David MacEachern is a director with the executive search firm Spencer Stuart and is the leader of the firm's global transportation and third-party logistics practice.
Countless corporations have centralized
their procurement operations over the
past several years. Typically, the switch from a
local or regional procurement structure to a
centrally led organization headed by a chief
procurement officer (CPO) has occurred in
global, established industry leaders in manufacturing's
high-tech, industrial, and consumer
sectors. But now, more and more nonmanufacturing,
service-driven companies are
also adopting this approach.
Through our recruiting work for Spencer
Stuart's Supply Chain Practice, we've
observed a recent trend toward CPO searches
by organizations across many of these
industries, including financial and service
organizations, insurance and real estate companies,
banks, health care providers, gaming
industry leaders, and hospitality firms. The
reason for their interest in centralizing
oversight of procurement is that,
despite their best efforts, they have
found it challenging to grow or maintain
their top line during the economic
downturn. Looking to preserve their
margins, they are reassessing their operational
efficiency and the effectiveness
of their supply chains like never before.
It's not unusual for many of these
companies to initially have only a general
idea of their overall organizational
spend. We have been engaged by some
that can only estimate their spending,
telling us, for example, that it is "somewhere
between US $2 billion and $3
billion." Needless to say, the strategic
application of centralized procurement
in these corporations represents a huge
opportunity.
When creating a new chief procurement
officer role, some of these organizations
initially view it as a "cost of
doing business" function. Only later do
they recognize that the CPO is capable
of achieving much, much more. These
new CPO roles in service-driven organizations
focus not only on spending across marketing,
travel, information technology, consulting,
real estate, security, transportation,
and similar areas but also on enhancing customer
satisfaction, quality, and on-time delivery.
In many cases, the chief procurement
officer has become a key strategic leader and
advocate for greater operational effectiveness
in everything from inventory to manufacturing,
product design, cash flow, outsourcing,
workflow, quality, and customer service.
Leadership skills required
Given the strategic role that CPOs are now
playing, where are companies looking for the
leaders to fill these positions? We are seeing
people enter the procurement function from a
variety of backgrounds: from finance, from
general management, from broader supply
chain roles, and even from the sales or commercial
side of the business. Typically, however,
companies recruit talent at the CPO level
from best-in-class procurement organizations
at other leading industrial, manufacturing,
technology, or consumer organizations.
These stars of procurement are drawn to
newly created CPO roles because they see an
opportunity to effect dramatic organizational
change. In organizations that are just establishing
centralized procurement, a CPO can
experience the challenge of building a procurement
organization from the ground up. He or she can also make changes that have
the potential to transform an organization's
effectiveness, contributing millions—or even
hundreds of millions—of dollars annually to
the bottom line.
It is not a given, however, that a CPO will
succeed in making such a huge organizational
impact. A switch to centrally led procurement
represents a profound change in the
role procurement plays in the organization.
Instead of being brought in after business
decisions have been made and tasked with
implementing them cost-effectively, the CPO
is a strategic business adviser and an integral
member of the senior leadership team.
To successfully effect this transformation to
centrally managed procurement, the CPO
needs a number of critical capabilities,
including:
Outstanding strategic skills. The chief
procurement officer must be able to take a
global view of the entire business and marketplace
to develop a procurement
vision and strategy
that aligns with the company's
business needs, both for
today and for the future. The
CPO also needs a comprehensive
understanding of
the ramifications of different
strategic options for all of
the critical moving parts of
the business, and he or she
must be able to help decision
makers understand the
advantages and disadvantages of different
approaches and models.
Superior leadership. A transformational
CPO needs to be one of the most capable leaders
in the organization. He or she must be able
to play a guiding role in early-stage discussions
on how to implement core business strategies in
an effective, economical way. The CPO will
then be called upon to engage the wider organization
in the overall procurement opportunity,
build cross-functional teams, and communicate
procurement strategies and priorities across the
organization in a compelling manner.
Influencing skills. The CPO must become
a valued partner and a recognized asset who
collaborates effectively across different organizational
levels, functions, businesses, and geographies
to realize procurement goals and objectives.
He or she also has to be able to influence
top-level management—a skill needed to keep
executives from putting up "fences" that can
stall a procurement initiative.
Results orientation. The CPO cannot
accept "no" for an answer and must demonstrate a drive and passion for continuous
improvement in processes, relationships, and
cost savings. He or she must be creative, persistent,
and always setting goals for the team.
Most importantly, the CPO must produce
definitive metrics that demonstrate the success
of procurement initiatives to the chief financial
officer (CFO) and chief executive officer
(CEO). A CPO also needs to be proactive in
communicating these results to galvanize the
interest of others in the
organization in how procurement
can help them succeed.
Organization building. A global procurement leader
must be able to assess the organization's existing capabilities and attract
experienced leaders to fill any gaps. He or she must be able
to create global transparency where it may have been only
regionally available before, and be capable of
aligning practice and policy across the function
as well as across the broader organization.
Armed with these skills and with their functional
expertise, chief procurement officers are
having a dramatic impact on the overall efficiency
and short- and long-term profitability of
many companies. A centralized model may not
be the answer for every organization. But the
recent embrace of this approach to procurement
by a multitude of companies that had not
tried it before signals the emergence of a powerful
trend. It's something that all companies of
significant scale should at least consider closely,
or risk finding themselves at a competitive
disadvantage.
Residents and businesses along the Florida panhandle today are keeping a close eye on Tropical Storm Helene, which is forecasted to strengthen into a major hurricane by the time it strikes the northeast Gulf Coast on Thursday.
Hurricane and storm surge watches are already in effect for that area, which could see heavy rain and flash flooding across portions of Florida, the Southeast U.S., Southern Appalachians, and the Tennessee Valley, according to predictions from the National Hurricane Center.
The storm would come a month after Hurricane Debby delivered drenching rainfall for days over Florida in August and after Hurricane Beryl hit Houston in July, knocking out power across the region.
As Helene continues to gather strength from the warm waters of the Gulf of Mexico, experts are warning that the storm’s impacts could include the Port of New Orleans, agricultural operations throughout the Southeast, and additional citrus and fruit farming business in Florida, according to a report from Everstream Analytics’ chief meteorologist Jon Davis.
From a supply chain perspective, additional disruptions could include rail and road transportation stoppages, closures of interstate highways I-10 and I-75, widespread power outages, and shutdowns of offshore energy operations in the eastern portion of the Gulf of Mexico, Davis said.
As the third potential hurricane to hit the area within as many months, the arrival of Helene shows that extreme weather events aren’t just anomalies, but rather they’re the new normal for shipping companies and port authorities, according to Frank Kenney, Director of Industry Strategy at the technology consulting firm Cleo.
To cope with that constant battering, businesses need to adopt a new mindset, he said. “The only way to keep supply chains running smoothly is to build resilience into every aspect of operations. This starts with diversifying logistics strategies. If a shipper is dependent on a single route or port, they’re setting themself up for trouble. Instead, it’s crucial to have multiple backup routes and options ready to deploy when the unexpected happens,” Kenney said.
Following that strategy, inland ports such as Savannah and Macon, Georgia, will likely gain importance in coming years since their locations offer proximity to ocean ports while also providing access to major highways and some protection from coastal flooding. “In short, the storm isn’t going away, but by embracing diversification, leveraging technology, and ensuring supply chain visibility, U.S. ports and shipping companies can stay ahead of the curve. The companies that prepare for these challenges now will be the ones that continue to thrive, no matter how extreme weather events rock the boat," Kenney said.
Container imports at U.S. ports are seeing another busy month as retailers and manufacturers hustle to get their orders into the country ahead of a potential labor strike that could stop operations at East Coast and Gulf Coast ports as soon as October 1.
Less than two weeks from now, the existing contract between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance covering East and Gulf Coast ports is set to expire. With negotiations hung up on issues like wages and automation, the ILA has threatened to put its 85,000 members on strike if a new contract is not reached by then, prompting business groups like the National Retail Federation (NRF) to call for both sides to reach an agreement.
But until such an agreement is reached, importers are playing it safe and accelerating their plans. “Import levels are being impacted by concerns about the potential East and Gulf Coast port strike,” Hackett Associates Founder Ben Hackett said in a release. “This has caused some cargo owners to bring forward shipments, bumping up June-through-September imports. In addition, some importers are weighing the decision to bring forward some goods, particularly from China, that could be impacted by rising tariffs following the election.”
The stakes are high, since a potential strike would come at a sensitive time when businesses are already facing other global supply chain disruptions, according to FourKites’ Mike DeAngelis, senior director of international solutions. “We're facing a perfect storm — with the Red Sea disruptions preventing normal access to the Suez Canal and the Panama Canal’s still-reduced capacity, an ILA strike would effectively choke off major arteries of global trade,” DeAngelis said in a statement.
Although West Coast and Canadian ports would see a surge in traffic if the strike occurs, they cannot absorb all the volume from the East and Gulf Coast ports. And the influx of freight there could cause weeks, if not months-long backlogs, even after the strikes end, reshaping shipping patterns well into 2025, DeAngelis said.
With an eye on those consequences, importers are also looking at more creative contingency plans, such as turning to air freight, west coast ports, or intermodal combinations of rail and truck modes, according to less than truckload (LTL) carrier Averitt Express.
“While some importers and exporters have already rerouted shipments to West Coast ports or delayed shipping altogether, there are still significant volumes of cargo en route to the East and Gulf Coast ports that cannot be rerouted. Unfortunately, once cargo is on a vessel, it becomes virtually impossible to change its destination, leaving shippers with limited options for those shipments,” Averitt said in a release.
However, one silver lining for coping with a potential strike is that prevailing global supply chain turbulence has already prompted many U.S. companies to stock up for bad weather, said Christian Roeloffs, co-founder and CEO of Container xChange.
"While the threat of strikes looms large, it’s important to note that U.S. inventories are currently strong due to the pulling forward of orders earlier this year to avoid existing disruptions. This stockpile will act as an essential buffer, mitigating the risk of container rates spiking dramatically due to the strikes,” Roeloffs said.
In addition, forecasts for a fairly modest winter peak shopping season could take the edge off the impact of a strike. “With no significant signs of peak season demand strengthening, these strikes might not have as intense an impact as historically seen. However, the overall impact will largely depend on the duration of the strikes, with prolonged disruptions having the potential to intensify the implications for supply chains, leading to more pronounced bottlenecks and greater challenges in container availability, " he said.
A coalition of freight transport and cargo handling organizations is calling on countries to honor their existing resolutions to report the results of national container inspection programs, and for the International Maritime Organization (IMO) to publish those results.
Those two steps would help improve safety in the carriage of goods by sea, according to the Cargo Integrity Group (CIG), which is a is a partnership of industry associations seeking to raise awareness and greater uptake of the IMO/ILO/UNECE Code of Practice for Packing of Cargo Transport Units (2014) – often referred to as CTU Code.
According to the Cargo Integrity Group, member governments of the IMO adopted resolutions more than 20 years ago agreeing to conduct routine inspections of freight containers and the cargoes packed in them. But less than 5% of 167 national administrations covered by the agreement are regularly submitting the results of their inspections to IMO in publicly available form.
The low numbers of reports means that insufficient data is available for IMO or industry to draw reliable conclusions, fundamentally undermining their efforts to improve the safety and sustainability of shipments by sea, CIG said.
Meanwhile, the dangers posed by poorly packed, mis-handled, or mis-declared containerized shipments has been demonstrated again recently in a series of fires and explosions aboard container ships. Whilst the precise circumstances of those incidents remain under investigation, the Cargo Integrity Group says it is concerned that measures already in place to help identify possible weaknesses are not being fully implemented and that opportunities for improving compliance standards are being missed.
By the numbers, overall retail sales in August were up 0.1% seasonally adjusted month over month and up 2.1% unadjusted year over year. That compared with increases of 1.1% month over month and 2.9% year over year in July.
August’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.3% seasonally adjusted month over month and up 3.3% unadjusted year over year. Core retail sales were up 3.4% year over year for the first eight months of the year, in line with NRF’s forecast for 2024 retail sales to grow between 2.5% and 3.5% over 2023.
“These numbers show the continued resiliency of the American consumer,” NRF Chief Economist Jack Kleinhenz said in a release. “While sales growth decelerated from last month’s pace, there is little hint of consumer spending unraveling. Households have the underpinnings to spend as recent wage gains have outpaced inflation even though payroll growth saw a slowdown in July and August. Easing inflation is providing added spending capacity to cost-weary shoppers and the interest rate cuts expected to come from the Fed should help create a more positive environment for consumers in the future.”
The U.S., U.K., and Australia will strengthen supply chain resiliency by sharing data and taking joint actions under the terms of a pact signed last week, the three nations said.
The agreement creates a “Supply Chain Resilience Cooperation Group” designed to build resilience in priority supply chains and to enhance the members’ mutual ability to identify and address risks, threats, and disruptions, according to the U.K.’s Department for Business and Trade.
One of the top priorities for the new group is developing an early warning pilot focused on the telecommunications supply chain, which is essential for the three countries’ global, digitized economies, they said. By identifying and monitoring disruption risks to the telecommunications supply chain, this pilot will enhance all three countries’ knowledge of relevant vulnerabilities, criticality, and residual risks. It will also develop procedures for sharing this information and responding cooperatively to disruptions.
According to the U.S. Department of Homeland Security (DHS), the group chose that sector because telecommunications infrastructure is vital to the distribution of public safety information, emergency services, and the day to day lives of many citizens. For example, undersea fiberoptic cables carry over 95% of transoceanic data traffic without which smartphones, financial networks, and communications systems would cease to function reliably.
“The resilience of our critical supply chains is a homeland security and economic security imperative,” Secretary of Homeland Security Alejandro N. Mayorkas said in a release. “Collaboration with international partners allows us to anticipate and mitigate disruptions before they occur. Our new U.S.-U.K.-Australia Supply Chain Resilience Cooperation Group will help ensure that our communities continue to have the essential goods and services they need, when they need them.”