May 03, 2023 | Procurement Strategy
Through the first few months of 2023, it is clearer than ever that the role of the CPO has changed since the start of the pandemic. With global supply chain disruptions, CPOs are playing a more prominent and strategic role in their organizations.
What’s on the CPO’s agenda for 2023?
According to The 2023 ProcureCon CPO Report, the top three focus areas for CPOs in the next 12 months are mitigating the effects of inflation (according to 41% of the respondents), technology implementation or transformation (39%), and delivering bottom-line savings (36%).
High inflation and its effects have drawn a lot of attention from business and government leaders since spiking last year. In the U.S., the rate of inflation has dipped to 5% in March, down from a high of more than 9% last year. While the inflation trend is improving for physical goods, the market for services has been more troublesome, due to trends in the labor market.
CPOs are closely watching inflation to mitigate the risk of rising costs. Rising prices for raw materials, transportation and labor can lead to increased costs for businesses, affecting their bottom line. Inflation also affects supplier prices, causing uncertainty in supply chains.
Procurement teams will need to build and maintain strong supplier relationships to maintain stable pricing and supply surety.
To address inflation, CPOs need to stay on top of market trends and adjust procurement strategies accordingly. This includes implementing cost-saving measures such as bulk purchases, strategic sourcing and negotiating favorable contracts with suppliers.
With high inflation and rising interest rates from central banks comes the increased risk of a recession.
Uncertainty around the broader economic outlook makes it even more important for businesses to optimize their working capital and for procurement to deliver bottom-line savings.
They can do this by focusing not just on negotiating with suppliers for the lowest possible price but also collaborating with suppliers and trading partners to lower the total cost of ownership.
Involvement from CPOs in supplier negotiations may be increasingly important in cost-reduction efforts if it could help create a more value-driven relationship with strategic suppliers.
In the ProcureCon study, about half the respondents said their CPOs are directly involved in negotiations with critical suppliers, while 39% said their CPOs are involved with both major and critical suppliers.
To mitigate the effects of inflation and drive sustainable, long-term cost-savings, businesses need to focus on digital transformation. This is an area where CPOs are making themselves indispensable to organizations. They are playing a larger role in driving investments in technology and leading digital transformation initiatives.
To optimize business processes and streamline operations to keep costs under control, CPOs are taking the lead in shepherding digital transformation projects to implement modern procurement platforms and improve communication, collaboration and automation.
Overall, the implementation and adoption of technology to improve efficiency and effectiveness is an area where CPOs can exert more leverage in the months ahead.
While the global economy continues to grow, rising uncertainties, risks and disruptions are a constant source of concern. In response to these disruptions, the focus of procurement leaders has evolved beyond price to a more strategic level.
By focusing on mitigating the impacts of high inflation, delivering consistent bottom-line savings and driving technology transformations to increase efficiency and effectiveness of their procurement teams, CPOs can navigate the current economic environment and drive sustainable long-term success for their organizations.