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Wednesday, July 23, 2014

ISM-New York Centennial: Chief Procurement Officers Are Meeting Strategic Challenges

“It’s remarkable to think of ISM-New York as 100 years old; few organizations reach that milestone.”

That’s how Tom Derry, CEO of the national chapter of the Institute for Supply Management, opened his remarks last night at the centennial celebration of ISM-New York. Although the New York chapter is local, as I wrote yesterday it pre-dates the national chapter and was, in fact, the first professional purchasing association in the U.S. and possibly the world.

Tom Derry, president of ISM national, gave a packed audience of procurement professionals his vision of today and tomorrow. Credit: Brendan O'Connell

Tom Derry, CEO of ISM national, gave a packed audience of procurement professionals at the ISM-New York centennial celebration his vision of today and tomorrow. Credit: Brendan O’Connell

The reception in New York City was, by itself, a milestone event. But as with any good association gathering, it gave attendees plenty of information about where procurement is trending and where it will likely go over the next decade.

Derry said that in 1913, Thomas Publishing Co. salesman Elwood B. (or E.B.) Hendricks, the force behind a professional purchasing association, with other founders saw purchasing at the nexus of supply and demand. That’s still true, of course, Derry remarked, but now procurement is responsible for much more than balancing these concerns. Negotiating such requirements as sustainability, social responsibility, compliance, trade issues, and, sometimes, national security needs are integral parts of the job.

Add to these the inevitable worries that keep chief procurement officers (CPOs) awake at night and it’s clear that professionals in the business have much broader responsibilities and a far greater impact on operations than ever.

As an example of the challenges CPOs face with global supply chains, Derry cited an undisclosed pharmaceutical manufacturer that made a tactical decision to reduce the attention (read: cost) it gave to suppliers on which its spend was less than $1 million annually. One company in Japan supplied a product costing less than $200,000 a year. This was a coating that the manufacturer applied to drugs with sales of $2 billion annually.

All went well until the supplier, the pharma maker’s sole coating source, suffered a fire that knocked it out of commission for nine months. Derry didn’t mention the outcome, but one can conclude that the manufacturer’s CPO spent much time hurriedly finding an alternative source or two for the coating.

The ability to successfully resolve such profit-busting issues, as well as to anticipate and plan for them, means CPOs must be comfortable dealing with CEOs and corporate boards when it comes to making their concerns known and contributing to strategic discussions. There is no room in the industry for passive players, Derry suggested.

“We’ve arrived in the C-suite,” he remarked. “And forget the seat at the board table; we’re already there.”

Success as a CPO, he said, requires the ability to “unlock the value for a company in the supply chain you manage.”

Derry said CPOs would need higher analytical skills in coming years to effectively manage supply chains. They will also need to be versed in the cultures of the areas in which they do business and know languages that will help them negotiate and partner with global suppliers.

ISM NY centennial logoHe cited the comments of a CPO at major electronics manufacturer that operates a multi-billion-dollar global supply chain. The CPO said the next person in his job would probably have been born in Singapore, speak Mandarin Chinese, be educated in the U.S., and will have spent much of his or her career overseas learning local cultures.

The point is, procurement used to be a department. Now it requires vision and a strategic skill set. Progressive CEOs are including CPOs in their plans and discussions. At one time only 40 percent of CEOs looked at KPIs (key performance indicators) regularly. “Now, 7 percent look at KPIs every day, and 7 percent review them weekly,” Derry said. Corporate boards, he added, understand their value, which broadens the role of CPOs in business discussions.

Citing the annual meeting of international business leaders in Switzerland, Derry concluded by saying: “Don’t be surprised if leaders in the field [of procurement] deliver presentations in Davos.”

Stay tuned to Procurement Journal for a review of the comments made by members of a special CPO panel discussion on procurement transformation and more post coverage from ISM-New York’s centennial celebration.

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