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Procurement officers are playing a highly significant role in helping businesses meet the challenges presented by global trade disruption.
In brief
- Years of stability in global supply chains has given way to an era of massive disruption which is fundamentally altering the Chief Procurement Officer’s role.
- Resilience and risk management have risen to the top of the priority list for procurement officers.
- Focus is shifting from cost reduction to value creation as a wide range of new factors come into consideration.
The role of the Chief Procurement Officer (CPO) is undergoing profound change. Not only do they need to deal with all traditional aspects of the role, they must also address unprecedented levels of supply chain disruption whilst redefining the ways in which they create value for their organisations.
The impact of recent shocks to the global trade system should not be underestimated. For almost three decades supply chains enjoyed quite remarkable stability. Interest rates remained steady at extremely low or near zero levels, inflation appeared to be a thing of the past, and even the longest of supply chains were proved to be reliable while organisations were able to successfully leverage emerging markets in Latin America and other geographies to expand their manufacturing footprints.
That era is well and truly over. The pandemic, wars, geopolitical tensions, the resurgence of trade protectionism and nationalism, along with increased inflation and interest rates have combined to usher in a new period of instability which is likely to persist for some years to come. Indeed, with countries making up over 60% of the world's economic output and more than half of its population¹ voting in key elections this year, we can anticipate further near-term political turbulence with long-term impact.
Contours of role redefined
For procurement officers this has meant the addition of a new focus on protection, stability, data integrity, cybersecurity, resilience and sustainability to the classic onboarding, price negotiations, and supply base management activities associated with the role.
They are also increasingly playing a frontline role in risk management for their organisations. The supply base is an extension of the enterprise and any shocks to that system will have a consequential impact on the organisation.
The procurement officer is the gatekeeper for the external supply base and responsibility rests with them to de-risk it and ensure it is as resilient as possible and capable of withstanding a variety of shocks. They are also required to ensure that the supply base meets sustainability standards, both regulatory and those set by the organisation.
The range of risks they need to address includes cyber, technology, political, climate, regulatory, and much else besides. That applies to every business regardless of sector, growth rate, or level of profitability. It’s now about ensuring sustained and reliable performance by the supply base in an increasingly uncertain and unstable environment.
“While the traditional aspects of my role remain, my focus has shifted increasingly toward adding value to our organisation. This involves establishing strategic vendor relationships that not only reduce the risk of potential business disruptions, such as cybersecurity threats, but also promote co-innovation and collaboration. Our goal is to create new efficiencies and solutions,” said Jack McMahon, Group Procurement Director at Flutter Entertainment.
The primary drivers of time, cost, quality, and service levels remain, but they need to be viewed in a much broader context that considers the full panoply of risks. Strategic decisions must be taken against a vastly different backdrop with multiple new factors to be taken into consideration.
Moving beyond cost management
In essence, today’s procurement officer has two critically important additional functions to perform – to safeguard the business from risks arising in the supply chain and to create and deliver value in new ways beyond traditional cost minimisation.
Risk management is a key value driver as a revenue protection measure. For example, if problems in a key supplier could put a significant proportion of the business’s revenue at risk, there is far more to be gained by working proactively with that organisation to de-risk their business than from seeking year-on-year price reductions.
That can include sharing expertise and resources in areas such as cybersecurity. After all, a breach in one supplier could lead to contagion all along the chain.
Normal supply base rationalisation activity will continue, of course, but different criteria will apply. The cut-off points for suppliers have changed quite fundamentally. They had already evolved from price as the critical point of reference to include quality and service but have now changed further to include resilience and risk exposure. For example, a supplier who may well have found themselves excluded from the approved vendor list in previous years could now be retained because of their location in a political secure jurisdiction. These decisions might be cost increasing in the short term but will be value generative in the longer term if other suppliers are exposed to armed conflicts or other politically inspired disruptions.
Need to re-evaluate relationships
From a value creation point of view, procurement officers also need to rethink the relationship they have with suppliers. Suppliers can play a key role in innovation and product and service co-delivery but there needs to be a shift in the relationship from transactional or even adversarial to the cooperative and collaborative. This will enable the development of strategic partnerships and the pursuit of shared value adding goals and objectives.
This approach must extend beyond tier one partners and embrace their supply chains as well. Procurement officers must be able to influence the supply chains of their tier one partners to drive out cost and reduce risk.
Overall, the level of disruption being experienced at present is leading to a rethinking of the traditional role of the procurement officer and adding to the toolkit they need to carry. Their expanded role will require new operating models for procurement functions, and this will, in turn, create the need for additional resources as well as new skills in areas such as advanced data analytics and AI as the orientation shifts from cost reduction to value creation.
Summary
The role of the Chief Procurement Officer has evolved and expanded significantly in recent years in response to increased supply chain instability. Risk management and value creation have been added to traditional functions like cost and quality management. With pressures on supply chains showing no signs of easing, the role is likely to continue to expand to encompass new responsibilities in areas like cybersecurity and sustainability in the coming years.