Act fast! CPOs have little time to deliver big results

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Manufacturing News, Source : The Manufacturer US
Published : 09 May 2007 14:32

Published: March 14, 2007 in Knowledge@W. P. Carey,
http://knowledge.wpcarey.asu.edu

Michiel Leenders and Fraser Johnson spent a decade studying the supply chain operations of 30 of the world’s largest companies, paying special attention to the chief purchasing officers (CPOs) charged with leading those operations. And after watching dozens of CPOs come and go in the course of their work, the researchers came to a simple conclusion: The CPO’s chair has become a true corporate hot seat.

“Certainly the CPO changes in the companies we studied were very frequent,” says Leenders, professor emeritus at the Richard Ivey School of Business at the University of Western Ontario. “Depending on the CPO’s background and how they came to the company, there were [average] tenures of four years or less. That doesn’t offer a lot of time for somebody to get a lot of things done while they’re at the helm.”

Leenders and Johnson’s report, “Supply Leadership Changes,” is the last part of an expansive three-part study about corporate supply chain operations. The report was conducted on behalf of CAPS Research, a nonprofit research organization supported by the W. P. Carey School of Business and the Institute of Supply Management, which focuses its work specifically on supply and supply chain issues.

After previously reporting on structural changes in supply organizations and changes in supply chain responsibility, Leenders and Johnson this time turned their attention to CPOs. The new study offers a fascinating, in-depth look at how organizations ranging from British Airways to Phelps Dodge to Corning have handled supply operations—and their CPOs—through a decade of vast change.

“Clearly, we observed all kinds of interesting things happening, which in a funny sense was somewhat of an aside from the main issue we were looking at,” Leenders says. “But having that record—a record of 30 organizations trying to cope, over the last decade, with all the changes and challenges in world trade—has given us a wonderful insight into how procurement organizations react to all of these things. And they were not on the same page at all.”

Leenders and Johnson say their study showed a general inconsistency in how companies selected CPO leadership, revealed a tendency to change the executive to whom CPOs report, hinted at a general move toward centralization of supply function, and, in all cases, showed that CPOs, no matter the situations they faced, were expected to deliver results.

Those that did deliver often moved on to better things. Those that didn’t, presumably, did not. Both groups contributed, however, to the report’s major finding: That companies change purchasing leadership at a surprisingly rapid pace—and that CPOs and other supply professionals must be nimble, and fast-working, if they are to be successful in an increasingly dynamic workplace.

“This, I think, goes to that whole question of long-range planning,” Leenders says. “How do you do that when your tenure is so short? We saw some people in the CPO position only for eight months.”

Johnson says the study holds “substantial implications” for supply executives.

“In large corporations, there are a lot of changes happening in a lot of different places,” says Johnson, an associate professor at the Richard Ivey School of Business. “For supply professionals, that means you’ve got to learn how to accept new responsibilities, work with new people, and continue to make a contribution to your organization.”

According to the study:

Changes at the CPO level are almost constant: The total of 73 CPO changes and 75 reporting line changes in 30 companies averaged about 2.5 changes of each type over a time period of about 10 years. Therefore, CPO and reporting line changes occur frequently. Given the leadership impact of these changes, great care and attention needs to be exercised to assure sound supply leadership changes as well as fast start-up after the change.

Many large companies have recently instituted a more centralized supply management structure, creating new opportunities for supply professionals: A total of 29 first CPO appointments were reported over 10 years in the 30 companies studied. The authors note that because a first CPO appointment is only possible after a period of decentralization, this indicates many large companies had previously been operating in a decentralized manner.

First CPOs face a unique, and difficult, challenge: These first CPOs, the authors write, are “required to develop a corporate supply strategy, build a supply team, identify a set of supply responsibilities, and devise a plan for growth and results. Obtaining approval, cooperation, and financial, human, IT, and space resources to accomplish ambitious expectations for savings and other supply contributions represents a monumental challenge.”

The authors also found that while companies pay close attention to CPOs soon after a move to centralize, CEOs and other top managers are less likely to keep close watch on their CPOs in later stages of the process—after those first CPOs have moved on. This means that first CPOs are likely to face pressures later executives don’t.

“When there’s a new CPO coming in, companies seem more likely to want him to report to the CEO than with a replacement CPO,” Leenders says. “It seems as though when they bring in a CPO in a move toward centralization, they want to have close control over supply function personally, while at a later stage they may be more likely to just let a senior vice president take over.”

All CPOs are expected to deliver results: These high expectations, it turns out, were among the few things that were consistent across all the companies studied. Leenders and Johnson say it didn’t seem to matter what circumstances a company was in. Top management, they say, looked to supply to do well.

“In all of the companies we studied, there was an expectation from senior management that the CPO was to deliver value to the company, regardless of the circumstances,” Johnson adds. “Now value can be defined differently—certainly cost savings were common, but also in terms of the availability of supply, speed to market, and other measures.”

While these high expectations may turn up the heat on CPOs, they also hold some good news for supply professionals, Johnson says. That’s because the trend suggests companies are viewing their supply operations as increasingly important to their organization’s success.

“I think it’s actually a good story for supply professionals,” Johnson says. “The people from the supply organizations are being promoted, and the role of supply, generally speaking, is at a level now so that it is being viewed as an equal partner in the company. We started seeing more and more of that.”

Indeed, Leenders says, the CPO position is being seen, maybe more than in years past, as a managerial testing ground. In fact, some companies are turning CPO duties over to bright young managerial stars, even if those up-and-comers don’t have supply experience.

“Although we had tagged it early on that the numbers of CPOs without a supply background were rapidly increasing, we also saw that the people viewed the supply position as one which you can use as a corporate training ground, to move executives up to the top,” Leenders says.

Of course, before moving up, those executives have to deliver at the CPO level first. To do so, the authors say, these execs will have to find a way to act quickly—and keep their focus—though tides of change seem inevitable.

Such is life is on the CPO hot seat.

“It’s kind of like the whole idea of the US president and the importance of the first 100 days,” Johnson says. “The same can be said for the CPO, because as things are evolving around you, you have to be able to come in, size things up, and decide where you can make an impact right away. Because the days of the CPO being on the job for five or six or seven years, they’re over. A lot of these people are in the position for just two or three years.”

Published: April 25, 2007 by knowledge@WPCarey, knowledge.wpcarey.asu.edu

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