Cost supremacy is no more (CPO 2021 PRIORITIES)

12 May 2021

Regardless of whether it is due to years of promoting total value over mere cost or due to the still felt effects of a pandemic and collapse in supply chains, cost reduction - for the first time in history - was not at the top of the list of priorities of procurement officers.

 

 

 

A wind of change or a crisis anomaly? Concern for costs (2nd) has been dethroned by "Driving operational efficiency (1st)". This is the first such situation in the 10-year history of a study cited by CIPS. The last place on the podium was taken by "Digital Transformation" (3rd).

 

Top priorities for CPO and procurement leaders

 

The following places on the CPO priorities list were the need for innovation (4th) and new products and services (5th).

 

 
- Existing supply chains have been put to an unexpected test. Mature procurement organizations that built their supply networks accepting higher costs – performed much better in the face of a downfall of such a large scale. - says Mateusz Borowiecki, Managing Director at OptiBuy. - Those companies which, despite higher current expenses, maintained, f. e. backup strategic suppliers and partner relations with contractors, used appropriate database segmentation, developed effective internal processes, diversified sources of supply geopolitically, or created emergency action plans preceded by an in-depth risk analysis, gained an unprecedented competitive advantage.
 

 

Risk management, transparency, and social responsibility

 

Many respondents (ca. 74%) admitted that they hadn't been actively following supplier-generated risk indicators. In the face of so many companies going out of business and problems of critical suppliers (56% of CPOs confirmed defaults or bankruptcies in the supply chain), the high position of "Enhancing risk management (6th)" on the priority list of procurement directors, is not of surprise. 

 

Interestingly, the most significant increase in importance for procurement was recorded for the issues related to corporate social responsibility (CSR) (7th) - a rise of 22% compared to 2019. This may be related to a 15% excess of time spent by effective CPOs on strategic activities compared to less committed colleagues.

 

One of the main congregated conclusions coming from the study is that purchases need to increase the quality of internal operations, optimize processes and improve the transparency of the supply chain while expanding cooperation with suppliers to the extent of genuinely close, trustful business relations. The current COVID situation has shown the business world how important it is to involve procurement officers and the entire purchasing departments in the top-level Table discussions.

 

 
- The change in the perception of procurement merely as a cost gatekeeper will undoubtedly take some more time. However, in the face of a pandemic, the discussed study shows that we should not measure the value procurement brings to an organization in financial means only. From a strategic point of view, it is often worth incurring a higher financial cost in the short term to quickly find out how disproportionately significant a given investment was for the entire enterprise in the long run. A great example of this is a digitization and digital transformation, not only in procurement. - adds Mateusz Borowiecki.
 

 

Process Automation (RPA) and Artificial Intelligence (AI) the key to success?

 

Another part of the study validates the importance of digitization. The "agility index" shows that the most effective purchasing organizations adopted extensive process automation (RPA) ten times more often and artificial intelligence - 18 times more often – than less performing entities.

 

CPO priorities in 2021:

1. Driving operational efficiency

2. Reducing costs

3. Digital transformation

4. Innovation

5. Introducing new products/services

6. Enhancing risk management

7. Enhancing corporate social responsibility

8. Expanding organically

9. Expanding by acquisition

 

 

 

 

Sources:

  1. Cost-cutting knocked off CPO priority top spot, Will Green, CIPS, April 2021 (LINK
  2. Global 2021 Chief Procurement Officer Survey, Deloitte, 2021

 

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