A conversation with the CPO of a company in the technology sector last week rekindled a recent stream of thought on how the function must contribute more to revenue.
It’s a subject that’s grown increasingly pressing, with more and more conversations within the Procurement Leaders community touching on revenue generation. This is not surprising, as we continue to build for a future in which procurement unlocks bandwidth that it can focus on areas not currently in scope.
When I last wrote about this, several people commented on the article, broadly agreeing that CPOs’ focus must shift. But the response from Howard Richman, a former director of indirect procurement at Citrix and Merck & Co, resonated.
“Procurement isn’t truly aligned with the strategy of the business until they make procurement enabled revenue (PER) a major KPI and make revenue generation one of procurement’s strategic pillars,” he wrote on LinkedIn. “This can take so many forms, but actual procurement resources have to be assigned to making this happen.”
Richman went on to list several ways in which procurement can tangibly help generate revenue, including helping HR to fill sales roles more quickly, using responsible reciprocal relationships, as well as working with marketing and agencies to develop incentive-based contracts to build market share.
So far, so logical. But what makes me return to it here is the conversation with our technology-sector CPO I mentioned at the start, who wanted to explore the concept of balance of trade within the context of procurement.
I must admit to thinking about balance of trade more commonly in the context of geopolitics than corporate procurement, but for this CPO it was a key provocation. They wanted to explore what 360-degree, mutually beneficial commercial relationships that don’t fall foul of any ethical boundaries might look like.
It is, by nature, a difficult place to play. Used as a blunt tool, balance of trade could quickly lead to ethical lines being crossed and buying decisions being made for all the wrong reasons. But used strategically and holistically, it could unlock huge amounts of value for all parties in the value chain.
Image: MisterStock / Shutterstock.com
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