SCDigest Editorial Staff

The News: A detailed study from CAPS Research finds that as more companies create the role of Chief Procurement Officer, executives changes in the position are frequent, both for internal reasons and because CPOs move on to positions at other companies.  Perhaps surprisingly, between 21 and 30% of CPO appointments were given to executives without a supply management/procurement background.

The Impact: As with many other areas of business, there is a clear trend towards centralization of the procurement function to drive standardization and leverage and manage spend across the enterprise. As with other executive positions, however, that change goes with more pressure to deliver, in an increasingly short time, contributing to relatively short average tenures. Another driver of frequent changes at the CPO level, however, is that there is a shortage of top CPO talent, meaning successful CPOs typically have many opportunities to move to similar positions in other companies.

The Story: The lengthy report from CAPS Research, affiliated with Arizona State’s Institute for Supply Management, is titled Supply Leadership Changes, and is authored by P. Fraser Johnson and Michael Leenders, both of the University of Western Ontario.

It is the third in a series of detailed reports from CAPS that looked at procurement activity and processes in 30 or so companies from 1998-2006.

Supply Chain Digest has waded through the detail, and identified these highlights:

• The role of Chief Procurement Officer really began to emerge during the course of the study, driven in large part by corporate strategies of centralization not only of procurement but other functions, such as supply chain and human resources. In fact, of the 30 companies studied, 29 created the role of CPO sometime during the study period.
• The level of turnover in the CPO position is fairly high, with average tenure for a new CPO of about 4 years, but with many leaving the position (voluntarily or not) much faster than that. However, the majority of those position changes were related to either acceptance of another position within the same company, or CPO role in another company.
• Perhaps not surprisingly, where the CPO reports can change even more frequently. Interestingly, in companies establishing a CPO role for the first time, 21% reported to the CEO directly, but when the reporting lines changed, it wound up that only 6% of CPOs were direct reports to the CEO. In the studied companies, however, a little over 50% of CPOs reported to one of the top five executives in the companies.
• We were surprised that 21% of first time CPO appointments (position established for the first time) and 30% of replacement appointments were to executives without a background in supply management. The tenure of this group of CPOs, however, was on average significantly shorter than those coming from a supply background. Whether this is due to performance issues, or these execs simply moving on after some experience in procurement, is not clear.

The authors provide several interesting observations:

1. While the stature of procurement seems to be increasingly in corporations overall, in individual companies that importance clearly can rise and fall over a period of years, as indicated by frequent reporting changes and the level of that reporting.
2. As with other areas of the company and executive appointments, the time given to show demonstrable results after a CPO is named is diminishing. One company in the study group, in order to help a new CPO hit the ground running, actually interviewed key supply managers and performed additional research in order to give the incoming exec a dossier that outlined opportunities and challenges.
3. The role of CPO becomes especially critical when the enterprise encounters tough times: “Supply thrives in tough times,” they note, citing an old adage.
4. A key change over the course of the study was the rising interest in outsourcing key elements of the procurement function, significantly changing the role of the CPO, and meaning the job often entails leading a move to outsourcing functions.

What’s interesting to us is to whether there is room for a chief supply chain officer and a chief procurement officer. The study found almost none of the companies in the study yet had a supply chain exec that had full responsibility across operations and procurement.

Does any of this data surprise you? Is the chief procurement officer the way most companies should structure their procurement organizations? What are the determining factors? Let us know your thought at the Feedback button below.