• Global Risk Management Solutions

How Outside-In Issues are Shaping the Course of Procurement

In our post where we asked what is top on a CPO's mind, we noted that, not surprisingly, cost cutting was front and center. However, that was just one of a host of broader issues that are becoming pushed onto the agenda of the CPO. In that particular post, we listed 20 issues that were occupying a CPO's mind, from overarching issues affecting the organization — such as economic instability, globalization, innovation and corporate reputation — to value creating methods that, if mastered, can increase the value of procurement, like category management, supply base redesign, lean and six sigma and total cost modeling.

If procurement’s value is ultimately derived from driving value out of supply markets, then by definition, the CPO Agenda must be driven heavily from an outside-in perspective. In other words, procurement value is derived from improving supply value — and in procurement’s world, supply is outside-in. That value starts with assurance of supply, just as top line growth and brand growth is foundational to sales and marketing, and to the CEO agenda. Top line growth in turn depends on innovation, market penetration, reputation and regulatory compliance while keeping tabs on sustainability, economic stability and the plethora of digital channels to which commerce is migrating. These all depend on external resources at some level, so managing the supply from those resources is foundational to the business, not just raw materials and other direct input costs.

The days of simply focusing on supply assurance, cost reduction and demand management from a purely supply standpoint are long over for any company that wants to stay alive in the 21st century. Stagnant GDP growth, rising inflation, steady or increasing unemployment, rising inequality between the rich and poor and an increasing need for resources in greatly limited supply are creating a perfect economic storm that will sink any company not ready to compete in the global marketplace that has taken hold in most large economies.

Value chains are becoming bifurcated and turned on their heads. There’s demand on high-end luxury and low-end value. Consumers want local and they want global on demand. They want custom and they want pricing associated from mass production. And everyone in between wants something from somewhere else. Products need to come from everywhere and go to everywhere, be compliant with local and foreign regulations, be produced in a socially responsible fashion and be sold through the appropriate digital channels.

The days when a procurement manager could sit in a room ordering from catalogues and sending out the odd RFP are long over. Today, a CPO has to balance overarching issues such as the six below that we’ll discuss in this series:

  • Corporate social responsibility (CSR) and sustainability
  • Digital business strategy
  • Economic instability
  • Globalization
    • from a supply chain perspective
    • from a market perspective
  • Regulatory environment
  • Reputation

In the next seven parts of this series, we'll address these issues one by one.

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