SCDigest Editorial Staff

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As these skill sets expand and the recognition of their value becomes obvious to CEOs, more and more companies are creating the role of Chief Procurement Officer (CPO). What do you say? Send us your comments here

Procurement and sourcing managers find themselves under a lot of pressure today, given the seemingly relentless drive to reduce costs, the complexity of global supply sourcing, balancing lean inventories with reducing risk and other factors.

The good news: it is the very scope of managing those challenges that are remaking the role of procurement managers and executives. Once sometimes an outpost for managers who didn’t make it elsewhere, procurement is emerging as one of the most important jobs in many companies.

As these fundamental supply chain trends are likely to continue for the long term, the future isn’t plastics, to put a spin on Dustin Hoffman’s line from The Graduate several decades ago, but procurement.

Rising Commodity Costs get Exec Attention

There are a number of factors behind this growing stature for procurement.

One key factor has been the huge rise in commodity prices over the past few years. As the prices for oil, metals, and now agricultural products have soared, costs for manufacturers procuring these commodity or derivative products, such as plastic resin made largely from oil, have also skyrocketed, and led many corporations to cite commodity prices as to blame for earnings shortfalls. Rising commodity prices have therefore generated board-level attention at many companies, especially as automation, outsourcing and other manufacturing techniques have reduced labor costs as a percent of total manufacturing cost dramatically. Materials make up a larger and larger percent of standard cost for most companies – and skill in driving these costs down or reducing variability through sophisticated sourcing and contracting strategies is critical. Many companies, for example, have been locking in commodity suppliers and prices through very long term contracts that would not have been considered in a different commodity environment. (See Supply Management: The Return of Vertical Integration?.)The complexity of global sourcing itself is also a huge factor. Procurement managers need to have a new set of skills to identify, qualify and manage potential suppliers literally across the entire world.

A recent article in the Wall Street Journal talked about this “new breed of purchasing gurus who have become a hot commodity in recent years. As more companies globalize and outsource production, they need a top-level point person who can manage these complex relationships, navigate various foreign cultures and be willing to travel constantly.”

Risk Adds Another Dimension

In addition to these pressures, procurement managers must also deal with a whole new set of risks and executive focus on minimizing supply chain disruptions. The recent Mattel toy recalls provide an obvious, high profile of example of the risks. But procurement managers must somehow reduce the risk while still helping operations run increasingly lean supply chains.

As these skill sets expand and the recognition of their value becomes obvious to CEOs, more and more companies are creating the role of Chief Procurement Officer (CPO). And it’s about time, says Dave MacEachern, head of the supply chain and logistics practice at executive recruiters Spencer Stuart.

“The only thing surprising about the emergence of the CPO function is that it has taken so long for companies to embrace,” MacEachern told SCDigest. “It should be a no brainer and is very often the first step toward an end-to-end supply chain strategy. A good CPO will pay for himself in weeks in many cases.”

MacEachern also is seeing many service organizations creating the CPO office.

“There is a lot of money sitting in the indirect world of IT, travel, marketing, real estate, professional services, etc., and any savings go straight to bottom line,” he added. “I know of a $10 billion information services company that just hired the number 2 procurement executive from one of the major computer manufacturers. Just think of the impact she will have on that company short, medium and long term? It will be huge.”

CPO's often need to be well rounded supply chain executives, MacEachern noted.

“Its not all about price; it is about total landed cost, managing inventory levels, logistics, customer service, supplier quality, etc., and the CPO role is in the middle of these decisions or often making them,” he said.

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