Chief procurement officers are the executives in charge of supply management, sourcing and procurement for large organizations. CPOs need to juggle a team of employees, manage budgets, and keep one of the core parts of the company ticking along. CPOs face a number of challenges, both big and small, in the day-to-day running of their department. These challenges can change each year as trends develop and priorities shift. However, although the number of CPOs concerned with different challenges might fluctuate, the same issues will often be important. Take a look at these top challenges for CPOs and how they can be tackled.
Anyone in an executive position has to pay close attention to their budget. CPOs are no different, and getting expenditure right is a huge concern. According to a 2017 survey by Deloitte, 79% of procurement leaders intended to focus on cost reduction throughout the year. A further 48% expressed their desire to increase cash flow. Reducing costs can be a tall order, but there are smart ways to approach it. Strategies for cutting costs can include using data tools to improve visibility into your spend and identify opportunities for supplier consolidation which in turn will help with price negotiations.
Risk is another vital factor for CPOs to consider, according to a Deloitte survey. Nearly six in ten CPOs make managing risks one of their top priorities. Many CPOs feel that there has been a recent increase in business risk levels. Risks range from geopolitical issues, financial risks, to the volatility of emerging markets, natural disasters and many more. Risk management is a continuous challenge that all CPOs have to face. Having a solid risk management strategy and ensuring you are aware of the most pressing risks factors is a continuous process.
Generating value, and knowing how to measure it, is vital to help show the worth of the procurement section of the business. Companies are focusing on different business models, including operational excellence and customer relationship management. The way that procurement can provide value to a company depends on the business model. For example, Deloitte sets out procurement value levers for four different business models. For a company focused on customer relationship management, CPOs can look at restructuring supplier relationships and increasing levels of supplier collaboration. Procurement can help with achieving business partnering aims and can get involved with decision making in various areas.
Contracts are an essential part of a company’s risk strategy and an essential tool in managing relationships with suppliers. Ensuring that these contracts are in compliance with the latest regulations and enforced can be tricky at times. Having a good vendor relationship management tool in place can help with keeping up to date with your contracts. Long term strategies can help manage contracts and suppliers to get the most value from them. A failure from either party to comply with those contracts could not only damage your relationships with suppliers, customers and your reputation, but could get the company in legal trouble.
As everything in the business world becomes more digital, many procurement leaders are wondering about how to take advantage of those opportunities. Most of the respondents to Deloitte's survey (three-quarters) said they believe that procurement's role in digital world will increase. This is a challenge CPOs should prepare themselves for. Working out how digital solutions can help with procurement should be a top priority for any modern business. Technology including analytics, strategic and operational procurement tools, and ERP platforms are all key things to look at and review to ensure they are being used for optimal results.
Many CPOs report that there is a skills gap in the procurement sector. The demand for strong leaders and digital skills has increased, but the talent hasn't caught up just yet. When trying to solve this problem, CPOs need to think about how to hire the right procurment talent while also invest in training programs. A quarter of respondents to the Deloitte survey spend less than 1% of their budget on training. If you want to have the right talent onboard, companies need to take action to help plug the skills gap. If you're uncertain that your team can deliver your strategy, you need to help them improve.
CPOs face a variety of challenges that they need to be ready to overcome. Keeping up with industry changes helps you to take advantage of tomorrow’s opportunities.
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