Chief Procurement Officers (CPO) are principally motivated by their key mission: cost savings. But their priorities are shifting now to include a wide range of transformational activities as their mission expands beyond pure cost cutting to value creation and becoming a trusted partner to the business.
Moving beyond the supply side, procurement increasingly is focusing on the demand side, implementing new models that mitigate risk and optimize business processes and relationships with suppliers.
These Top 5 trends in procurement should top the agenda of every CPO.
1. A review of externalized operations. CPOs are aggressively evaluating their outsourced activities to determine whether they should bring strategic operations back in-house, or opt for hybrid models that involve shared service centers. Savings rates for category and functional outsourcing projects are expected to remain around 10 percent, with potential scope adjustment that could further trim the fat. To gain the most benefits from an outsourced environment, CPOs are working to optimize governance and improve process management related to operational cost reduction, standardization and the potential for increased effectiveness. To drive even more benefits, they will need to make a serious commitment to data collection, business analytics, innovation and new, advanced technologies.
2. Managing supplier risk. Since supplier risk can significantly harm the business, it must be professionally managed and minimized within the supply chain by the CPO. Knowing which risks an organization is exposed to is essential to mitigation. Companies within the financial industry, for example, are being held responsible for all activities of their supply base, including fraud and security. Investment in a risk information tool, especially with predictive and operational capacities, may be a growing trend in the not-too-distant future.
3. Moving from savings to business value. CPOs are working to change how the business perceives procurement’s contribution to the whole of business prosperity. In some instances in which procurement organizations are moving toward the role of business partner, CPOs are applying jointly created methodology to measure procurement performance.
4. Mobilizing procurement. The use of e-sourcing technology and data gives stakeholders access to the most critical information and resources anytime, anywhere. E-sourcing and supply chain tools can help optimize the operational and transactional buying processes, making it a priority for the majority of CPOs and their budgets. An increased interest in e-procurement projects may precipitate the next wave of technological investment.
5. Economics of skill. CPOs are sharply focused on the war for talent. Businesses are seeking in-house expertise to manage their most critical categories, such as IT, marketing and professional services, making it difficult to find and keep subject matter experts with the skills and competencies essential for the success of a procurement organization, especially if it experiences constant disruption. CPOs should consider a balance of succession plans and a commitment to professional development in their talent management programs.
ISG can help CPOs balance their responsibilities and navigate the changing procurement landscape. Contact us to discuss further.