This is part 2 of our "CPO job description" series, which takes an in-depth look at the role of a chief procurement officer. You can check out our first installment of the series here, where we began to break down an overview description of the leadership role.
In Part 2 of this series, we are going to dive into the primary responsibilities and, one by one, not only translate them into plain English, but also tell you what the organization is implying and, probably, leaving out of the job description.
- Development of organizational procurement strategy
- Creation and management of short-, mid-, and long-term goals and objectives
As outlined in our first post, the organization will be looking for a CPO who can create leading strategies, identify ways to increase Spend Under Management (SUM) and evolve processes and procedures to make the organization more efficient, considerably more cost effective and more valuable in the eyes of stakeholders and customers.
The organization is looking for a CPO that can not only exceed results beyond what the organization has achieved in the past, but that can also add additional procurement services and new sources of value through a broadened vision and strategy. With a strategy in place, the CPO can devise a plan that sets up the firm to achieve results year over year against a set of well defined, aggressive, but still achievable goals against the procurement strategy.
- Creation and improvement of best-practice based processes (e.g., leadership of high-value/strategic sourcing efforts)
An effective organization is one that uses modern efficient, cost-effective processes that are appropriate to a leading procurement organization. However, the processes currently in place are likely still those that were put in place when equally well-aged business systems were adopted (if at all). So, a massive dose of change is needed when rogue/shadow buying is happening across the firm. Therefore, the biggest spend influence becomes stakeholder influence at the time of sourcing. The CPO must increase the “quantity of spend influence” by getting procurement being involved at the time of sourcing. They must also get “quantity of influence” involved as early as possible and as deeply as possible in order to have the most strategic impact. At the same time, the CPO must proactively work to rationalize the supply base in spend categories that have high spending, transactions and/or fragmentation in order to provide stakeholders with standard supplier agreements and “catalogs” (which can include services too) to quickly and painlessly buy against. Finally, the CPO must set up a process and set of resources to manage “tail spend:” lower value and one-off purchases that need some level of sourcing rigor, rather than a grim choice between an unmanaged buying process or an over-rigorous sourcing process that would take too long relative to stakeholder requirements. This process can be staffed completely internally, or increasingly, with the use of specialized outsourced resources. This leads to the next topic…
- Management of business process outsourcing activities
In addition, a leading CPO knows when to keep a process in house and when to outsource it. In essence, the CPO is “practicing what gets preached” about tapping supply markets to improve performance outcomes. But, the CPO also knows that an outsourced process is one that has to be actively managed in house to be more cost-effective and efficient than a process kept in house. In other words, you never outsource the process of “outsourcing management.”
- Identification and realization of cost-saving and cost-reduction opportunities
While often buried halfway through a list of responsibilities by an organization that wants to appear progressive and enlightened, as mentioned in our last post, cost savings are the end result that senior management is usually most interested in – especially when times get tough. Regardless of what the organization advertises regarding sustainable innovation and whatnot, its primary expectation is cost savings (and brand protection, too) to satisfy the board. This desire is amplified by the CFO, who wants to see both spend cost reductions and operational expense reduction (i.e., higher returns and lower “investment” that the CFO also often sees merely as cost via a “cost center”). When procurement reports (in part or fully) to finance, this bias toward cost savings is amplified. And, it can become amplified even more if a CPO does a great job in the first year or two of delivering quick high cost savings (i.e., “no good deed goes unpunished”).
This delivery of value through cost reductions can only be identified, and realized, through the CPO setting up a process to identify, capture and sustain the costs savings through a closed-loop process that is tracked from cradle-to-grave not just on a “CPO dashboard,” but also to the financial statements.
Of course, in the trenches, a new CPO, and the procurement team will be expected to focus on a “balanced scorecard of supply” developed in conjunction with the stakeholders. For critical supply, this puts increased emphasis on quality, supply assurance, supplier flexibility, supplier risk mitigation and other factors. Otherwise, if not properly managed, the focus on cost reduction could put the organization in jeopardy if there is a supply disruption or reduction in quality. This is where “category management” really shines. (Note: Category management is not about setting up a cross-functional commodity team to support a sourcing effort, but rather about a lifecycle process surrounding a spend category that includes sourcing as a sub process.)
Managing a “source-to-settle” process across spend categories means that a CPO must manage and integrate the information that crosses boundaries from sourcing, to transactional buying, to invoicing and payments and into the ongoing management of the supplier and inbound value chain. That’s a lot of organizational silos that the process and the data must cross! As such, the CPO must make smart choices in developing a good procurement technology strategy. We’ll cover this, and more, in our next installment of this series.