When the CEO comes back to procurement for more…

At the BravoSolution roundtable event last week, I sat next to a CPO I hadn’t met before – a very good dinner companion, and a CPO in a pretty large London based organisation.

After the pleasantries, he told me that he was having a few issues with his CEO, who was fairly new, young and ambitious. He did appreciate the value procurement could add to the business (as per the Bravo Paper we were discussing), but he was perhaps overly focused on procurement as a source of “savings”.

Now my new friend, by inclination, was more of a relationship building sort of CPO, looking at the longer term benefits of working closely with key suppliers.  But he’d responded of course to the CEO, and had delivered some impressive bottom line benefits within a few months.  But this had only encouraged the CEO to want more from procurement – bigger and better “savings”!  Which, of course, gets harder once the low hanging fruit has been harvested.

I wish I could have given him 100% effective advice. But his position is tricky, if not unusual. You have to respond to what the CEO wants – as we said here, getting mis-aligned with the top of the office is a sure way of becoming an ex-CPO.  But a good procurement professional knows that beating up every supplier will rebound in the medium and long term.

So the best I could do was offer a couple of ideas.  Firstly, you can try and educate the CEO as to the benefits of relationships and how you can get value from key suppliers that isn’t just via lower price. But you will have to express that value in terms that the CEO understands and relates to. A “better relationship” means nothing.  A better relationship that leads to a JV opportunity with the supplier and tangible new business is real – as is anything, as per the Bravo Paper, that adds to the firm’s valuation.

Secondly, you will have to accept the need for a pipeline of savings. And that is where tools such as auctions or even optimisation can be very effective, for two reasons. They can generate major benefits, even from a well-managed category (although clearly they’re not appropriate in every spend area). And they can be great PR and even theatre for the CPO. Choose your category very carefully (and that’s true for any auction or event) but then get the top team involved – invite them to observe some or all of the process. Make the Boardroom the “command centre” for the auction.

A friend of mine did this a while back in the first month of his job as a CEO for a major bank.  His mobile phone auction saved 30%, was watched by the CFO and CEO, and got his reputation off to a brilliant start in his new firm.

But make sure you’ve planned well... the system crashing half way through won’t be quite so good for the image!

Voices (2)

  1. Jason Busch:

    I even get this suggestion on this side of the Atlantic 😉

    However, here we would suggest “Spirit Airways” … for the CEO who should eat their own sourcing, unit-cost dog food (and see how quickly the total costs of myopic singular line item price decisions come back to bite you in the back of a 1978 DC-9 …)

  2. bitter and twisted:

    Alternatively: next time the CEO goes on a business trip, book him Ryanair.

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