The procurement function plays a crucial role in driving business success, but in today’s fast-paced and unpredictable business environment, chief procurement officers (CPOs) face many challenges.
A recent article by McKinsey & Company, identified 10 key actions that CPOs can take to overcome these challenges and ensure the success of their procurement function.
McKinsey says the good procurement teams are raising the bar, and distancing themselves from the bad with clear daylight.
“What’s more, the procurement function itself continues to face major changes that have made its traditional operating models obsolete,” McKinsey said.
“Front-running procurement organizations are increasingly distancing themselves from the rest of the pack, deploying their talent, capabilities, technology, and insights into the world’s complexity in ways that propel them far ahead of the rest of the pack.
McKinsey says CEOs should put procurement leaders at the “center of the company’s response to the current context” and task them with a clear mandate to protect margins.
Ten actions for CPOs to act on
Digitalise the source-to-pay process
CPOs need to adopt digital tools and platforms to automate and streamline the entire source-to-pay process, from sourcing and contracting to payment and performance tracking. This can help reduce costs, improve efficiency, and enhance visibility across the supply chain.
Optimise supplier relationships
Procurement teams should focus on building strong relationships with suppliers to improve collaboration, innovation, and risk management. This can be achieved by setting clear expectations, providing regular feedback, and investing in supplier development programs.
Increase spend influence
CPOs need to increase their influence over spend decisions by partnering with business units and senior leaders to align procurement goals with overall business strategy. This can help drive greater savings, improve quality, and mitigate supply chain risks.
Procurement teams need to play a leading role in promoting sustainability across the supply chain by setting clear targets, measuring progress, and collaborating with suppliers to reduce environmental impact. This can also help enhance brand reputation and attract customers who value sustainability.
Build a resilient supply chain
Procurement teams should focus on building a resilient supply chain that can withstand disruption and mitigate risks. This can be achieved by mapping the end-to-end supply chain, identifying key risks, and implementing contingency plans.
Leverage advanced analytics
CPOs need to leverage advanced analytics to gain deeper insights into procurement performance, identify cost-saving opportunities, and make more informed decisions. This can also help improve supplier performance and reduce supply chain risks.
Procurement teams should actively seek out innovative products, services, and suppliers that can drive value for the business. This can be achieved by creating an innovation-friendly culture, partnering with startups, and investing in research and development.
Upskill the procurement team
CPOs need to invest in developing the skills and capabilities of their procurement teams to keep pace with changing business needs and technological advancements. This can be achieved by providing training and development programs, offering opportunities for cross-functional collaboration, and building a diverse and inclusive team.
Adopt agile ways of working
Procurement teams should adopt agile ways of working to improve flexibility, speed, and responsiveness. This can be achieved by breaking down silos, empowering cross-functional teams, and adopting iterative processes.
Align with the broader ecosystem
CPOs need to collaborate with other functions and external partners to drive greater value across the supply chain. This can be achieved by partnering with logistics providers, working with startups and innovation hubs, and collaborating with industry associations and government bodies.
Read Procurement 2023: Ten CPO actions to defy the toughest challenges.