Editor’s Note: Over the next few weeks on CPO Rising, we’re publishing some “best of” 2023 articles as we reflect on the year and prepare for the new year ahead.
There is no doubt that uncertainty is permeating the four walls of today’s enterprises. Many unknowns have yet to be revealed, leading to more conservative and risk-averse business decision-making. Chief procurement officers, among others, continue to operate in a new normal where easy answers to business challenges are elusive. Ardent Partners’ research shows that nearly half of all CPOs entered 2023 with a great deal of uncertainty in front of them. As a result, several strategies began to manifest within procurement and beyond in response to those uncertain unknowns.
Uncertainty Leads to Strategy
For procurement, uncertainty does not occur in a vacuum. As a central function for operational execution, CPOs are intertwined with executives and budget holders from a variety of business units. Financial roadmaps, new product development, and production demand are all within procurement’s purview. Thus, uncertainties voiced in one corner of the enterprise will find their way to procurement in some form or fashion. As a result, the strategies manifesting from uncertainty are cross-functional in nature. A deeper dive reveals four key areas of concentration.
1. Focus on Organizational Agility
Procurement can provide greater enterprise agility through strategic sourcing, risk management, and supply chain management initiatives. When market conditions change, CPOs and their teams can more cost-effectively source goods and services through strategic supplier relationships, mitigating potential disruptions from supply shortages and lengthy lead times. Mitigating risks can be help teams become more agile and flexible in the face of uncertainty. By diversifying the supply base and implementing contingency plans, CPOs maintain supply chain continuity and increase responsiveness. Procurement resources are also critical to agility, with CPOs ensuring team members are not locked into lengthy project schedules that could lead to vulnerabilities.
2. Manage a Tighter Financial Balance Sheet
When market uncertainty is present, CPOs are more vigilant about spend and where it is being consumed. Taking a more conservative approach to finances and tightening budgets in the short term enables the enterprise to quickly resume its spending and investment activity once market visibility improves. CPOs are working more closely with the CFO and COO on finance and project roadmaps to ensure critical contractual obligations continue and a more frequent cadence of project updates occurs. In essence, CPOs and their teams want to be closer to information in the market and internally. Data and analytics are at the nexus of sound business and financial decision-making.
3. Stay Informed on Market Developments
It is no longer enough to simply track U.S. markets. Worldwide inflation has made it necessary to monitor financial and economic indicators across the world for any associated enterprise and supply chain impacts. CPOs now have awareness of their suppliers’ financial health, facility locations, and regional market dynamics. The Russia-Ukraine War is a stark example of how a regional conflict can affect global markets and supply chain continuity. Daily or even hourly monitoring may be necessary as market activities unfold, with potential ramifications on supply chain, enterprise, and procurement performance. CPOs now seek shorter project timeline updates to gauge changes in material availability, pricing structures, and demand forecasts to better prepare for the unexpected.
4. Build Stronger Lines of Communication
Uncertainty brings unexpected changes and shifts that require communication and collaboration. Establishing strong lines of communication with executives and other stakeholders enables strategizing and prioritization when the unexpected occurs. CPOs can then share that information with the procurement team for further action and response. Deliberate and open communication allows CPOs and their teams to pivot when the clearest path is obscured. Similarly, the exchange of information with suppliers is essential during uncertain times. Developing a communication plan with crucial suppliers is a best-in-class strategy that cannot be understated. Whether it’s over the course of hours, days, weeks, months, or even years, communication is the mechanism for procurement prevailing during periods of uncertainty.
There are overlaps with some of these areas of focus. Best-in-class procurement functions make those connections and leverage their synchronicities. CPOs who respond most effectively to uncertainty understand how agility and communication are linked, for example. The CPO and CFO often operate in concert with one another, ensuring that sourcing and spending objectives remain aligned and on target.
Managing uncertainty is now a modus operandi for chief procurement officers and their teams. However, by concentrating their efforts on responding proactively, CPOs can weather the unknowns and achieve their procurement and enterprise performance goals.
RELATED RESOURCES
CPO Rising Listicle: Five CPO Strategies to Help Manage Uncertainty
Procurement Big Trends – More Uncertainty
The Key Themes for the Modern CPO’s Agenda (Uncertainty)
How Procurement Can Lead Enterprises through Global Uncertainty, Risk, and Disruption
Procurement 2023: BIG Trends and Predictions (Inflation)
