This week, our coverage of the CPO Rising 2022 Report looks at globalization and the inherent risks involved. My team and I uncovered some surprising results around technology investment to mitigate risk. Let’s take a closer look.
While global trade has existed for centuries, globalization is a relatively recent phenomenon. In fact, today’s global supply chains are a largely 21st-century phenomena, driven by the demand for lower-cost sources of supply and production and bolstered by the rapid advances in technology and communication. These global supply chains delivered extraordinary value to the Western-based corporations that initially moved supply offshore in the pursuit of lower costs. Over the ensuing two decades, manufacturing capabilities expanded rapidly across traditional low-cost regions (Asia, Eastern Europe, as well as regions within Africa and across Central and South America), spawning the current age of globalization and innovation.
As the reliance on global supply chains dramatically increased, so too did their size, scope, and complexity. Indirect and services spend categories are more likely to be part of a global supply chain today than not. For example, call centers are no longer staffed by full-time employees sitting in back-office warehouse space — they are located half a world away.
The global nature of business is now better understood by professionals working outside of procurement today because of the in-depth coverage of the supply chain, a once-abstract concept made all too real by the widespread production shortages and delays of the products and services that executives rely on in both their professional and personal lives. In fact, more has been written about the supply chain over the last two years than in the entire history of humankind. According to the coverage, the supply chain is now central to seemingly everything, and procurement’s proximity to it has helped even more executives understand the impact procurement can have on operations and results.
While this coverage often oversimplifies the nuances and complexity of a global supply chain, it helps underscore one of Ardent Partners’ main themes this decade: the rising importance of suppliers (and therefore, of procurement) to operations and results. Simply, in this age of globalization and innovation, supplier performance continues to have an increasingly more direct and immediate impact on revenues and customer satisfaction. Finding and engaging with the highest value suppliers and managing their performance in 2022 is table stakes; doing it well can be a strategic business differentiator.
Ready or Not, Here Risk Comes
Despite the growing importance of the supply chain and the current CPO focus on risk today, a relatively small percentage (30.1%) of the 369 procurement departments included in this research effort has made the required technology investments. These groups lack the visibility needed to enable successful supply risk management. As we have seen during the pandemic, the consequences of supply risk events can be disastrous. Ardent Partners’ research has shown that supply chain issues can erode customer relations and brand perception, depress earnings, and impact time-to-market cycles. More than a third of all groups (37.7%) state that they are planning to invest in this area in 2022, making it the most popular technology category this year.
The CPO’s Report Card
The past few years have introduced a series of business and procurement challenges unlike anything seen in this lifetime. This is not hyperbole. All told, the net result is that the Chief Procurement Officer has been simultaneously elevated within the enterprise and placed under much greater scrutiny. When C-level executives evaluated their CPO’s performance over the last year, the grades were good. A majority of CPOs either exceeded (47.3%) or far-exceeded (14.3%) expectations, while only a handful failed to meet them.
There remains great room for improvement and it will be needed this year and for the next few. One thing that has not changed during the pandemic is that the CPOs who utilize smart strategies to address short-term enterprise needs while pressing forward on longer-term initiatives position themselves and their organizations to play an increasingly strategic role going forward.
