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Does modern procurement need to ‘evolve’ to achieve commercial success?

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Gary Noble jobs, recruitment, career...

Going into 2020, it’s undeniable that the role of the modern CPO is changing. As a company deeply embedded in the procurement and supply chain sector, we’ve gone to great lengths in our blogs to reflect the views of our peers, in considering what skills CPOs will need to continue to be successful and relevant in the next decade.

In a recent write-up of a company roundtable, one of the common themes was  the CPO role can no longer be siloed and that a broad business exposure is absolutely vital. However, some have gone further, suggesting that if procurement is going to remain relevant then CPOs will need to actively achieve commercial success and consistently add profit – not just savings - to the bottom line.

This is  very much the view of Damon Jones, an experienced CPO and commercial director who, after a successful career in permanent commercial procurement roles, has spent the last fifteen years running his own consulting business where he delivers commercial strategy reviews and procurement & supply chain transformation programmes to clients within the private equity sector. So, what did he have to say about the future of the CPO?

How can procurement achieve commercial success?

Move on from savings

Damon’s view is that the days of procurement being just about savings are firmly over. “That well is dry, and the next step is focussing on how to positively affect the EBITDA and drive profit. Savings vanish into the air, but profit is something everyone understands.”

However, Damon’s view is that procurement chiefs who can really achieve this commercial success are few and far between. “I have visited lots of businesses with really slick supply chains but there is often no real vision of how those supply chains can actually generate revenue- in fact many CEOs are not even aware of the possibilities, as procurement just  aren’t selling  that vision.”

Damon’s approach has been influenced by his work in private equity, a sector which is heavily profit-driven and incredibly nimble and agile. “You can have a great idea at 5pm and execute it the day after!”

What does this mean for CPOs?

Damon suggests that procurement needs to “evolve, and that the time is now.” In fact, he has noticed that many CPOs are now being plucked from financial and general business backgrounds as the current crop simply do not have the requisite skills to deliver commercial success. “There is real room for innovation if CPOs have the necessary insight and willingness to push it forward. However, to succeed, they will need to strategically collaborate with CFOs and CEOs to make money – not just ‘add value’ which to be honest is just common procurement jargon and means very little.”

“CPOs need to have a big picture view – they need to take a step back and look more holistically at a business in order to see where they can make improvements. Ultimately, while CFOs are fixated on numbers, and CEOs are busy running the business the best CPOs can serve as a go between that takes a more commercially focussed role.”

However, this also means putting aside egos, something which Damon sees as a problem in the industry. “Too many CPOs just want to brag about savings and the size of their team, rather than worrying about EBITDA. Ultimately, no one will remember savings – but if I come in and make profits, everyone will remember!”

How can they achieve this?

“Successful CPOs will need credibility, visibility, effectiveness, and respect from the top table,” says Damon. “While the way in which they achieve commercial success will vary from business to business – those softer skills will always be needed”.

However, a common complaint from procurement professionals is that they cannot be expected to wield influence if they do not have a seat at the top table. “In my view that’s just an excuse- I stopped reading the procurement media because so much of the content was based around the need to have a voice. In my view CPOs need to prove their worth and demonstrate the ability to stand up and influence. You’ll need to be brave, but if you go and knock on the CFO with an idea that can make him or her money, there isn’t any CFO in the world that wouldn’t give you 30 minutes for a chat.”

A ‘real shortage’

Ultimately, while the future of procurement lies in delivering commercial success, there is a real shortage of individuals with this skill set. “Anyone can do procurement, but what’s really important is having the specific skills around how you actually improve the business and, in my view, there’s only a handful of people that can do this.”

 

1st Executive, is a consultancy with a very strong network and, consequently, access to the very best procurement talent. We have strong relationships with individuals, like Damon, who have a repeated history of success, providing consistent profits as part of his approach.

If your organisation is looking to move away from simply creating savings – and begin to use procurement as a tool that can truly create profit – contact us today.

Have you got the right people in place to handle future challenges? Take a look at how we’ve assisted organisations in building first class procurement and supply chain functions. Or, if you’re in need of a new challenge, visit our jobs page.