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The CPO Comes into the Spotlight in 2021

May 12, 2021
A new Forrester report illustrates just how important the procurement function has become both in dealing with the impacts of the pandemic and in preparing for future growth.

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When their supply chains were disrupted by COVID-19 on a global scale, business and procurement leaders were forced to adjust quickly in order to maintain business operations, fulfill urgent demands and mitigate risks. This abrupt pivot elevated the role of procurement in increasing business agility, revenue growth, supplier collaboration and other strategic initiatives.

According to new Forrester Consulting research, strategic objectives have “greatly increased” in priority for procurement since COVID-19 emerged. Commissioned by Ivalua, the study reveals how the disruption caused by the pandemic transformed global procurement strategies and explores how procurement is now helping organizations get back on their feet.

In Procurement’s Role in Restoring Growth, Forrester explores the role that procurement is playing in that recovery, and says that 85% of the 464 finance, procurement and supply chain decision-makers it surveyed indicate that executive leadership “recognizes procurement’s role in revenue growth.”

The CPO as Strategic Partner

Forrester says procurement priorities have also become more strategic, with organizations focusing on improving supply chain flexibility and boosting growth. For almost two-thirds of organizations, for example, the pandemic has increased the priority of ensuring supply chain agility and continuity (65%), identifying new revenue opportunities (64%), and improving decision making (64%).

However, the research reveals that many organizations believe their procurement strategies are being hampered by outdated technology. For example, 72% say that overly-dispersed data, unactionable data (70%) and a lack of embedded best practices (70%) are limiting the overall value that their organizations can extract from their technology solutions.

Many also say that top-line growth is being limited by procurement systems that are too rigid to support new ideas (75%); processes and systems that don't enable effective, scalable supplier collaboration (71%); and a lack of integration among source-to-pay systems (71%).

"For many organizations, procurement was crucial to keeping supplies flowing during the pandemic and minimizing the impact on profitability,” Ivalua’s David Khuat-Duy said in a press release. “But at many [companies], COVID-19 exposed weaknesses in outdated procurement tools, data, and processes that limited agility and impacted decision-making.”

Inventory Management Headaches

According to the study, inflexible procurement tools and poor data quality have created inventory challenges, as companies struggled to record stock levels and identify problems in their supply chains. Forrester say this led to cancelled or lost orders for 47% of respondents, while others faced reduced revenue (45%) and reduced profit margins (44%).

“Inventory challenges are also slowing cash flow,” the research firm points out. For example, at least once a month, almost half of organizations said they were penalized by a third-party marketplace for missing service level agreements (SLAs). In addition, 47% continue to experience overstock at a particular location monthly, and wind up incurring storage fees and additional costs as a result.

Managing Key Complexities

According to Forrester, many procurement organizations struggle with the complexity of managing the many digital solutions, including those available on today’s market and those that are developed in-house. To effectively master this internal complexity, Forrester says CPOs must “align their objectives with other executives” within their organizations.

It also points out that while technology can be a key enabler, it can just as easily be an obstacle if not selected and applied correctly. “Although new systems and emerging technologies can modernize organizations in the digital age,” Forrester adds, “when not applied or integrated properly, they can create barriers to evolving and meeting strategic objectives.”

Empowering Innovation

“If 2020 taught us anything, it’s to expect the unexpected,” Forrester states in its report. “Not many of us could have predicted the arrival of a global pandemic and the lasting effects on the global economy and business supply chains.” For 2021, it says CPOs are looking to increase supply chain agility (65%) and procurement efficiency (61%) to keep pace with rapidly evolving markets.

Forrester says the procurement function has also moved beyond traditional focus on transactional improvements and basic cost reduction, and that it’s now tied closely to most parts of the business. In fact, it ways 64% of procurement leaders want to help their firms identify new revenue growth opportunities. “This could include helping the firm tackle new markets or supporting new as-a-service business models,” Forrester adds.

Other initiatives that procurement can focus on during the recovery period include improving decision-making and supplier collaboration; enhancing security and compliance; and leveraging technology smartly. “Technology should empower innovation, not be the innovation itself,” it cautions, “so select and deploy technology that will address current and future needs.

About the Author

Bridget McCrea | Contributing Writer | Supply Chain Connect

Bridget McCrea is a freelance writer who covers business and technology for various publications.

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