Editor’s Note: This week on CPO Rising, we’re publishing some “best of” 2016 articles as we reflect on the year and prepare for the new year ahead. We also have a research report and a webinar that are only available for a few more days. Enjoy!
In 2016, the need to “find more savings,” the CPO’s perennial top business pressure, has fallen to the lowest level ever recorded by an Ardent Partners analyst. And, while the drop over the last year was more precipitous than in the preceding few years (it dropped from 51% in 2015 to 36% in 2016), the trend line since 2010 makes it clear that the classic procurement “story” has expanded beyond savings in a very real way. Ardent Partners views this to be very significant because savings, while still an important procurement metric, fails to capture the full value that a procurement group can deliver. As a result, there are a number of interesting takeaways here.
- Commodity prices are down. Beginning in January 2015, oil and distillate prices have been trading at their lowest levels not seen since 2009, which has contributed to depressed commodity prices. Procurement departments have benefited since they have been able to purchase raw materials at discount prices. In turn, they have been less pressured to increase cost savings since they are already saving without having to do too much. Although low energy and commodity prices have been a boon for CPOs and procurement teams, the trend is unlikely to continue. Energy, logistics, and commodity prices are bound to return to normal levels sooner or later.
- Other pressures are up. Although the precipitous drop between 2015 and 2016 in the need to cut costs and increase savings was not completely absorbed by other pressures, it is clear that other pressures beyond savings are up. For example, the need to better communicate procurement’s value and performance has increased from 25% in 2015 to 33% in 2016. This is important for CPOs to not only gain a seat at the table, but to also secure a greater share of the budgetary pie when there are many mouths to feed. Procurement teams also need to better communicate their value and influence to other enterprise stakeholders as a way to build trust and gain entry. The sooner that procurement becomes involved in the sourcing process, the more value it can deliver. And nothing breeds success like success.
- There are other ways to deliver value beyond savings. For years, CPOs have seen their influence and responsibilities expand across the enterprise into other departments, like HR, IT, Legal, Manufacturing, Product Development, and so on. As a result, CPOs find themselves increasingly responsible for delivering more than “just” savings: greater compliance for contingent workforce management programs; enhanced risk management and security for supplier IT; greater internal and external contract compliance; and tighter alignment with product development and manufacturing teams. Each of these measures, directly or indirectly, contributes to cost reductions and increases the value that the CPO and his/her team delivers to the enterprise. These contributions should not be overlooked.
CPOs have come a long way since 2009 when 91% of them felt principally pressured to cut costs and increase savings. Since then, CPOs have seen energy and commodity prices rise and fall, and with them, the pressure to spend less and save more. Although this partially explains why procurement’s perennial pressure is the lowest ever recorded by an Ardent Partners analyst, other pressures are rising, like the need to better communicate procurement’s value and influence. And as the CPO’s role and influence expand across the enterprise, so do the ways in which they can deliver value; it is not “just” about savings now, and it may never be again.