Editor’s Note: Over the next few weeks on CPO Rising, we’re publishing some “best of” 2022 articles as we reflect on the year and prepare for the new year ahead.
As we dive deeper into the CPO Rising 2022 Report, we’ll take a look at the expanded role of procurement during the pandemic, the current agenda for CPOs, and the rising risks to supply chains that my team and I uncovered in our research.
Deep Impact
Nearly 370 Chief Procurement Officers and other procurement leaders (72% are C-Level, VP, or Directors) have weighed in on the past twelve months, and the message is clear, procurement is more fundamental to core operations and more critical to business results than at any other time this century.
Despite sizable challenges over the past 12 months, the role of procurement has expanded during the pandemic and its impact has not gone unnoticed. Two-thirds of all procurement teams made either a “significant” (58%) or “game-changing” (8%) impact on their enterprise last year. The other third of procurement departments also made a generally positive, albeit more subdued impact.
CPO Agenda in 2022
Given the simple fact that the average enterprise’s fortunes are directly linked to that of its key suppliers, it is no surprise that the CPO’s Agenda in 2022 starts with a big focus on the supply chain. Forty-four percent of all CPOs have identified managing/mitigating potential risk within and across it as a top priority for 2022. This is more than four times the number of CPOs looking to mitigate supply risk immediately prior to the pandemic. Global supply chains were created because enterprises prioritized lower costs over security, sustainability, and risk.
Now, the supply chain “chickens” borne of these decisions are coming home to roost. Be that as it may, the importance placed upon managing suppliers and assuming supply will not be transitory and Ardent Partners expects an influx of new graduates to actively seek positions in procurement (and supply chain).
Beyond the supply chains are going “all in” on digital transformation this year and more CPOs (38%) will prioritize these initiatives over all other programs. A digital transformation provides an opportunity for procurement teams to use technology as a means to reimagine the organization’s entire scope of operations and how it performs. In 2022, these projects have become table stakes and a majority of CPOs plan to be “dealt in.” The path to becoming a top department in 2022 starts with strong leadership and top talent but is ultimately impossible without well-adopted systems in place to support key operations.
Supply Risk Rising
With supply risk, the question is not why it is the CPO’s top priority in 2022, but why it was not a bigger issue for CPOs in 2021. For two decades, the risks associated with moving supply offshore, like increased lead times and holding costs, reduction in quality control, and poor supplier communication and visibility, were mitigated by the dramatic cost savings that could be achieved by simply “lifting and shifting” production to low-cost locations.
Essentially, the expansion of global supply chains traded supply security and sustainability for lower prices. Unfortunately, many businesses also ignored the costs of being unprepared for risk. The United States has ended up with brittle supply chains that are actually quite expensive, when risk-adjusted. While some supply chains have had to manage minor risk events over the last two decades, the global pandemic has served as the first real test for a majority of global supply chains.
Supply chain problems are exacerbated by fragmentation and the general complexity created by the expansion of many supply chains this century to include many countries and many firms. This phenomenon has made it difficult for manufacturers to trace the root causes of bottlenecks. For example, a key item may be designed by one firm, manufactured by a second firm, embedded into a component by a third supplier, and only then delivered to the manufacturer’s assembly plant. In many cases, neither the manufacturer nor the item supplier can trace what goes on in these intermediate tiers of the supply chain, due in part to a lack of trust among parties in supply chains, who fear that the information might be used to replace them or to bargain for a price reduction.
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