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.
Our series covering the The CPO Rising 2022: The Data Revolution (aka The State of Procurement in 2022) report continues this week as we examine the topic of cost savings and its reemergence as a priority for chief procurement officers.
In the 2021 edition of our annual report, I predicted that the need to “identify cost savings,” which has steadily declined year over year as a Chief Procurement Officer priority since the Great Recession of 2009, would reverse course and become a top priority for many more CPOs in 2022. In one year’s time, the percentage of CPOs that have prioritized savings has nearly doubled (38% in 2022 vs. 22% in 2021). This rise is in direct response to the turbulent market caused by the pandemic, broad-based supply chain disruptions and challenges, and the emergence of rapid inflation, a force unseen in a generation.
Sourcing professionals who have become accustomed to driving innovation and cost reductions from their suppliers with each successive renewal are dealing with an entirely new market paradigm. Many customers will only bear some of the impact, so CPOs and their teams will need substantial sourcing pipelines and fast and decisive execution to salve inflation’s burn on enterprise financials. Fasten your seatbelts, this ride will be bumpy.
Unprecedented Times, Unprecedented Change
Since the inception of this series in 2006, the key CPO themes each year, as well as the industry’s top priorities, challenges, and benchmark metrics — both individually and as a whole — have shifted very slowly from year to year. It has become an accepted fact that market shifts and patterns in the procurement market emerge over a number of years, not just one and certainly not overnight.
But that may no longer be the case as three of the top five items — managing supply risk, driving ESG initiatives, and fighting inflation — on this year’s agenda have risen at an unprecedented speed over the past 12 months and become top priorities for the first time since the series began. And, as noted above, for the first time in more than a decade, more CPOs are prioritizing savings in the current survey year than in the preceding one.
Ardent’s approach to large single-year shifts in its market data has traditionally been to take a longer-term view, but these are unprecedented times, so it stands to reason that the market will experience unprecedented change and high volatility. Let’s examine a couple of these new priorities more closely.
The CPOs War on Inflation
The increased demand for savings is directly connected to the high inflationary environment that began in 2021 and continues today. In January of this year, the consumer price index for all items rose faster than in any month in the last 40 years. Even when adjustments are made for energy and food costs, inflation is the highest it has been since the early 1980s. Inflation is a global phenomenon and 24% of CPOs have made fighting it a top priority.
There are many causes of inflation, but many goods and services are experiencing sharp price increases without a clear market explanation or rationale. To combat this, sourcing teams will have to act with greater vigilance and stretch their sourcing capabilities, supply market intelligence, category expertise, and core instincts to capacity as they try to manage and/or avoid major price increases across many categories.
The CPOs War for Sustainability
Customers are no longer the lone stakeholder promoting ESG (environmental, sustainable, and governance) initiatives. During the pandemic, employees and investors began gravitating to businesses with stellar ESG credentials. Following up on the SEC’s extensive new mandatory climate disclosures issued in March 2022, it has now announced that “ESG” will be an enforcement priority during 2022. This means that it is intent on making sure that firms that state they are following specific ESG principles are accountable to their commitments.
Seemingly everyone (including the 27% of CPOs who have made it a top priority in 2022) is taking ESG more seriously this year, and with more than half of the average enterprise’s ESG footprint resting with suppliers, the CPO is on the front lines in the fight to create a more sustainable value chain.
RELATED RESEARCH
CPO Rising 2022: The Data Revolution
Announcing The CPO Rising 2022: State of Procurement Report
The Key Themes for the Modern CPOs Agenda (Leadership)
The Key Themes for the Modern CPOs Agenda (Agility)
