can obtain and secure the proper talent that understands current market dynamics.
- Better Alignment with the CFO – ensuring that executives most focused on the financial risks of the corporation (i.e., CFO) are 100% aligned with the one most focused on the costs that impact it (i.e., CPO).
- Improving Risk Management – looking at cost avoidance as a key performance indicator equal to cost reductions for contributing impact to the bottom line.
- Contributing to Executive Decision Making – continuing to reach across the table to work with key stakeholders in legal, finance and lines of business for best managing both direct and indirect supply chain requirements.
- Investing in Process Digitization & Automation – being able to anticipate changes and quickly reacting to them with technology that can provide improved analytical insights, while enabling the ability to quickly adjust business process to meet rapidly changing needs.
These are just thoughts that we at Determine are eager to discuss. To learn more about how procurement organizations are changing, join us for a webinar, What Procurement Organizations Need Most – Flexibility & Agility, with our guests Joanna Martinez, Former CPO at Cushman Wakefield; Vishal Patel, Director of Solutions Marketing, Tradeshift; and Constantine Limberakis, VP of Product Marketing, Determine, Inc.
Hope you can join us.