Clarifying Procurement Leadership and the changing role of the CPO

Hendrik Snyman, Chief Procurement Officer, Beach Energy Ltd [ASX: BPT]

Hendrik Snyman, Chief Procurement Officer, Beach Energy Ltd [ASX: BPT]

Contracting and Procurement has changed forever, the old way is no longer adequate, the expectation from the business, its stakeholder and shareholders are vastly different than the past.

I am currently with Beach Energy, brought in to establish C&P to its rightful place, and establishing C&P in Beach Energy as the reference case in Oil and Gas within 2 years.

During this brief overview I want take you through how the requirements on the CPO is changing and how the CPO and its function will have to change in order to stay relevant.

Then we will explore three aspects that in my view is enablers and should enjoy laser like focus, for the CPO and its function, to deliver the changing requirements.

The changing role of the CPO

Cost out to Value in

Once often viewed as a "cost out" role expected to deliver goods on time and at a low price, the function has now evolved and in many organizations is a strategic leader and advocate for greater operational effectiveness in everything from inventory to manufacturing, product design, cash flow, outsourcing, workflow quality and customer satisfaction decisions.

CPO Traditional roles were:

• Pure cost orientation and focus on cutting costs

• Spend all their time on tendering activities

• Process forms and worry about pennies

• Shorten delivery times

• Minimize supply chain risk

• Drive suppliers into the ground with constant price reductions

And more organizations are becoming wise to just how big of a competitive advantage strategic procurement can provide. The fluctuating market conditions has been a great catalyst for this.

Today a CPO is not evaluated by cost savings and performance efficiency, that’s a given, it’s about the kind of value the CPO brings to the table.

Purchaser to Influencer

It’s less and less about being a master of the purchasing technique today, It’s far more about the ability to persuade, to influence, to see the bigger picture and have credibility with the business and how to become a trusted advisor to the business. CPO’s note that building these strong collaborative relationships with internal clients is critical to gain a seat at the table in early-stage discussions where procurement can have the most impact.

Risk Avoider to Risk Balancer

How can you make each risk translate into a workable option?

Pay attention to those that will make or break the strategy around the initiative and ensure you have a clear, articulated option for each one. Third party risk transparency is crucial in this balancing act.

Balance the risk and controls, assure appropriateness of the controls and the influence a CPO can inject into the organisation.

Constraint to Gap Opener

The best CPOs open gaps. It’s not about doing one standard deviation, it’s about going after two. It’s about stretching, about causing the organization to be uncomfortable and then executing. They talk business all the time and they are entirely familiar with the overall company strategy.

3rd Party Squeezer to 3rd Party Partner

In the past, we’ve been able to create a true win- “win” by shaking cost out of the supply chain. Rather than always trying to squeeze supplier margins, CPO’s today need to create partnerships with our suppliers/ providers and work together to optimize, digitalize& create lean end to end supply chains. We need to unlock the value that’s locked up in the interface of how Owners and Contractors work together, they assist the contractors to become leaner and explore how technology through the contractors can be utilized.

Focus towards sustainability

Guardians of sustainability business practices, unlocking transparency to sustainability in the supply chain, assurance on modern day slavery requirements, Anti Bribery and Corruption up and down the supply chain is part of being sustainable business execution.

We explored the spheres of how the CPO role is changing, now we are going to look at the four things, that C&P function and CPO’s need, to lead the business.

In the past C&P got involved late in the day, the requirements from the business where C&P need to be leading value creation demand early involvement. Involvement when there is options and enormous value on the table.

What does it take from C&P to be involved early, in my view it takes 4 ingredients that all work together to create a value feast.

C&P need to have credibility with the business, value attractiveness need to ooze from C&P. The day that C&P was just masters of their profession is gone they should understand the business end to end and also be a trusted advisor.

People in the Business Look at Procurement and Say, 'That’s A Place I Might Want to Work Because I’m Not Going to Get Stuck There Forever, And Some Really Good People Have Come out Of There and Done Really Interesting Things in the Company

In summary these 4 ingredients are:

• Credibility

• Attractiveness of value

• Business understanding

• Trusted Advisor

If these 4 ingredients are present, there will be a natural pull from the business towards getting C&P involved early. Understanding the business, its drivers, how actions/ activities translate to value is a given in the new world. Full comprehension of the Company strategy and the link to value should be part of the DNA of a C&P professional.

Areas where CPO’s need to focus are:

Embracing technology to deliver value

Easy to use, easy to understand systems, processes is a given.

The CPO need to be on the front foot to exploit new technologies that supports the supply chain& procurement processes. Assessment of technologies outside of the traditional sphere in which the CPO operates. C&P be the conduit for innovation and its application in the organization. Seventy percent of executives expect digital innovation to have a significant impact on their supply chains during the next five years.

Given this, it is vital for C&P to keep up with the rise of digital innovation and be the conduit in understand the benefits of digital supply chains, e-procurement solutions and its application in the organisation. True digitization brings down walls, and the chain becomes a completely integrated ecosystem that is fully transparent to all the players involved.

Several key technologies such as integrated activity planning and execution systems, logistics visibility, autonomous logistics, smart procurement and warehousing, spare parts management, and advanced analytics to support category strategies are critical.

Analytics that support the category strategies, anticipate the demand from the business and feeding this into integrated activity planning is critical. C&P can only be done well when there is a disciplined demand curve. Delivery of this across multiple platforms, that caters for Executive insight, cater for the requirements of the new millennials is just a given. We need to deliver on that.

Cost transparency and end to end visibility

What does it cost? Normally very few know the tradesman that get the part from the store, the helicopter flight to the platform, the overhaul of a compressor cost is blackhole to those that can influence this. Cost transparency and end to end visibility lead to lower demand, improved lead times, innovation and better overall execution.

People Capability

To deliver exceptional value the CPO need to ensure exceptional skills and abilities support the Contracting and Procurement effort. C&P credibility is crucial throughout this process and comes in with a Toyota and leaves with a Ferrari, one need to get it right everytime.

As the role continues to evolve, today’s supply chain leaders are focused on developing procurement executives who possess superior management, business and financial skills in addition to functional knowledge. Otherwise you won’t have people who can get to the table, let alone be effective at the table.

Capability in People

C&P professionals need in my view the following skillsets to be truly effective in what is expected from Contracting and Procurement, these are, the 5C’s: Hendrik Snyman

• Creativity

• Critical thinking

• Communicate

• Collaborate

• Complex problem comprehension and simplification

Business understanding vs Procurement understanding

C&P professionals also need to understand the business end to end, what drives value, what drives risk and what is the real objective of the initiative at hand. Understanding Contracting without the link to value is just not good enough anymore

Talent Management

CPO’s need to identify the competencies and experience needed for each of our different positions and have mapped out the potential career paths, creating clarity around this drive clear understanding of what is rally required.

C&P also need to ensure that they are known as a talent pool and release this talent into the business, when you start exporting good talent, you also become a magnet for good talent.” People in the business look at procurement and say, ‘That’s a place I might want to work because I’m not going to get stuck there forever, and some really good people have come out of there and done really interesting things in the company.” That’s how we want C&P to be perceived.

A CPO not only has to hire the right talent but also need to invest judiciously in enhancing employee skills needed to deliver the work. Create the openness for employees to say e.g. I do not understand the financial statements before it becomes a black eye to their career

Economies of Skill

This is deep awareness from the CPO about the skillset in the C&P organisation and assure that these skills are applied effectively in the organisation. It is more than just structure it is about assembling the right skills for the initiative and business challenge at hand

Summary

The landscape where we as C&P professionals are operating are changing vastly, the demand on C&P is to be driving and delivering value! Value delivery through being deeply engaged with the business, delivering through excellent people and systems in a transparent fashion.

This needs to be lead by the CPO, contracting and procurement today is an incredible opportunity to deliver value!