As procurement takes on a more strategic role, Milan Panchmatia examines how CPOs can make the move to CEO.
A bleak economic landscape combined with a global financial crisis saw procurement take on a key role in many businesses’ growth strategies. With traditional growth patterns being undermined across many industries, CEOs turned to procurement to deliver the cost effective initiatives and process innovations that would help improve margins.
That’s not to say procurement was not beginning to play a more strategic role anyway, but the financial situation certainly speeded up the process. A recent survey carried out by Korn Ferry found 82 per cent of CPOs have direct access to the CEO. This figure has gone up from just 60 per cent in 1999.
This increased importance should come as no surprise. Few functions have the ability to significantly boost a business’ bottom line on a yearly basis, particularly in this challenging economic climate. This unique attribute has granted the function a position of influence and opened the doors of the boardroom for many CPOs.
The obvious example of a CPO becoming a CEO is Tim Cook. The latter played a key role at Apple, working under Steve Jobs, and managing the company’s procurement strategy throughout its most successful years. Apple’s phenomenal success is a result of incredibly detailed planning and product design, all of which was made possible thanks to a global supply chain network.
The book Steve Jobs gives a glimpse into how Cook operated. According to the author Walter Isaacson, Cook reduced Apple’s key suppliers from 100 to 24, negotiated better contracts with each of them and initiated a programme to move a number of them to locations close to Apple’s plants. This cut down on the need for warehouses and consequently inventory. Cook also managed to halve the production time for a Mac computer, saving the company a significant amount of money and ensuring each computer shipped was the very latest model.
Apple has long been a company associated with innovation and, as the above examples demonstrate, has not been afraid to let procurement into the driving seat. In doing so the company has been able to sustain its incredible growth, whilst continuing to meet the expectations of its loyal consumers.
Steve Jobs realised this and made sure procurement was a key player in the boardroom. Speaking on Cook, Jobs once said: “Tim Cook came out of procurement, which is just the right background for what we needed. I realised that he and I saw things exactly the same way.”
Procurement may have reached its current level of importance thanks to external factors, but the increased importance of supply management will ensure it continues to play a vital role. Jobs understood the importance of procurement and was able to leverage Cook’s experience to build his $124 billion business.
While it is true not all CPOs have a CEO who recognises the full strategic value that procurement can offer, it is up to procurement functions to deliver success and, crucially, shout about it when they do. Procurement as a whole has never been particularly good at selling itself, something which needs to change if we are to see more CPOs turned CEOs.
☛ Milan Panchmatia is a director at 4C Associates