How the Role of Procurement Leadership is Changing in 2021
[Drawn from the 2021 CPO Study]
WBR Insights has analyzed the role of the CPO and other Procurement leaders in multiple studies. One of the most notable changes in Procurement leadership is its ascension to strategic status.
In 2018, WBR analyst and digital content director Andrew Greissman was quoted in a PYMNTS article, noting that he discovered CPOs now have "a seat at the table."
"When I first started writing the report, a lot of [the] topics we focused on were about reinforcing internal relationships between the CPO and other department heads and providing the value of Procurement involvement in things like IT," said Greissman. "Now, it's a different environment. The CPO has proven a lot of value over the last several years."
The fact that CPOs were taking a role in strategic initiatives was an important development, as the role and the department have historically been consigned to finding measures to cut costs. Many organizations recognized that a strong supply chain was important, but there was an unspoken view that procuring goods and materials in the cheapest way possible was the most important objective in Procurement.
Now that Procurement leaders are taking part in strategic discussions, they have more opportunities to prove the value of the function. It also represents a significant shift in how organizations are structured around Procurement and which stakeholders the function reports to.
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More Procurement Departments are Reporting Directly to the C-Suite
In CPO Study 2021, a report by ProcureCon and WBR Insights, 60% of Procurement leaders said they reported to Supply Chain, while 20% said the function reports directly to Operations. Significantly, 20% said they reported to the C-suite, an increase of 14% compared to the previous year's report.
The 2020 report also revealed that 30% of Procurement teams reported to Finance. In the most recent 2021 study, 0% of the Procurement leader surveyed said they believed Procurement should report to Finance. Meanwhile, 40% said they should report to Operations, another 40% said they should report to Supply Chain, and 20% said they should report to the C-suite.
Some of these changes may relate to the role Procurement plays in different organizations. But the fact that there has been a substantial increase in the number of Procurement functions reporting to the C-suite is noteworthy. To quote the 2021 study, "Procurement may report to the C-suite if the organization views the function as an important contributor to its high-level strategy."
It's in this role that we will likely see many Procurement leaders moving forward.
COVID-19 Has Highlighted the Importance of Speed and Agility, But Also Risk Management
Procurement is also being measured by new metrics. Instead of focusing primarily on contributions to profitability ratios like EBITDA and COGS, there is more emphasis on metrics like sourcing speed and cycle time. These metrics can have an impact on revenue and cost savings, but they are also integral to strategic viability, especially in the face of disruptive events like the COVID-19 pandemic.
The pandemic created a tense balancing act for many Procurement leaders. Supply chains became strained, introducing significant amounts of risk into some sourcing activities. From a purely risk-based perspective, this would normally call for an in-depth assessment of risk factors emerging in the supply chain and a series of actions to ensure a stable supply of critical goods.
But at the same time, leaders were asked to improve sourcing speeds of critical goods and materials or to quickly find alternatives, as suppliers in some markets struggled to meet demand due to travel restrictions, social distancing rules, and, in some cases, so-called "lockdowns."
Balancing these two problems together represents a significant challenge for risk management. But, moving forward, these are the types of challenges that Procurement leaders will be asked to face.
Solving them will require the positioning of powerful analytics and intelligence tools at their fingertips. It will require Procurement leaders to advocate for their department's needs at the highest levels of the organization, and it will also require them to develop strong supplier relationships and align the actions of multiple departments to achieve broad strategic goals.
Procurement Leaders Must Have a "Disruptive Mindset"
Procurement leaders have been asked to help transform the organization's operating models and cost structures to address sourcing speed, agility, and risk management in the face of future disruptions.
Notably, digital technology was already driving change in the value chain long before the pandemic struck. As such, Procurement functions must adapt in real-time to competitive markets using increasingly complex digital tools like AI-predictive analytics, blockchain, and new enterprise software suites.
This has placed Procurement leaders in an essential position within the organization, as they are now responsible not solely for the procurement of goods and services but also for driving change through insights delivered by some of the latest business intelligence tools. The impacts of their actions will have a ripple effect across the entire organization, and it integrates leadership roles across departments.
"The procurement of goods and services has changed from a transactional model to deeper strategic partnerships across the enterprise," says Chief Revenue Officer of Globality Keith Hausmann in an article in IndustryWeek. "No longer is it the responsibility of a single organization. It's now part of every leader's role to engage in upstream collaboration, supplier relationship management, category strategy development, truly strategic sourcing, and evangelizing the benefits of joint supplier innovation."
Hausmann notes that businesses and procurement leaders will require a "disruptive mindset" to drive growth and innovation in "the next normal." In the coming months, we'll learn how organizations have weathered the disruptions of the past year, and what role Procurement will play in their plans.
Stay tuned for the next iteration of the ProcureCon and WBR Insights CPO study, coming in 2022.