Market for top purchasing execs takes off
Demand for top-notch supply chain executives is hotter than it has been in years, thanks to a recovering economy and deep changes in the purchasing profession.
By Robert Mueller -- Purchasing, 9/2/2004 2:00:00 AM
These are very good times to be a purchasing executive. Thanks to the confluence of an improving economy, a decade-old trend that's reshaping the profession and even some otherwise discouraging demographics, demand for top purchasing talent is outpacing supply.
"I submitted three candidates three weeks ago to one of my top clients," says Tonia Deal, president of TDC Inc., a search firm in Hudson, Ohio that specializes in placing purchasing executives. "Within a week, two of them had new jobs. When I have a hot candidate, I tell the client, 'You need to move now, because if you don't, they're gone.' That's where the market is right now."
A hot market is sending salaries up for people with titles like Chief Procurement Officer (CPO) and Vice President-Supply Chain to levels 150% above what they were five years ago, Deal estimates. And as the top talent moves and develops new supply chain strategies for its new masters, purchasing departments are being restaffed, and this is churning the talent pool at lower levels as well. Top managers, she says, are now going for $250,000 to $500,000 a year. As C-level executives, "they're sitting in on board meetings. They're sitting in on product development. They're helping make decisions that not only affect the procurement sector, but the economic outcome of the entire organization."
Part of the growth in demand is due to the resumption of hiring and the reinstitution of supply chain plans that were put on hold after the 2001 terrorist attacks and the economic declines that followed them, Deal says. But underlying the current spate of hiring are more profound structural changes across the entire supply chain industry.
The foundations of the current hiring boom go back at least a decade, says Joseph Cavinato, senior vice president at the Institute for Supply Management and ISM professor of supply chain management at Thunderbird University in Phoenix. CEOs are under pressure to produce stockholder returns of 8 to 10% annually, he explains. Bit by bit, conventional ways of making that happen are being exhausted. Domestic population growth has slowed; international markets once provided new opportunities, but as they become saturated and face slow or even negative population growth themselves, their potential for contributing to further profit growth is waning.
How do you keep profits growing under those circumstances? "One way is to drill down into your business and get some of that return by cost and asset take-out," Cavinato says. "That's why purchasing came on the radar screen of most CEOs from a cost standpoint about 10 years ago." By the mid-1990s, he continues, companies began realizing that they could get more out of the supply side of the business than merely cutting the spend. "We started to see deeper initiatives in purchasing, in terms of managing the supply chain, putting teams together to look at the supply chain flow, to look at the supply chain as a financial entity."
More recently, CEOs are looking to purchasing for innovative programs that contribute more directly to corporate returns: partnerships with suppliers, for example, that let organizations focus their attention and their assets on core activities.
Dave Nelson, vice president of global supply management for Delphi in Troy, Mich., reckons the trend is still in the early days, and is likely to continue for a long time. "Senior management is just starting to become enlightened with regard to the strategic nature of this enormous amount of money that's spent in a company," he says. "In our case, and in many manufacturing companies, 50% of the total revenue is purchased-direct material, and another 10 or 12% goes for indirect materials and services. When you consider how strategically well done that job is, it can be the difference between success and failure.
Much of the growth in demand for senior purchasing people derives from the growing list of companies rethinking their supply chain strategies today, says Howard Levy, senior vice president-purchasing for CNH Global in Lake Forest, Ill. Utilities like Exelon and Detroit Edison are discovering strategic purchasing and are aggressively recruiting CPOs. Home builders are beginning to do the same thing.
Further fueling demand for purchasing talent are industries that are rediscovering purchasing. "What I mean by that," Levy explains, "is that they've probably had some pretty good centralized purchasing, but they still want some fresh eyes to take a look at how they can take their purchasing to the next level."
To some extent, companies are looking for new CPO hires to act as catalysts in the transformation of their supply chain operations. As top purchasing executives move from one company to another, they're often viewed as evangelists bringing the message of strategic purchasing with them. Corporate managers may have a vague sense that their supply chain organizations may not be all that they could be, and they bring in new CPOs with records of success in other companies or even other industries-to improve performance.
Cavinato sees a day when CPOs will formulate goals and timeframes, write them into contracts, then move on to the next challenge when the job's done. Something like that is already becoming common among top financial executives, he says. The CPOs themselves disagree, however. Brent Shinall, director of technical purchasing for Royal Caribbean International and Celebrity Cruises in Miami, says he plans to stay put. "I've concluded that you need to be part of the organization and learn the culture."
In Shinall's case, it's more like "cultures." He works for a company with an unusually complex supply chain. He's responsible for everything the cruise line buys except consumables such as food and beverages, towels, etc. "Imagine trying to support 30 cruise ships. They're like floating cities. I can't imagine anything more complex." The ships themselves are built mostly in Finland, Germany and France, and operated by Scandinavians, in the case of Royal Caribbean, and Greeks, in the case of Celebrity. Shinall's supply chain is truly global and multicultural. Increasingly, he notes, dealing with a multinational, multicultural supply chain is becoming a requirement for top purchasing executives.
While the uptick in demand for purchasing talent is throwing flattering light on the profession, the trend isn't helping everyone. Hiring patterns are creating a sort of star system, where the profession's brightest and most experienced are being recruited for top jobs and are, in turn, hiring the most talented midcareer people and beginners to staff their organizations. Traditional purchasing managers, while their jobs may be safe for the time being, are unlikely to be considered for top jobs unless they radically reinvent their careers.
"The traditional purchasing manager saw it as a profession," Cavinato says. "They saw it as both the company and the position they were going to retire from. There was a one-way latch on the door; you came into purchasing and you never left it. Today, companies are looking at people who are there for the long-haul career almost as baggage. The purchasing people who get respect are the ones who grow and morph as the business grows and morphs."
"There's some good, mediocre talent out there," Deal comments. "I'm not discounting that. Every organization needs the good talent. But when you want to pull out the top talent, you're looking for the person who can multitask, who can communicate effectively with all levels of the organization, who has a solid ability to manage up and down, and who knows how to bring the A players to the team."
The A players, she continues, have a track record of successful leadership and can point to results. "Show me where you have taken 20% of cost off the top. Show me how you have reduced the supplier base from 20,000 to 2,000 in a three-year period. We're looking for people who can manage up and have business and engineering exposure as well as an aptitude for finance. They have to be able to think analytically. If you can't think analytically, how are you going to set up some cost-driven numbers?"
Successful IT supply chain systems implementation is an important qualification, Deal adds.
Those at the top of the profession "can articulate purchasing in senior management's terms," says Cavinato. "Don't come to me with purchase price variance or the number of contracts you've done. Come to me with what you've done to reduce cycle time, what you've done to reduce the asset base of our company and our suppliers. Come to me with what you can do to take costs out of the entire chain."
Nelson says breadth of experience, vision and leadership set the top talent apart. "They've been tested. They have lived through growth and difficulties and shortages and line shutdowns and all these different types of things. Instead of just buying parts, they look at the entire supply chain and see the whole strategy."
Nelson cites a Center for Advanced Purchasing Studies (CAPS) study finding that many CPOs came from functions other than purchasing because corporate managers reckoned strong leadership was more important than purchasing skills.
"You have to recognize that businesses are in an intensely competitive environment and you have to be focused on delivering results" if you aspire to the top supply chain jobs, says Levy. "Another thing that's very important is a high energy level. This is definitely not a 9-to-5 type of job. It never has been, but the level of intensity has only increased. You also have to be a team player. Purchasing cannot be successful in a silo. It is absolutely vital that you're matrixed into your business units and understand the pulse of your business."
Finally, CPOs love their jobs. "People think I'm weird," says Shinall. "I do supply chain on the weekends. It's a hobby." Levy comments, "Frankly, I enjoy purchasing. I've been in this for over 21 years now, and every job I've had, everything that I've done in purchasing, has been something I've enjoyed and felt passionate about."
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