To Mitigate Risk In Global Business, Empower The Chief Procurement Officer
As global economic uncertainty persists and high-profile supply chain challenges underline the strategic importance of procurement, Chief Procurement Officers (CPOs) must do far more than prioritize cost savings: They must become empowered strategic partners directly involved in setting and executing corporate strategy at the highest level.
Business leaders of all kinds – including those in procurement – had to adapt almost immediately to a “new normal” because of the COVID-19 pandemic. Unsurprisingly, more agile organizations generally responded more effectively than others, taking the dramatic disruption in stride and shifting operations accordingly.
Still, the complexity CPOs face today does not end with the pandemic. Complexity in global business has been building since well before the pandemic began – and will continue. From a ship stuck in the Suez Canal to material or component shortages, severe weather, climate-induced disruption, or global unrest, future disruptions loom large on the horizon. Here’s how to get started.
Understanding the supplier network
Procurement leaders and corporate strategists alike must be able to see these disruptions coming and react quickly and decisively to them. Yet Deloitte’s 2021 CPO Survey found that only 15% of CPOs have visibility beyond the suppliers closest to their manufacturing processes (tier 1 suppliers) – and very few (26%) were formally tracking the risk in their supply base in any way. CPOs must improve this visibility and build clear risk, resilience, and agility metrics to inform decision making. Seventy-five percent of CPOs noted that enhanced supplier information-sharing was their top supply risk mitigation strategy, with activating alternative supply sources in second place at 70%. It’s clear that CPOs see collaboration, visibility, and transparency as useful bulwarks against heightened levels of risk.
That leads CPOs to a broader reckoning with their priorities and value propositions. In the modern world, it’s no longer enough to focus primarily on cost, long the dominant priority for CPOs. In fact, for the first time and by a small margin, “improving operational efficiency” emerged as the top priority of CPOs in this year’s survey. Successful, high-performing CPOs and their organizations will prioritize innovation and work more closely with strategic suppliers and partners, both of which can help insulate them from disruption and navigate complexity.
CPOs have many tools in their arsenal to improve innovation and modernize capabilities. Digital transformation, for example, has grown significantly in importance (increasing by 20%) since the 2019 survey. In general, digital technologies and enablers like robotic process automation (RPA) or artificial intelligence (AI) and cognitive capabilities can help organizations become more agile. The survey found a strong correlation between agility and higher overall performance.
High-performing CPOs who successfully navigate complexities while delivering across a greater breadth of KPIs spend more time on strategy and transformation. Overall, the survey found that CPOs are spending 74% on transactional and operational activities; high performers, however, are spending 63% of their time on the same, suggesting they are investing more of their bandwidth in higher-level strategic activities. Organizations and business leaders that empower the CPO to be true strategic partners will be better positioned in the future as procurement surges in importance in the disrupted world.
Weathering the road ahead
If there’s one clear takeaway from the CPO Survey and the ongoing disruptions facing global business, it’s that business leaders need to respond to the challenging marketplace by empowering procurement. Improving supplier visibility and involving the CPO in high-level decision making will help weather the road ahead. It’s not a question of if, but when the next major disruption strikes. Fifty-six percent of CPOs surveyed have already seen key suppliers go bankrupt or become severely hampered. The impacts of future disruptions could be even more significant.
Buoyed by technology and sitting at an important nexus in global commerce, the procurement function is an essential component of preparing for disruption and, in turn, creating a more agile organization.