When Tim Cook transitioned from overseeing Apple’s supply chain as COO to CEO in 2011, the world of supply management anticipated a new era in the strategic importance of procurement.
However, in the five years since his appointment, only six FTSE 100 companies have a CPO board or executive committee member, and only two FTSE 100 CEOs have held senior procurement roles. The new era for procurement has not yet materialised.
This is driven by the restricted perception of what senior leaders believe the role of the CPO portrays, which is still relatively new when compared to COOs, CIOs and CFOs.
Traditionally, there has been a tendency in many organisations for the CPO to report in to the CFO, which leads to a requirement for the role to deliver in accordance with finance priorities.
For CPOs to develop the perception held of them, they need to move out of the shadow of finance by setting goals with an innovation outlook, and focus on developing strategic relationships with customers and suppliers. This will not only benefit the CPOs own career development, but businesses will gain from having a CPO who values growth and development.
Moving out of the shadow of finance
The opportunity that the first CPOs had in creating the boundaries and attributes for this role are now commonly defined. However, this definition sees procurement as subordinate to finance and with a primary focus on driving cost reduction.
The CPO needs to align more closely with functions that lead the business agenda. For example, within a technology organisation, the CPO can drive the CTOs innovation agenda by collaborating with suppliers and R&D across the end-to-end value chain.
This realignment can help procurement shift its focus away from finance’s cost reduction priorities, which is not seen as a sustainable approach for procurement. The strategy of removing operational costs year-on-year develops a culture of price over quality, tactical over strategic, and process compliance over innovation. This both limits growth opportunities for the business and restricts the ability of the CPO to be seen as an innovator in their organisation.
Developing strategic value chain relationships
Through shifting their focus to growth and innovation, CPOs can mirror the attributes of successful CEOs. One key difference between a CEO and CPO is that the former will spend a significant amount of time developing external relationships and driving their business agenda in the marketplace.
CPOs can follow this example by handing over operational responsibilities to line management to free up time for relationship building. By spending time in the marketplace, CPOs can deepen their expertise on consumer demands and supply market dynamics, while also gaining visibility on the industry’s full value chain to allow for continued collaboration with suppliers and customers.
It is this type of operational integration that enabled Tim Cook to climb the career ladder at Apple. He was able to cut down inventory to two days’ worth of stock by outsourcing manufacturing and moving strategic suppliers to locations close to Apple sites to facilitate continued innovation.
Successful CPOs can have a substantial impact on multiple aspects of a business. While there are different routes that CPOs can take to become CEOs, defining their goals against an innovation-led definition of success rather than being restricted by the finance function will enable CPOs to become growth-leaders; a notable and key quality for a successful CEO.
Johan Mills is a procurement consultant at PA Consulting Group