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The CPO Role Shift: Are You Ready?

The chief procurement officer is slowly and steadily gaining importance in the C suite. What was seen before as just a buying function is now seen as strategic.

A few years ago, the function was part of the CFO's office — an arm to reduce the costs of supplies bought by the organization. Today, it is seen as enabling a function that plays an increasingly important role in improving competitiveness.

The procurement function drives business competitiveness and organizational credibility, and it plays an important role in building the corporate brand. This article will attempt to highlight a few key ways procurement can increase its strategic importance against the organization's other functions and market itself internally.

CPO as a center of excellence
As a function, the procurement office is a repository of multiple skills and usually does not receive the attention it deserves. It excels in negotiations, contract management, identification and vetting of vendors, legal support, and onboarding, all of which add value to the organization. Careful nurturing of these skills can create knowledge assets for the organization. However, in most cases, organizations have been used to turning a blind eye to procurement skills and procurement-associated functions, which were seen as cost centers.

The central procurement function can aim to become a center of excellence by cultivating these assets and spreading their adoption across the organization. However, this can only be achieved if procurement markets itself both internally and externally. Just like the IT department gained prominence within the organization by showcasing how it can create value, the objective of the CPO should be to demonstrate procurement's effectiveness and how it should be appropriately rewarded.

Building an organization's credibility
The central procurement office is one of the key external-facing functions of an organization. On a daily basis, it interacts and negotiates with myriad suppliers. The relationship maintained with these suppliers goes a long way toward building the enterprise's credibility. A happy set of suppliers carries the goodwill and reputation to the outside world. This does almost the same job in building a strong corporate brand as expensive advertising or public relations. However, if suppliers are not dealt with properly, if their payments are regularly delayed, or if they are not given a clear picture of the requirements, it can have an opposite effect.

It is imperative for the CPO to focus on creating a streamlined function that has a seamless interface with its suppliers. Procurement needs to internalize the message that, just like marketing, human resources, or finance, it plays an important and ever increasing role in fostering the company's credibility among its external stakeholders.

Increasing business competitiveness
Imagine a situation in a large manufacturing concern that has just received a very large global order. It needs the raw materials quickly to ramp up production. Situations like these can give nightmares to the best procurement team. If the team can quickly tie up with suppliers to ensure delivery of the required raw materials, the organization will meet the demand of its customer and not lose it to a competitor.

By creating a smooth and well-oiled buying function, procurement can add weight to the organization's competitive index. By outsmarting the competition and making sure production has what it needs, when it needs it, the procurement function can give an edge to a company in an increasingly competitive environment.

Part of the C suite
The time has come for procurement to see itself as a function that adds strategic value. The CPO position is perhaps where the CIO was about a decade back. At that time, it was seen as an IT procurement and maintenance function and a cost center. Today it has made its entry into the C suite, and more often than not, the CIO sits on the board. Similarly, the CPO will have to demonstrate procurement's value and utility in creating a differentor for the enterprise by adopting some of the steps highlighted above.

Procurement needs to realize the weight it can carry in making the organization leaner and more profitable. Communication and marketing of this strength across the organization, using specific channels, will go a long way toward helping the CPO become an integral part of the leadership team, if he or she is not already.

8 comments on “The CPO Role Shift: Are You Ready?

  1. Hailey Lynne McKeefry
    June 26, 2014

    What do you think the biggest challenges are in organizations that are trying to make the shift to understanding the strategic importance of the CPO role?

  2. Himanshugupta
    June 27, 2014

    @Hailey, i think that the biggest challenge for CPO is to show the strategic and financial benefits to the board. Today the problem for procurement is not much about finding the suppliers or negotiate but the supply chain optimization, contractual obligations, capacity management, inventory management etc.

  3. Himanshugupta
    June 27, 2014

    Dear Diptarup, what are your thougths on opportunities available for BigData in procurement especially after globalization. Have companies already applying optimization, forecasting etc techniques and are there areas where such techniques can be useful.

  4. Houngbo_Hospice
    June 27, 2014

    I think in most companies the CPO's role can rightly be fulfilled by the CFO and there will be no need of creating an autonomous procurement department.

  5. FLYINGSCOT
    June 27, 2014

    What size of organization warrants a CPO?  It is hard to imagine smaller companies needing this title.

  6. Hailey Lynne McKeefry
    June 27, 2014

    @Mimanshugupta, I agree…. at the very least, there needs to be solid translation from purchasing and supply chain speak to real business dialog. No one in the boardroom takes things seriously unless they understand what it means in a basic business sense.

  7. Hailey Lynne McKeefry
    June 27, 2014

    @Hospice, I think that may be true in smaller organizations, but there's plenty of room for a CPO in big organizations.

  8. Himanshugupta
    June 29, 2014

    @FlyingScot, if a company is involved in physical product development then procurement department is key though i agee that the role of a CPO may not be that critical until a company attains a critical mass. Apart from building a strong supply-chain, the procurement department plays a crucial role in making a bridge between the suppliers and the finance department in case there are financial troubles in the company.

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