The top 5 challenges for the Chief Procurement Officer

We are pleased to bring you an overview of the chief findings from a recent survey of European CPOs conducted by Xchanging, the third-largest procurement outsourcing provider in the world. This post comes from Steve Trainor, Managing Director, EMEA, Xchanging Procurement Services.

The life of a CPO can be fraught with complex and competing challenges. In a recent survey we carried out amongst CPOs across Europe we found that reducing spend with third-party suppliers, driving down the cost of procurement, managing supply-led risk and harnessing true innovation from the supply base remain the most significant business objectives that the CPO must address.

In doing so, the CPO must also ensure that the benefits derived from a professional sourcing and procurement programme are realised by the organisation, continue to secure first-class goods and services and develop a leading procurement capability which enhances the reputation of the company.

Here are the top five challenges that we hear consistently from CPOs during our discussions:

  • Managing spend creep and ensuring cost containment is often a challenging task. For CPOs, they need to have a strong team and capability across the end-to-end sourcing and procurement process to ensure costs are contained. Without a dedicated team to run a quality sourcing event, requirements are often not accurately captured or scrutinised and money is wasted on unnecessarily high-specification products and services. Without a dedicated team at the other end of the source to manage process and supplier adherence to contract, scope creep becomes an issue. Finally, without the people, process or technology to measure and track current spend, there is an ‘overspend lag,’ meaning that by the time anyone notices spend is going over-budget, it is too late.
  • The visibility of realised savings is a common challenge for many CPOs particularly in the indirect categories of expenditure. CFO’s care about savings that are realised and can be tracked and measured at a P&L level. Success for the CPO is to deliver benefits that are aligned to business outcomes, such as earnings per share, working capital and operating profit. Achieving this whilst maintaining the budget holder’s flexibility to deliver against their own business objectives requires strong tracking and measurement tools alongside a strong, professional working relationship. Only when the savings can be measured and audited in this way can the procurement function really become a fundamental part of the business performance planning process.
  • Finding the right means to ensure compliance to contracts is also a keychallenge for the CPO.  Translating into business reality the value that is created through sourcing processes and contained in supplier contracts is a difficult but critical task. There is nothing more frustrating for a sourcing professional than to find a contracted supplier being ignored in favour of one that is delivering less value to their organisation. In addition to the obvious forfeit of savings to the business, the CPO knows that this non-compliance will, over time, dilute the buying position of their company in the marketplace. A CPO needs to have at their disposal, strong contract and supplier management processes and technologies to underpin existing governance structures.   
  • Making the correct decisions regarding the leveraging of technology is crucial to delivering best-practice sourcing and procurement and the CPOs that we talk to recognise this.The technology that supports procurement has moved on dramatically in recent years with spend analytics, eSourcing, Supplier & Contract Management, eWorkflow, spot buying /tail spend management, savings tracking and budget management, to name but a few. The coupling of these collective technologies with market intelligence and data will drive greater procurement effectiveness, improved processes, better visibility, detailed audit and more accurate tracking of savings.Additionally, the CPOs we have spoken to recognise that technology now needs to be applied holistically,  connecting their business to the supply market in a way that enables the professional sourcing process but also creates an environment where the business user can also buy and leverage suppliers in a supported fashion. The challenge faced by the CPO is finding the up-front capital to invest in these technologies and justifying the increased cost required to better enable cost reduction.
  • Sometimes we speak with a CPO who has a good strategic vision of where they want to take their operation, but they have inherited a team that lacks the deep sourcing or industry expertise they need to execute such a vision. This doesn’t mean their team is not talented or experienced, but often this talent has been channelled the wrong way and results in experience that might not be applicable to strategic sourcing. For example, a person may have been operating in a reactive nature, negotiating contract extensions with incumbent suppliers, ‘fire-fighting’ as supplier performance issues crop up and catering to ad hoc spot-buy requests. Consequently, the CPO does not have the adequate skill-level in their organisation to elevate the sourcing and procurement function to the next level of maturity.

This infographic sums up the points nicely

CPO Challenges Infographic

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First Voice

  1. mukiibi denis:

    This is nice information it will help many scholars of purchasing and logistics management especially procurement management scholars

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