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Blog

The Evolving Role of Strategic Leadership in Procurement – Part 2: What are COOs and supply chain managers up to and how can procurement add value?

Direct Procurement

This is the second of two articles. In the first we looked at what supply chain managers can manage and influence, and what they can’t, and what action they should take.

In the second half of our recent webinar Iain Prince, Operational Transformation & Supply Chain Partner at KPMG, asked a series of provocative rhetorical questions. What are COOs at leading manufacturing organizations currently up to? What is the focus of their attention? What is on their transformation agendas?

Leading companies are mapping out operations on digital twins so that they can decide where and what they will be manufacturing in the future. Which factories will need to close? Where will new ones need to be opened? Where are our new customers? (Direct) procurement needs to be on top of this because the COO’s decisions could easily change the volume and destination of what you buy, and who you buy it from. Case in point: packaging. If you are selling in France, for example, you now need to ensure that packaging materials are 100% recyclable. Past contracts are unlikely to have considered this and will need to be revisited.

New skills in demand

Moreover, now that sensors, the internet of things and artificial intelligence have become the norm, the skills needed in procurement have radically changed. Suppliers get automated requests to replenish stocks, so there is less requirement for humans to monitor current inventory levels, and greater need for insight and analytical roles, i.e. data-savvy professionals who can look at data and decide if orders need to be increased or decreased. Even marginal changes can have a huge impact when you are buying in volume.

In the head office, getting a firm grasp on data is absolutely essential. That’s difficult when the information is in an ERP system, such as product codes, differs from what’s in the procurement system. (I pointed out to Iain that, thankfully, this is not a problem for JAGGAER customers, but a real challenge for others.)

The scope of the information that procurement requires has expanded rapidly over recent years. For example, in logistics, major companies need CO2 that link to Scope 3 targets. (Another challenge we help solve at JAGGAER, not just for logistics but including the wider manufacturing process.) They also need to be sure that there are no breaches of modern slavery regulations. (OK, I won’t labor the point!) And the next big thing on contracts, especially in logistics, will be cybersecurity: most cybersecurity incidents are through a company’s supply chain. All of these must be written into contract clauses and the situation is in constant flux so rolling one-year contracts are becoming a thing of the past.

Digitalizing the supply chain

Everyone says, “we must digitalize our supply chains”. Many C-suite executives say, “our competitors have digitalized their supply chain. We must do the same”. And yet, in Iain Prince’s experience, digitalizing the supply chain means a different thing to everyone in the boardroom.

  • A COO is likely to think that digitalization means sensors and machines, and in particular, robots. It’s physical, and it’s about reducing headcount.
  • CIOs are more challenging because their focus is on data and software to provide insights: “If I had the right insights, we could get rid of warehousing”. CIOs are interested in building digital twins where you can close or relocate facilities and run models to optimize manufacturing and other processes.
  • When we turn to the CFO, the focus is on track-and-trace and process automation. What RPA tools can we use to automate processes such as procurement and invoicing?
  • Finally, many organizations now have a Chief Digital Officer who wants to know, “How can we exploit augmented reality across our operations?” and “how can we leverage new technologies such as blockchain?” Ultimately their goal is often to use digitalization to improve customer centricity.

Thus, when the C-suite approaches procurement with a mandate for digital transformation, it’s important to pin down what is the intention, what other transformation projects (physical, virtual…) have been slated and how procurement fits into this landscape.

Questions procurement should be asking

With those thoughts in mind, what sort of questions should procurement leaders be asking of the business, and who should they be asking? Here are some suggestions from Iain:

  1. How can we leverage procurement to mitigate the risks, costs and sustainability in the supply chain, given that it is a C-suite priority? Map out the supply chain for a discussion, discuss the risk register with the C-suite, and approach the internal and external auditors to see what is on their agenda. When you see their lists, you will identify opportunities.
  2. Ask what digital transformation projects are in progress or planned. These tend to be siloed and procurement needs to find out what changes are envisaged and what is the business case to ensure that the function adds to it. Your category knowledge will almost certainly prove valuable.
  3. As processes are automated across the business, for example with IoT, you need to ask how this will impact the procurement contracts that have already been negotiated or will need to be in future.
  4. Ask how direct procurement can add value to the business change that has taken place in virtually all businesses over the past four years (in response to Covid, supply chain disruptions etc.) Procurement needs to be in the discussions around the entire operational footprint from sourcing to channels to market.
  5. Finally, a question that procurement professionals need to ask themselves: how good is your visibility across the entire organization? We have seen ways in which procurement can add value but is there awareness beyond your cost saving role?

Concluding remarks: three priorities for procurement

Procurement needs to have these discussions with a wide range of C-suite personas. This is especially true in organizations where procurement and supply chain are separate and perhaps have different reporting lines (typically procurement to the CFO, supply chain to the COO). If the left hand doesn’t know what the right hand is doing, they’re both leaving money on the table. If you work together to map out supply chains across the globe, you will be amazed at what you can achieve in terms of balancing cost, risk and sustainability. A second priority must be to find out what changes are taking place or will take place in supply chain and across the wider business: products, customers, channels to market, packaging …

And finally, what digital transformation projects are taking place? Where does procurement fit in? How can procurement add value? By getting involved, you will raise perceptions of the contribution procurement makes and will make to the business in a rapidly changing environment.

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