As well as delivering quick wins for the business, any incoming CPO will need to lay the groundwork for long-term success early on.
A CPO starting a new role will want to make an immediate impact. How you go about this will depend on the priorities of the business and exactly what has been in place before. For the majority, it is likely to be a combination of making immediate cost savings and taking early action to assure the long-term success of the procurement function.
A starting point for any incoming CPO is to consider how procurement interfaces with the wider business and to ensure the team is structured in a way that mirrors the business it serves. In practical terms, this means understanding the main business towers and structuring the procurement team to fit.
The aim is to ensure key business stakeholders have a single point of contact when they need procurement’s help. If procurement is seen as a user-friendly function, then it’s more likely stakeholders will want to interact.
It’s a good idea to talk to the wider business to establish how procurement is currently perceived. If the perception is favorable, the emphasis can be on understanding current and future plans. If less positive, then the focus should be on aligning expectations.
Key to a CPO repositioning procurement during these early days is one-to-one meetings with all executive stakeholders. Even if some of the meetings are short, they serve as vital PR for yourself and your function and mean you are more likely to find a meaningful project early on to get involved in, which can create momentum. Taking this a step further, it is good practice for the CPO – or relevant members of the team – to attend functional leadership team meetings to identify future plans and communicate how procurement might be able to assist.
The fate of any CPO is strongly linked to the quality of their team. Given the time it takes to build a team of the right size and capability, action needs to be taken immediately. There is often a long lead time (in some cases up to 12 months) associated with moving low performers on, recruiting and onboarding new talent, and upskilling and re-orienting individuals. Delaying action in this area will only serve to delay the point at which you are likely to see a return on these activities.
One of the first tasks will be to understand who in the current team can add value in the long run. In the cases of those who can’t, it’s essential to begin and manage the phase-out process as quickly as possible. If you need to hire new talent, be clear on the role and start recruiting as soon as possible. Also, consider how to accelerate the onboarding process so that your new hires can quickly benefit the team.
Ensuring the team is aligned to a common strategy is equally important. This means being clear about what the priority is – whether that’s cutting costs, adding value or minimizing supplier risk – and aligning individuals’ personal objectives to support the strategy. If they are tasked with delivering savings, their own rewards should reflect this.
Amid this progress, it’s essential to inform the team of what’s happening and why, so that a period of change does not turn into one of uncertainty and negativity. Holding a weekly team meeting where people can hear plans and raise concerns is a good way to ensure everyone remains on side rather than being left to rely on rumors.
…it’s essential to inform the team of what’s happening... so that a period of change does not turn into one of uncertainty and negativity.
One area a CPO can generate quick wins relatively easily is by being a source of information and insight to the business. An obvious first step is to ensure visibility of spend – to understand how much the business is spending, with which suppliers and in what areas, as well as to build a contracts pipeline to establish which contracts are due to expire. This enables CPOs and the business to focus on the most important areas or those that can generate most savings, redeploying resources accordingly.
Another way to establish credibility early on is to build a category initiative pipeline with spend and savings estimates, ideally split by business unit if applicable, and with other fields such as the nature of the spend (for example, operational expenditure -v- capital expenditure). This should go hand in hand with putting in place a broader set of key performance indicators for procurement, relating to the objectives that procurement has been tasked with and how these will be achieved. Having such transparency will mean the function becomes more accountable which should, in turn, generate more demand, more quickly, for its services and build greater trust with senior management.
But perhaps the most visible quick win a new CPO can generate is savings. An easy place to start is by reviewing your existing demand, something that doesn’t even need to involve engaging suppliers. This can be as simple as reviewing the number of software licenses you hold, for example, which is often overlooked when headcounts shrink.
Another step is to put in place a purchasing desk to control tail spend, requiring anyone wanting to procure indirect categories to go through procurement and buy from a list of approved suppliers. The desk can establish compliance and handle any exceptions, moreover, it has the immediate advantage of reducing maverick spend.
It’s also a good time to look for ways advantage can be gained from incumbent suppliers. For instance, some suppliers that operate where the cost of capital is high can often be willing to give discounts in exchange for early payment, which might be feasible if cashflow is not an issue for the business. It’s also worth looking at rebates. Some contracts include these but on occasion they are not collected.
By identifying where these exist and exploring whether or not they have been paid, it might be possible to deliver significant revenue just from claiming what is contractually due.
There are a number of other areas where CPOs can look to find savings without causing too much disruption, for example, invoice audit validation. There are businesses that can come in – often on a no-win-no-fee basis – to check suppliers have invoiced correctly and reclaim money in cases where they haven’t. Another is to look for where there are multiple contracts in place with a particular supplier. In some cases, where companies have grown by acquisition, there can be multiple contracts in place for similar goods and services, meaning the business is not benefiting from its full purchasing power. Companies can incorporate total requirements into a single, larger agreement.
…where companies have grown by acquisition, there can be multiple contracts in place for similar goods and services, meaning the business is not benefiting from its full purchasing power.
Talk to suppliers
A final step is to sit down with the most important suppliers and ask them for their ideas on how to take cost out of the relationship. They may have ideas which have not been previously listened to that would enable them to deliver their products or services more efficiently, resulting in a reduced purchase price for the client. Such discussions also ensure suppliers realize that there is now a new point of contact and can set the scene for future negotiations around how both parties work together.
Identifying the steps needed for a CPO to get off to a good start can help pave the way for a successful tenure, putting in place a structure that will help position procurement at the heart of the business while also creating savings from the off.