What is the best CPO tool or strategy in 2012?
Our field of 32 determines this year’s champion
Welcome to March Madness, Chief Procurement Officer Style, where the different procurement tools and strategies compete to get to today – The CPO’s Final Four.
From 32 tools to 4, let’s tale a quick look at how we got here:
On Sunday, March 19th, 2012, 32 elite tools/strategies were selected from a field of more than 100 different ideas. The tournament selection committee spent weeks reviewing recent research and Chief Procurement Officer interviews to short-list the 32 most important, dynamic, popular, and adept procurement tools and strategies. These tools/strategies/ideas (called tools from here on out) then faced off in the 28 separate match-ups over the ensuing weeks to create what fans and critics [Sidebar: There are no critics!!] alike are calling “the procurement tournament to end all procurement tournaments.”
Bringing us to today. And now, The CPO’s Final Four.
While each tool needs no introduction, each is deserving of one for its achievement in getting this far [Sidebar: To help set the right mood, it may help if you play this team introduction clip while reading this section].
From the late 1980′s comes a process focused on identifying the highest valued suppliers for a category. This final four tool has a new 2012 version that comes with the use of technology to help improve the process and results and ensure that the knowledge developed over the course of the project is retained….. Stand up and cheer for NUMBER ONE SEED – Strategic Sourcing (2012 version).
Here’s the procurement metric, par excellence….. This tool helps CPOs focus on gaining influence and driving value – The CPO’s “Metric of all Metrics,” a warm round of applause for NUMBER ONE SEED – Spend Under Management.
Next, what an incredible Cinderella story, this unknown comes outta nowhere to lead the pack and win its region. A true upstart that’s also an oldie but a goodie… From the world of auditing, contracts, and recovery, make some noise for NUMBER SEVEN SEED – Contract Compliance.
And last, but certainly not least, comes the tool that more and more CEOs and CFOs have come to enjoy. Standing tall in the executive ranks to drive awareness and engagement with the executive team and thereby, the business, heeeere’s NUMBER ONE SEED – Executive Engagement.
LET’S GET READY TO
RUMBLE talk about procurement tools – WOO HOO!!!!!
Game One: (1) Strategic Sourcing vs. (1) Spend Under Management
At the start, it is clear that Spend Under Management has brought it’s “A-game” today.
This percentage of enterprise spend or spend under management refers to the percentage of total enterprise spend (primarily all direct, indirect, and services spend) that a procurement organization manages or influences. Increasingly, procurement organizations, at any maturity level, focus on this metric and have a strategic plan to increase it each year. The reasoning for this is clear: CPOs that have the visibility and control over more enterprise spend have an extraordinary opportunity to drive value, be it in savings, quality, innovation, supply assurance, and/or any of the other metrics that procurement can impact, across the larger enterprise. Without undermining the importance of other procurement metrics (read: savings), at present time, spend under management is procurement’s “gold standard,” a common metric of performance and impact that can be uniformly applied to procurement organizations of any ilk.
But, it is Strategic Sourcing’s day:
Empowered by the new definition of Strategic Sourcing that says that Strategic Sourcing in 2012 uses technology. You cannot spell strategic without the “e” (as in eSourcing). If you or your consultant are not using technology, you are not performing a strategic function and you are getting substandard results. This is not 1992. Beyond the walls of procurement, enterprise processes that intentionally avoid tools that improve process efficiency, process compliance, knowledge retention, and stakeholder collaboration and communication are quickly targeted for reengineering, if not elimination.
Additionally, Strategic Sourcing in 2012 takes a nuanced approach to each opportunity. Yes, the same high-level steps are followed in all sourcing projects, but the level of rigor, analysis, and detail in each project is commensurate to the opportunity.
A strong Strategic Sourcing effort can pay dividends for years. A strong Strategic Sourcing team can be the difference between average and Best-in-Class performance.
Spend Under Management remains a champion in its own right, but Strategic Sourcing and its clever “co-opting” of technology (in this case another number one seed, eSourcing) is the winning tool today!
Game Two (7) Contract Compliance vs. (1) CPO’s Executive Engagement
Accessible by any procurement organization, Contract Compliance has miraculously advanced beyond many higher-profile CPO tools. Its simplicity and foundation in a very basic business premise – “a contract defines a trading partner relationship” – have allowed it to advance to the biggest stage of them all. In prior matches, Contract Compliance barely discussed technology, perhaps trying to save the best for last. In earlier matches, the focus has been on the kind of “after the fact” audits that one staffer and three temps can perform to identify over-payments, duplicate payments, and missed discounts.
Having enterprise-level visibility into contracts via a repository and/or contract management solution clearly makes that audit process much more efficient and effective. Of course having the visibility into contracts in the first place, reduces the likelihood of errors. And, automated contracts can be valuable at the front end of the process too. Automated contracts are designed to capture the results from sourcing efforts and help ensure accuracy and integrity so that what was initially awarded is actually contracted. Contract compliance is designed to ensure that the hard work done in sourcing is not lost. A compelling tale and a marvelous journey to make it this far. But, is it enough to advance?
Simple answer: No!
The CPO’s Executive Engagement is too much to handle.
More CEOs are talking about procurement because they are interacting with the CPO and the function more directly and to a much greater degree than just a few years ago. There are CEOs, like Allen B. Graham of Air Transat, who work aggressively to make it happen. Soon after his appointment, Graham moved the procurement department under his direct oversight (the CPO had been reporting to the CFO). Graham made the move to help establish a culture of cost management within the company and the results have been fantastic.
Stories like that of the procurement teams at Air Transat are not yet pervasive, but, they are not entirely unique, with nearly one in five (19%) of all CPOs now reporting to the CEO. Of course, the CFO remains the executive most likely to oversee procurement.
Engaging Executives is just too important… and too powerful of a CPO tool.
It is, as they, on!