Question

As highlighted in the case study, critically discuss why procurement leaders should become fully fledged strategic partners

to CEOs, CFOs, and COOs. Your response should provide relevant examples.

Read the case study below and answer the questions that follow.

FULL POTENTIAL PROCUREMENT: LESSONS AMID INFLATION AND VOLATILITY

Procurement leaders are facing one of the toughest market environments of their careers. A combination of macroeconomic factors-including COVID-19 shocks, trade policy shifts, workforce scarcity, energy transition, and even extreme weather events-have upended long-running trends that have benefited the global economy for several decades. The Russian invasion of Ukraine has caused the greatest humanitarian crisis in Europe since the Second World War and further disrupted long-standing economic relationships. In the years before the pandemic, rising productivity and declining costs for many inputs-achieved through lean and just-intime strategies and the globalization of supply chains, among other factors-had allowed many procurement organizations to operate successfully. But now the inflationary surge and frequent scarcity of critical supplies have made shortcomings of the traditional operating model increasingly visible and costly. These shortcomings include a lack of reliable long-term planning, growing concentration of supply, limited insight into supplier economics, lack of collaboration across functional teams, and a failure to adopt and scale proven technologies that could reduce transactional loads. And the war in Ukraine has brought to the fore a host of noneconomic factors that must now also be considered in sourcing decisions. To operate in this new context, procurement organizations are facing fundamental changes to management practices, capabilities, and supplier ecosystems based on now-outdated assumptions. We are no longer in a world where assuming an annual RFP will yield 3 percent price savings is a viable operating model. After a year of continual and intensive action to adapt, many procurement organizations have deepened their understanding of their supply chains and deployed new levers. But more can be done. Procurement organizations have a unique opportunity to set more ambitious goals, define a broader role for their teams, attract new talent, build new capabilities, and deploy new systems.

Current market challenges may continue. Most indicators suggest that commodity pricing pressure, labor shortages, supply chain congestion, and general volatility will persist over the coming 12 months, if not beyond. Procurement and business leaders must continue focusing on creating value, managing risk, and increasing resiliency in an uncertain context. To win in this new normal, it will be up to procurement not only to swiftly mitigate immediate concerns but also to focus on building sustained, advanced capabilities that can be embedded in the operating model going forward. Some companies have started setting up small agile teams focusing on advanced analytics and systems improvements to continue enabling a sophisticated, cross-functional approach to cost and margin management. One integrated chemical producer began a procurement transformation in late 2020 before inflation took off. As part of the journey, it set up a crossfunctional transformation office that is now managing the producer's inflation response across all levers without missing a beat.

Indeed, institutionalizing a new operating model is the next frontier for procurement and business leaders. As procurement demonstrates its value to the enterprise, the stage will be set for procurement leaders to become full-fledged strategic partners to CEOs, CFOs, and COOs. They can expand from being the guardians of a portion of enterprise costs and use their deep expertise in supplier markets to help lead cross-functional teams focused on long-term, full-potential value creation and ultimate enterprise success.

Core authors: Joe Basar, Casper Bek, Roman Belotserkovskiy, Ezra Greenberq, Marta Mussacaleca, Juan Sarmiento Jan Vandaele.

Answer 1

Procurement leaders should partner with executive management to adapt to macroeconomic challenges and build resilient supply chains by utilizing advanced analytics and enhancing labor policies. They must evolve to manage risks and create long-term strategic value in a time where traditional procurement models are proved insufficient.

Step-by-step explanation:

Procurement leaders should become fully fledged strategic partners to CEOs, CFOs, and COOs because the rapidly changing global context marked by macroeconomic factors makes the traditional procurement operations inadequate. There is a need for procurement to evolve, leveraging advanced technologies to improve efficiency, establishing robust policies for supply chain resilience in emergencies, and fostering international and national labor policies that protect workers' rights. These strategic shifts, which encompass the integration of procurement strategy with the overall business vision, are essential for managing risk and creating long-term value.

Recent crises like the COVID-19 pandemic and the war in Ukraine have highlighted the vulnerabilities in the existing supply chain framework, necessitating a move toward more comprehensive and forward-thinking approaches. With greater analytical capabilities and cross-functional teamwork, procurement can play a critical role in helping enterprises navigate through inflation, scarcity, and volatility. An example of this transformation is seen in corporations that have started setting up agile teams to focus on advanced analytics, promoting a culture of innovation that ultimately drives full-potential value creation.