CPOs claim short-term objectives undermine long-term value

Short_termism.jpgChief Procurement Officers’ (CPOs) primary aim when working with suppliers is selecting the ones with the best total value.

As much as 67 per cent of CPOs from Fortune 1 000 companies said they sought best value in suppliers. The remaining 33 per cent indicated that their primary objective was least cost.

The data, gathered for the 2013 Procurement & Strategic Sourcing Data Survey, affirms that “procurement organisations are evolving beyond a historically narrow focus on cost reduction, and increasing their focus on the broader goal of delivering competitive advantage to the enterprise.”

The survey highlights that ensuring continuity of supply, eliciting better performance from suppliers and better leveraging supplier expertise and capabilities are critical goals of many procurement executives.

However, interestingly, the CPO’s responses also indicate a pressing need for procurement to explain more effectively to senior management how savings targets can create dysfunctional pressure to act in ways that destroy long-term value.

When asked how often their organisations pursue short-term savings from suppliers that undermine opportunities to create greater long-term savings or other value, 19 per cent said often, 33 per cent said sometimes and only 4 per cent said never.

Furthermore, 65 per cent of the responding CPOs indicated that their organisation’s procurement strategies are focusing more on using competitive pressure to receive maximum value from suppliers. Only 35 per cent indicated they planned to collaborate with suppliers to improve value.

However, the survey indicates that there is hope for the process of communicating to senior management what actually represents good value: as much as 80 per cent of CPOs said their procurement organisations were focusing more on using influence to build trusted advisor relationships with internal stakeholders.

In the mean time suppliers must express their concerns if clients seek misaligned, short-term savings and procurement should both challenge and help suppliers to articulate a clear and compelling business case for more strategic work together, with a description of tangible, measurable anticipated value.

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