“In 2015, no business enterprise can afford to go it alone – the stakes are too high. The level of competition and innovation that exists in today’s market mandates that enterprises leverage their relationships to maximum effect. The decisions, operations, and performance of an enterprise’s suppliers can have a direct and, frequently, immediate and significant impact on its own results. Likewise, within the enterprise, no business function can afford to go it alone. Business leaders must harness the collective strength and ability of their organizations to optimize performance….”
So begins this year’s CPO Rising report highlighting the increasing importance of collaboration in optimizing business results.
Collaboration (both internal and external) is widely recognized by chief procurement officers as a critical strategy for procurement departments to achieve their objectives and expand their influence and impact. Collaboration has been a top CPO strategy for years. This makes sense, since it is much easier to source successfully when budget holders are aligned and pushing opportunities towards procurement – internal collaboration and communication increases that likelihood.
Additionally, given the very active and aggressive sourcing that has occurred over the last five or six years, there are some categories where the best opportunity to attain the next level of savings is not through competitive sourcing, but rather by working with the current supplier to help them improve their cost structure (and share some of that savings) or to work with the supplier to rationalize product or service specifications/requirements to help identify lower-cost alternatives.
CPOs understand that collaboration is a powerful strategy that can enhance savings opportunities and increase their level of influence within the enterprise and across the supply base.
Here are a few CPO quotes from the report on the topic of collaboration:
“The whole notion of collaboration, both internally and externally, I think, is something that, in procurement, we have to be really religious about. We have to be really militant about it, because if we’re not, I think the forces that want to separate are greater than the forces that want to combine.” – Thomas Linton, chief procurement and supply chain officer at Flextronics International
“Collaboration has been at the forefront of our strategy for a long time. We’ve been working with and rewarding suppliers to bring their best ideas to us.” – Garry Christie, director, procurement, Advanced Micro Devices
“With the speed of change in our business, procurement’s role at times is to tell the business what is needed or if it is moving too fast. We have to keep pace with the market, but we must ensure that we’re not making rash decisions.” – Andrew Swift , head of procurement at Affinion International
“I’ve always believed that you want to be a customer of choice to your supplier base. So I’ve spent an awful lot of time selling our approach and the value proposition that we have as a potential customer.” – vice president – procurement, strategic sourcing & contracts, mid-market Ccompany
The need for sourcing teams to employ a collaborative sourcing approach and begin to unlock the next level of value from their efforts is based on several core assumptions:
- Procurement departments and their sourcing teams have defined or limited budgets and resources
- Expanding the scope of high-value sourcing activities across a wider range of spend, categories, and business units is desired
- No enterprise has cornered the market on innovation within its industry or supply chain
Beyond sourcing, procurement’s ability to place spend under its management or influence is greatly enhanced by its ability to engage budget-holders and functional peers in proactive conversations. And as we noted in an article last week – Why CPOs Need VIP Access – procurement’s ability to advance to the next level of performance hinges on getting engaged earlier on sourcing opportunities. This is reinforced by the fact that CPOs believe that gaining access/engagement earlier in the engagement on sourcing opportunities is the single largest opportunity to drive future success (identified by 63% of all CPOs). Poor levels of collaboration will greatly impede this from happening.
Internal collaboration with functional partners is also important. It was notable in this year’s study that the often-acrimonious CPO-CFO relationship may be a thing of the past as a majority (71%) of CPOs in 2015 report a “strong” level of collaboration with their CFO. For years, CPOs have decried the problems of working with the CFO, calling it one of their most difficult and challenging relationships to manage while recognizing that it is also one of the most promising. This is encouraging news and shows that the CPO’s focus on collaboration is now frequently paying a dividend in the form of a stronger procurement and finance relationship.
Is simplification part of your company’s business plan? See Business Simplification in Leadership.