Peter Colman, senior director at Simon Kucher & partners
The Chief Procurement Officer (CPO) is the person that all marketers should be watching.
The role has become prevalent as larger companies exploit cost cutting opportunities. But procurement and marketing need to get along to ensure sustained success.
Marketing has a legitimate stake in sourcing decisions; if suboptimal choices by procurement compromise the company’s ability to deliver value, centralised procurement becomes a false economy. Although – theoretically – procurement is responsible for “optimal sourcing”, this is often misinterpreted as finding the lowest cost supplier. Commercial teams are usually best placed to know what customers value – timely delivery, quality etc – therefore procurement decisions must be consistent with desired values.
Today, many procurement functions consider themselves in the more strategic “commercial advisory” role in their organisation. To benefit from centralised procurement, marketers need to keep tabs of the marketing potential of six common strategies and tactics used by procurement departments:
- The procurement master plan – Procurement implements companywide acquisition instead of many individual “purchases”, thus enhancing shared sourcing opportunities. This allows marketing to identify and develop their sales position e.g. establish value argumentation for products earlier in the purchasing process.
- Proactive use of market intelligence – Tracking market fluctuations and using these to source from the right geographical location at the right time allows alignment with marketing’s strategic outlook and operating geographies.
- Preferred supplier agreements – Relationships with high performing suppliers are used to increase order guarantees and trust. This allows marketing to influence supplier selection and use supplier scoring based on marketing’s product criteria.
- Develop the supply base – Proactive sourcing and engagement of new suppliers in the global market creates marketing opportunities for innovation and improved end product.
- Value engineering – Standardising specifications and implementing a procedure for alternative sourcing gives marketing the chance to influence specification quality.
- Execution of joint venture and open book contracts – Implementing collaborative contracts with suppliers to share risk – and target excellence in delivery – permits both supplier and procurement to focus on the end product, rather than internal obstacles. Marketing can help ensure a more desirable end product.
Too often, procurement doesn’t appreciate the need to align and work with marketing colleagues -missing improvement opportunities. Marketing must articulate their needs clearly to procurement, becoming an internal advocate for the customer. Thus potential cost savings and innovations can be realised without compromising top line revenue growth.