The relationship between the CEO and the Head of Procurement
In the more successful purchasing and procurement models, the chief executive officer (CEO) understands and is across the supply chain functions of the business. A CEO will drive competitive advantage by showing leadership to the chief procurement officer (CPO) or Head of Procurement and their department.
A CEO who is not fully understanding of purchasing and procurement will only get involved when something goes wrong that threatens loss or harm to the company. This is a reactive scenario that rarely occurs under the watch of a proactive CEO. Working with the Head of Procurement to do a regular analysis of strengths, weaknesses, threats, and opportunities can overcome inertia and initiate change in the supply chain.
The Head of Procurement needs to be aware that the CEO will be driven by these business growth questions:
- Are business strategy and supply chain strategies aligned on growth?
- Is the supply chain based on strategic decision-making, or has it evolved as a silo without big-picture consideration?
- How are the people performing in key positions?
- What metrics, measures and incentives are being used to drive growth?
- What quality and efficiency goals exist across all levels of purchasing and procurement?
- Is procurement aligned with the needs of customers, and supporting efforts to win new business?
How the Head of Procurement keeps a business perspective with stakeholders and suppliers
The Head of Procurement or CPO needs to consider all stakeholders and avoid making decisions that are counterproductive to the business. Procurement must perform regular relationship management with suppliers, give feedback, ensure compliance, and strive for competitive performance.
Risk management is an important area that the CEO will want addressed. Issues such as shortages, faults, and non-delivery need planning workarounds, and correction remedies need to be included in supplier contracts.
Cutting external spending and improving deals with suppliers are tried and tested practices. In addition, the CEO requires procurement to investigate new technologies and be at the forefront of economic and sustainable thinking.
How the CEO and Head of Procurement can align and collaborate on growth
The CPO needs scope to create long-term value and deliver beyond brokering a great deal. The CEO will want to know how is purchasing performing compared to the competition.
Too often purchasing does not have direct access to the CEO. An open-door policy will enable better decision-making for the business.
Include your CPO as a senior member of the executive team
Rather than reporting to the CFO or COO, the CPO or Head of Procurement needs a seat at the table. This will encourage leadership, ambition and smarter thinking.
Building a team with a growth mindset
The CPO or Head of Procurement should have the budget to recruit and manage a skilled purchasing and procurement team.
Supply chain integration
Rather than thinking functionally, purchasing must take an integrated approach and consider both sustainable top-line innovation and bottom-line profits.
How the CEO views procurement costs
When a supply chain is run efficiently, operating costs and cost of goods sold will be lower. The CPO needs to take responsibility for showing the CEO all the potential ways in which efficiency can be improved. Some opportunities will require changes to the way customers are serviced, and when changes are likely to impact stakeholders, the CEO will need to be in the loop.
The CPO needs to take ownership to influence spending and ensure that the CEO realises that not all savings affect the bottom line. Let the CEO know where costs fall outside of the control of procurement, and where budgets are being controlled by finance and policy, so that business decisions can be made with all information.
How a Head of Procurement creates long-term value for the CEO
A Head of Procurement’s objective is to improve the competitiveness of the business by creating product value. The purchasing experience needs to be straightforward for internal users too, so that they can perform their core roles. Both the CEO and CPO need to define the business objectives for innovation, sustainability, and risk management. Suppliers are best selected and managed according to the value the supplier can bring across the whole organisation, not just on price.
A CEO and CPO working as a team in business will make a dynamic partnership for maximising opportunities and creating long-term growth.