Four Innovations Reshaping the Role of the CPO

The current chief procurement officer (CPO) role is set for huge change in the near future and is expected to bear relatively little resemblance to that of the past.

The CPO’s historic emphasis on cost and supply performance has steadily expanded to include a focus on problem-solving for business growth, customer acquisition, sustainability, and working with suppliers as strategic partners. Led by a cohort of progressive, digital-first companies that increasingly look to their procurement team as a strategic differentiator, the role’s dramatic redefinition will only accelerate from here.

The CPOs of 2025 won’t have a traditional résumé; in fact, they might not even have a corporate procurement background. With increasing frequency, CPOs will be appointed from roles where they have gained broad strategic, digital, operational, and stakeholder relationship management experience.

Their journey with the company won’t necessarily have begun in procurement, and it’s unlikely to end there, either. Their skill set and singular view of the dynamics between money, markets, and materials will situate them as prime candidates for any top job. For a view of the future, consider Apple CEO Tim Cook and COO Jeff Williams. Both have procurement or supply chain backgrounds, and both made a name for themselves at the company by doing truly inventive work with suppliers.

Here are four ways that innovative CPOs can continue to redefine their role and transform the procurement function over the next five years and beyond:

 

  1. Shifting to a partnership model with suppliers

 The CPOs of 2025 will focus predominantly on stakeholder experience and impact (i.e., speed to market, not simply cost performance). They will recognize that delivering innovative products and services requires taking a long-term partnership approach. Having suppliers compete against one another and driving them down on cost simply cannot deliver the desired results.

Take, for example, an automaker that wants to build a new line of cars integrating new technologies and paying methodical attention to every detail in the name of customer preference. To optimize for customer experience, the automaker must cultivate a trusted ecosystem of suppliers to design and ship the best possible batteries, chassis components, and dashboard inlays. Every detail and finish matters.

Breaking the specification down into constituent parts and running myriad requests for proposal (RFPs) to get the lowest price for every component would ultimately lead the automaker to fall short of its ambitious goal of producing a car that people love. As a result, economics will enter the discussion at a relatively later stage. At that point, forward-looking CPOs will plan collaboratively with suppliers to work out a fair market price, taking into account supply chain costs, total quality, the value of innovation, and the final price paid by consumers.

 

  1. The growth of a consultative sourcing approach

Forward-looking CPOs will also take a consultative approach to working with suppliers in technology, business advisory, marketing, human resources, workplace, legal, and other service areas. Ultimately these suppliers act as a strategic extension of the internal functions, and this calls for active, collaborative engagement early in the sourcing process. When CPOs are closely aligned with their business partners throughout the company, procurement is integrated into each function’s business strategy. This ensures that suppliers that are sourced, especially those for complex, high-value services, have the capabilities needed to deliver value, innovation, and growth for the company.

Using a consultative sourcing approach means ensuring the requirements of internal business stakeholders are clear from the outset so the process doesn’t create organizational friction and slow down the business. Once the service requirements are clear, then procurement can ensure the best suppliers are considered, including both incumbent suppliers and other diverse suppliers who can bring other capabilities to the table.

The best procurement teams are able to anticipate the needs of their businesses and immediately deliver a short list of qualified suppliers to their business stakeholders—so those stakeholders can focus on the specific use cases and outcomes that they need for a project or service. This spotlight on capabilities reduces the bias that often comes when supplier selection is based purely on historical relationships and cost, which doesn’t serve the best interests of either the business or the supplier. Suppliers also benefit from the consultative approach because they avoid the costly traditional RFP process and can provide greater transparency in their commercial proposals because the scope of the project is clearly outlined from the outset. The future CPO will utilize technology to accelerate this consultative process, delivering significantly better results in a shorter amount of time.

 

  1. Digital transformation

 Most procurement executives would agree—even before now—that digital transformation is critical, even if they’re unsure of how to start or what to prioritize. The sheer scope of this undertaking is another reason CPOs increasingly come from nontraditional backgrounds—often from business units that are already digitally enabled and transformed.

Progressive procurement organizations harness big data and predictive analytics to improve decision-making in areas such as risk mitigation, demand management, and supply chain planning, as well as enhance digital communication tools to improve collaboration with business stakeholders and suppliers. The domains with the most transformational potential, however, are AI and machine learning. These technologies enable procurement to entirely eliminate routine tasks (e.g., spend analysis, supplier identification, scope definition, tendering, contracting) and make smarter, faster supply decisions in collaboration with key business stakeholders. Led by forward-looking CPOs, investment in these areas will grow sharply over the next five years.

 

  1. New performance metrics show procurement’s true impact

 Although cost savings will always be important, a broader set of performance metrics will emerge, with progressive CPOs demonstrating procurement’s wide-reaching impact.

As more companies gravitate toward the supplier partnership model, leaders will gradually adopt a new set of KPIs around (internal and external) strategic partner relationship management. These KPIs will measure outcomes that have been delivered through procurement’s efforts to cultivate innovation and overarching business improvement. More sophisticated modeling will also become available to measure procurement’s contribution to revenue growth, speed to market, customer retention, and other key metrics reviewed by the operating board.

As demand for suppliers with cutting-edge capabilities continues to build, a new set of KPIs may gain traction to gauge procurement’s effectiveness at introducing diverse thinking and ideas through an organization’s supplier base. Sourcing teams could even be rated and compensated based on the diversity of ideas delivered through the suppliers they have onboarded.

Ultimately, the mind set of 2025 CPOs will be radically different to those that have gone before. This will optimize the overall function to deliver growth and innovation rather than simply cost savings. Companies that find, empower, and elevate this type of executive will drive tremendous value for their employees and shareholders.

 

 

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