The CPO’s Agenda: A Breadth and Depth to Rival the Pacific!

CPOs are inundated with requests and requirements from all directions on a daily basis. Not only do they have to cut costs to please the C-Suite to keep their jobs, but they have to do so while dealing with constant distress (when shipments are late), disruption (when plants go down or suppliers go bankrupt and the materials or products aren’t coming at all), and dispute (when the supplier wants to be paid for goods that weren’t up to quality standards or arrived damaged).

Plus, they are plagued with requirements from engineering to improve quality and use better raw materials, from marketing to use suppliers that will provide them with brand leverage (either due to the supplier’s brand recognition, such as “Intel Inside”, environmental responsibility, via waste reduction and/or utilization of recycled material, or corporate social responsibility, where the supplier follows fair labour practices and provides compensation and care to its employees above and beyond government mandated minimums in developing countries), and from finance to find suppliers that will either extend DPO or offer early payment discounts just for paying on time. All of this adds cost, and complexity, to the supply chain when Procurement’s prime directive from the C-Suite, which often defines the only metric they are measured on, is cost reduction.

As a result, in addition to having to constantly brush up on their skills, CPOs have a lot to worry about from day to day. That’s why a recent post over on the new Spend Matters Chief Procurement Officer site that asked What is Top of Mind for CPOs delved into the subject and identified what should be the top 20 areas of concern for every CPO (or every head of Procurement doing the job of the CPO without the recognition).

In this post, which is a collaboration between the doctor and Pierre the maverick Mitchell
(who soars through the buzz and the noise until he gets to the truth), we pointed out that, in addition to cost cutting, good CPOs are also highly focussed on:

  • availability and on-time delivery
  • contract management and spend creep
  • environmental stewardship and sustainability
  • quality, reliability, and safety
  • reputation management
  • risk management
  • supplier relationship management
  • working capital optimization

and a dozen other topics of significant concern because if any of these twenty topics are ignored or mismanaged, any identified and negotiated cost savings will disappear in the blink of an eye (and the CPO will be looking for a new job in the blink of the other eye given how unforgiving the shareholders and Board of Directors can be in tight economic times).

The first of these topics, availability and delivery, is addressed in detail in our post on ‘The CPO’s Agenda Part I: Availability and Delivery in a “Hierarchy of Supply”‘ which discusses Supply Assurance and its foundational role in Procurement. Go check it out.

The remaining 19 topics will be addressed over the next couple of months in this ground-breaking new series which will lay each and every topic bare so that you, as an up-and-coming CPO, can understand not only what the topic is and why it is important, but what you have to do to tackle it head-on and make progress while your peers get buried in the avalanche of distresses, disruptions, and disputes that will continue to increase in quantity and complexity until many of these issues are addressed and adequately solved.

Keep a close eye on Spend Matters Chief Procurement Officer in the months to come. This is the first of a number of series that the doctor will be collaborating on in order to help bring you desperately needed education that you won’t get otherwise!

What are a CEOs Top Concerns?

Over on e-Sourcing Forum, Blaine Mathieu, CEO of Selectica, penned a post on the CEO’s Top Three Concerns and How CLM Can Help. CLM (contract Lifecycle Management) and SLM (Sourcing Lifecycle Management) can definitely help with these concerns, but are these really the top three concerns of the CEO, or are they the concerns that should be the top three?

The reality is that the top three concerns of any CEO are:

  • Profit
    We all know that at the end of the day all the Board really cares about is lining the pockets of the shareholders that they answer to. That’s it.
  • Economic Collapse
    Profit requires revenue and revenue requires a reasonably strong economy where consumers are willing to spend.
  • Supply Chain Disruption
    While the reality is that the average CEO doesn’t give a rodent’s behind about the supply chain, because that’s the head of Procurement’s problem, the last thing an average CEO wants to hear about is a disruption that is going to result in a stock-out and lost revenue. The Board won’t be happy, and the CEO’s job could be on the line.

Even though the top-three concerns should be:

  • Value Generation
    Continued profit relies on continued revenue which relies on continued customer demand which requires that customers continue to see value in the products and services the companies offer.
  • Global Expansion
    Individual economies wax and wane, and sometimes connected economies surge and fall with them, but, generally speaking, the economies of entire zones or continents don’t collapse at once.
  • Supply Assurance
    No supply, no product. No product, no fulfillment. No fulfillment, no revenue, even if the organization could provide value to the customer.

As part of these concerns, the CEO should be helping the CPO with:

  • Cost Avoidance
    Forget savings. They are ephemeral and temporary. But reducing demand and avoiding unnecessary cost is permanent.
  • Innovation
    Value requires continued delivery of better products and services, which will often only be identified through innovation.
  • Compliance
    A big part of supply assurance is making sure all local and foreign laws, import and export requirements, and industry regulations are met so that the company isn’t faced with unnecessary disruptions, lawsuits, or government interventions.

which, while not the CEO’s top three concerns, are the top three concerns the CEO should share with the CPO.

Dilemma or Not, Buyers Still Must Take Ethics into Account

In a recent post over on Spend Matters UK, Andrew Cox asked whether “aggressive buyers are stupid or guilty of segmentation errors”. In this post, the author chimed into the debate over supplier bullying, initiated by Peter Smith over the continued extension of unreasonable payment terms by 2 Sisters and Sainsbury’s, continuing the unsavoury Tesco tradition. According to Mr. Cox, food companies should not be condemned as ‘unethical’ just for extending payment terms as ethical standards are a contested concept.

While I agree that what is unethical for some is just fine for others, as per the example provided in the post, one would think that there are some positions that just about everyone with a conscious could agree upon, just like the vast majority of people in modern society believe that murder is wrong. In the debate, Peter Smith is condemning the act of a supplier unnecessarily extending payment times to the point where a company could risk bankruptcy. I would hope that this would be a situation that most people could agree is simply not ethical.

But this is not the only time when ethics should be taken into account. Ethics should also be taken into account when choosing a supplier. When choosing a supplier, fair labour standards should be considered. Now, while what is fair is always a subject of debate, it should not be a subject of debate that a fair supplier

  • follows all health, safety, and minimum wage standards of the country or countries they operate in
  • if there are no such standards, the supplier does not unnecessarily expose its workers to risk, does not maintain conditions that threaten its workers’ health, and/or does not pay its workers less than a living wage in the country that is being sourced from (as defined by the World Economic Forum, etc.)
  • does not unnecessarily harm the environment

And while it might be difficult if there are no standards to determine that conditions are sufficiently healthy or safe, that the wages paid are suitable, or that the supply is not unnecessarily harming the environment, there are points when it becomes obvious. Just like delaying supplier payments 180 days or more is ridiculous, so is choosing a supplier that houses its workers in buildings that should be condemned (which are doomed to collapse like Rana Plaza), that allows workers into a mine without adequate safety gear, that uses wide-spread clear-cutting that will clearly harm the local environment, or that pays its workers so little that they can’t afford to keep a roof over their head and eat. If we can’t agree that if the majority of the population, and in particular, the majority of the population that defines our customer base, would consider the supplier and its practices unethical that we should too, then do we even deserve to call ourselves professionals? Every professional organization worth it’s salt has a code of conduct, and most of these have an ethics clause that say we will adhere to the ethics of the industry we work in and the society we live in. If the majority of society condemns an action or a state of affairs, and, in the country we operate or sell in has laws that condemn an action or a state of affairs, how can we claim there is any debate whatsoever from an ethical perspective in regards to a supplier that takes that action or maintains that state of affairs?

You’d Think It Would Be Obvious By Now that You Should Not Poison Your Customer

After the plethora of lawsuits filed in 2008 against Sanlu Group for putting melamine in the milk (or, to be precise, a baby formula that was based on milk) as per this article in the New York Times, against the individuals responsible for importing rip-off toothpaste (that was not manufactured by Colgate) contaminated with diethylene glycol (which is a sweet tasting poison used in anti-freeze and which kills poor defenseless LOLCats), and against Mattel for importing toys coated in deadly lead paint (as per this article from USA Today), you’d think that even if they were run by sociopaths without any ethics whatsoever, corporations focussed on the bottom line would know better than to poison their customers.

However, after reading Pierre the maverick Mitchell’s Friday rant which was “an open call to hotels to NOT poison their customers”, all I have to say is, apparently not!

Maybe they don’t know they’re doing it, or they do but believe that the average customer doesn’t stay often enough or long enough to be exposed to enough toxins to be damaged. Now, this might be the case for the average person who only uses a hotel once or twice a year on vacation, but what about the travelling salesperson or executive who spends more time in hotels than in their own home? How long before BPA builds up to toxic levels in the bloodstream, given that a new study has determined that your body absorbs more BPA than previously thought (rodalenews.com)? If the coffee maker and plastic stir sticks that you use to make your coffee every day leaches BPA, how long before you are sick, whether you realize it or not?
And that’s just the tip of the iceberg! According to Pierre, the non-dairy creamers many hotel chains provide are full of toxins — sodium caseinate, monoglycerides, and diglycerides. We might as well eat glue!

It’s scary. And the worst part is that the cost savings the hotel realizes from buying cheap coffee makers, non-dairy creamers, and other toxic products are negligible. Compared to the revenue a hotel chain can see on a nightly basis from a quality offering that puts them ahead of their peers, a few pennies of savings versus a few dollars in profit is not only negligible, it’s just stupid!