Welcome to our special issue on the ever-changing world of procurement. Why is it changing? One absolute driver is the digital revolution that’s affecting all our lives in so many ways. Another, clearly, is automation.
One change that might be a bit under the radar is the migration of procurement, and its senior practitioners, into a more strategic partner in the C-Suite and the entire supply chain operation. One example is the elevation of Marcell Vollmer from Chief Procurement Officer of SAP to Chief Operating Officer of Ariba, an SAP Company.
Procurement isn’t just the department that sources things anymore. It’s providing real business value because it touches every single aspect of the enterprise. There isn’t a department in a business that doesn’t need to buy things. The CPO has visibility into all of this, enabling them with a unique view into business operations, and an opportunity to add value and improve efficiency.
As CPO of SAP, Vollmer gained insight into procurement’s role across an entire organization, learning first-hand how to take procurement past the tactical and into the strategic level of the business. His experience bringing procurement into a strategic position within a company and integrating closely with the CFO has positioned him for his new role.
That relationship between the CPO and the CFO can play a vital role in a company’s success—or failure. Again, the word strategy is involved. “There’s a need for a more strategic relationship, and education on what value procurement can offer the CFO in terms of cost savings and efficiency,” Vollmer says. “CPOs have an opportunity to add real value by investing in business networks that lead to automated, cloud-based interactions that, in turn, result in significant cost savings. As the CFO asks, ‘Where’s my money,’ there needs to be a new level of understanding of what procurement’s cost savings truly mean for the business. But I understand both sides. It really helps to know what the CFO needs, too.”
What makes an innovative procurement leader? In 2014 IBM conducted a study of more than 1,000 procurement leaders from organizations with annual revenues of $1 billion or more. The findings: Companies with high-performing procurement organizations have higher profit margins than companies with underperforming procurement departments. Those CPOs who drive top-line revenue, bring innovation into the company and improve competitive advantage.
In the case of Vollmer’s promotion at Ariba, his talent was recognized, but that’s not always the case. For example, The Next Level Purchasing Association’s annual salary report said over a third of respondents indicated that they received a bonus in 2014, but in most cases the bonus was based on company performance, not their own cost-saving performance. The conclusion was that companies still fail to recognize procurement’s influence on net income and reward those top-performing procurement employees appropriately.
One last study to cite: The Hackett Group’s annual Key Issues study identified the top issues shaping the procurement executive agenda in 2015. Almost 75 percent of respondents ranked elevating procurement’s role to that of a trusted advisor as a critical or major priority in 2015. While becoming a trusted advisor and increasing agility are rated as very important, organizations have a low ability to address them. That, my friends, is not good.
For more on these studies and related topics, please enjoy the issue.