What's in a name?

New CPO title reflects buying's strategic role

By -- Purchasing, 6/1/2000

In the early years of purchasing's fight for professional recognition, "purchasing agent" was the preferred title. It signified that the person holding the title was more than your average clerk and was, indeed, the person who negotiated with suppliers in the name of the company. Today, the title appearing on more and more procurement executives' business cards is "chief procurement officer" (CPO), or in rare cases, "chief purchasing officer."

Despite the fact that a number of seasoned executives carry the title today, no one seems to know where it originated. "I first heard it from Gene Richter," states John Lehoczky, vice president of corporate services and CPO for Yellow Corp., Overland Park, Kan. Gene Richter, recently retired vice president and CPO for IBM Corp. Somers, N.Y., first heard the title about six years ago, but doesn't remember where. Dave Nelson, C.P.M., vice president of worldwide supply management for Deere & Co., Moline, Ill., and immediate Past President of the National Association of Purchasing Management, first heard the term several years ago when he was with Honda. Helmut Porkert, CPO for Chevron Corp., San Ramon, Calif., first heard it through the Center for Advanced Purchasing Studies (caps) in Arizona. Phillip Carter, director of caps, who has been promoting the concept of CPO for years, admits that he can't recall where he first heard the term.

According to the CPOs, CPO implies four things:

• That CPOs are officers of the company and report directly to the president. "As companies are beginning to realize the value that purchasing can bring to the organization, they are creating the CPO position to report to the president," observes Porkert. "CPOs are on a par with CFOs and CIOs."

Nelson is actually adamant about its implications. "You cannot be a CPO if you are not an officer of the company," he emphasizes. "In the past couple of years, more and more procurement executives who are becoming officers of their companies are, by definition, CPOs, whether or not they take the title CPO." Nelson personally opts not to use the title CPO, but he is an officer of Deere. "I prefer the title I have instead," he explains.

• That purchasing has shifted from a strictly tactical function to a strategic function in the organization. "The CPO title lifts purchasing from a tactical, transaction-oriented activity to a strategic business activity," notes Porkert.

"The CPO designation has helped us focus the procurement part of our organization," reports William Zollars, chairman and CEO of Yellow Corp. "It has allowed us to integrate procurement into our overall business strategy." Before Yellow elected to make this shift, procurement was a tactical, transaction-oriented activity. "We were unfocused in terms of the number of suppliers we used and the number of transactions we had, which were in the hundreds of thousands," continues Zollars. Now, Yellow utilizes strategic supplier relationships that involve longer-term partnerships with fewer suppliers. "This allows us to integrate the supply chain into our organization much more effectively and build common strategies for the long term. Ultimately, it removes cost from our business and allows us to operate more efficiently."

• That the person holding the title is the executive responsible for all procurement-related activities in the organization-all divisions of the organization and all products and services that those divisions need to purchase. "My title is very descriptive of what my responsibilities are," notes Richter. "It makes it very clear to people within IBM and to suppliers who is in charge of all types of procurement at IBM-general procurement, customer solutions procurement, production procurement and so on. It also makes it clear that I have responsibility for procurement throughout the whole company. If my title were vice president of procurement, that could be a divisional or regional head of procurement, rather than chief procurement officer for the whole company."

David Garrison, CPO for Aetna Inc., Hartford, Conn., for example, has responsibility for traditional procurement, strategic sourcing, e-procurement technology, corporate negotiations (for large deals), financial strategies, legal support and accounts payable.

"I am the first company officer in Deere's 163-year history to be responsible for all supply management activities, including procurement, logistics and production planning," adds Nelson.

• That the person holding the title has the requisite skills to handle all of the above responsibilities. "The title is a recognition of the more robust skills required to head up procurement than were required in the past," observes Garrison. "A CPO needs to be skilled and knowledgeable in procurement, finance, management, technology, human resources and legal issues."

Ask and ye shall receive

Most CPOs got their title simply by asking for it, usually as part of recruitment negotiations.

"I was global director of procurement for Halliburton until October 1999," recalls Garrison. "When I was recruited by Aetna, having the CPO title was one of my requirements."

"I requested the title when I came to IBM in mid-1994," states Richter. "My boss at the time gave it some consideration, talked to a few other management people, and realized it would be a good title. It is still a very descriptive title for my responsibilities."

Porkert has asked for and received the title twice. When he joined Arco in 1997, after having spent about 10years at Bayer, Arco's goal was to operate procurement on a worldwide basis. "Since such a position did not exist at the time, the president asked me if I had a preference for a title," he recalls. "I told him that, since I would be responsible for all of procurement and would be reporting directly to him, CPO would be the best title."

When Porkert moved to Chevron in mid-1999, the title had become even more important to him. "It actually became part of the negotiations," he states. "I explained that the title was important because it emphasized the increased value and contribution of procurement to the organization, being responsible for the entire third-party spend. Every time we spend a dollar in this company, it is part of procurement's responsibility."

Lehoczky actually evolved into the title gradually. "After arriving at Yellow in early 1997, after almost 20 years with AlliedSignal, Lehoczky took over as vice president of purchasing for Yellow Freight System, where he was responsible for purchasing and real estate. "I later took over facilities management, car fleet administration and accounts payable," he states. In mid-1997, Lehoczky moved over to Yellow Services (recently renamed Yellow Technologies). Around that time, senior management was considering centralized purchasing for all Yellow companies. "In 1999, I received the title vice president of corporate services," he continues. "This didn't help me on the supplier side, though, so I asked for, and received, the CPO title."

Functional structure

Being a CPO has implications for how the procurement function is structured in the organization. Chevron, for example, is a decentralized organization with eight operating companies, each of which has a president, plus a general manager of procurement. Each GM of procurement has two solid lines of reporting-one to the operating company president and one to Porkert. "Within each operating company, the purchasing department also has two solid lines," notes Porkert. "One is to the plant manager and the other is to the general manager of procurement. General managers bring their entire volumes together, and we leverage at the corporate level, even though actual execution takes place at the operating company level."

When Roger Berdoulay came to Nestle USA Inc. in 1991, he entered a new procurement position. The Glendale, California-based company was decentralized, with seven operating divisions that each had a purchasing staff. "We realized that we had the opportunity for leverage by consolidating our purchases," explains Berdoulay, who has the title vice president and chief purchasing officer. "Initially, the company created a corporate vice president position for this, and my role was to be the chief strategist and tactician in order to leverage purchasing." However, the CPO designation was added to Berdoulay's vice president title to prevent confusion with the company's seven other vice presidents of purchasing. "We now have a centralized purchasing function that serves all of the divisions," he continues. "This provides us with one coordinated set of procurement strategies for the whole corporation."

Implications for suppliers

While the title CPO may have some meaning to procurement executives' internal colleagues, its real value is in conveying authority to suppliers. "Suppliers have become very aware of the term CPO," states Nelson. "Most of them are delighted to have representation at this level in a customer organization. Before, when they had issues, they didn't know who to talk to."

"It is becoming a well-known title, and suppliers understand it," adds Zollars. "It identifies the function immediately for suppliers." Lehoczky agrees: "The CPO title helps me with supplier negotiations and supplier communications. It provides them with one point of contact. Within Yellow, I use my VP title. With suppliers, I use the CPO title."

"Suppliers are now beginning to target the CPO, especially in the area of e-procurement," adds Garrison. "When suppliers call these days, they ask, Who's your CPO?'"

"The title is helpful to suppliers, in that it gives them a sense of who is at the top of the organization in procurement," states Carter. "It is especially helpful when putting together strategic alliances. It gives suppliers the assurance they are dealing with the top person."

"Suppliers understand the value of the CPO designation," agrees Berdoulay. "Instead of having to deal with seven different operating divisions, suppliers have one place to go to get direction, commitments, follow-through and issue resolution."

As is the case with Lehoczky, Porkert utilizes his VP title within the organization and the CPO designation with suppliers. "As an officer of Chevron, I have the VP title," he explains. "However, this title gives the impression of a lower level with suppliers, so I use my CPO title when dealing with them."

Getting from here to there

If the title of CPO sounds intriguing, it is worth considering. However, before you walk into the president's office and ask for a title change, you have to be sure some other things are in place.

First, be sure there has been a shift from tactical to strategic procurement in your organization.

Second, be sure you have responsibility for all aspects of procurement in your organization, including all divisions and all commodity groupings. "If you have responsibility for all aspects of procurement, you should consider the title," suggests Richter. "Then, you can designate subordinates as vice presidents for certain types of procurement, such as vice president of production procurement, or for certain regions or divisions, such as vice president of North American procurement."

Third, be sure you have the requisite skills and knowledge to handle the responsibility. This involves an understanding of strategic procurement, as well as knowledge of all types of procurement. "Before you ask for the title, you have to realize the level of expertise required," cautions Garrison. Just as important as having skills and knowledge yourself is making sure your direct reports have the same. "An important key to success is having people with experience in strategic purchasing, not tactical purchasing," emphasizes Nelson. "You will be no more successful than your staff is smart and capable."

Finally, it's time to ask for the title. "Be sure, in asking for the title, that you get the reporting relationship high enough to be effective," adds Carter. Again, CPO implies officer-level reporting in the organization.

How difficult is it to convince senior management of the wisdom of the decision? Not very, according to Garrison. "Emphasis today is on cost savings, and senior management tends to be much more aware of the potential of procurement to contribute to this," he states. "When you focus on reducing costs and improving performance, you generally get zero pushback' from management."

"Bring hard facts with you when you meet with senior management," advises Carter. "Numbers should include total spend, planned cost savings, value of strategic alliances, etc. Present a strong story to the people at the top." Failing this, Carter recommends utilizing the services of a qualified consultant. "Top people often listen to consultants when they don't listen to their own people."

CPO into the future

"A lot of top managements are starting to see the value and power of alliance management, strong strategic relationships with suppliers, and strong execution of supply chain strategies upstream and downstream," reports Lehoczky.

"As companies work to create more of these strategic alliances, it is important that they be created and molded at the CPO level," adds Carter.

"There are enormous amounts of money sitting on the table, just waiting for CPOs to create strategic procurement organizations and begin to reduce costs," states Nelson.

"Whether or not the CPO title catches on, I hope that companies continue to realize the value of centralized purchasing in order to take advantage of their expertise and leverage and having a high-level person responsible for all aspects of those procurement activities," adds Richter.

Overall, the future looks bright for procurement in general and for procurement executives in specific. "I think we will start to see more senior leadership talent coming out of the ranks of procurement," suggests Lehoczky.

Nelson very much agrees. "Twenty years ago, 70% of a company's spend was in manufacturing and 30% in procurement. This was certainly the case at Deere. We were very vertically integrated, with our own foundry, machine shop and press shop in each major plant. In addition, the majority of our spends were tactical, such as for steel, which was all one price back then." For this reason, the company's strongest executives were in manufacturing.

With the trend toward outsourcing over the past decade or two, though, the numbers have reversed for many organizations, including Deere, with 70% of the spend being in procurement and 30% being in manufacturing. Yet, according to Nelson, a number of organizations still place their strongest executives in manufacturing. "It only makes sense that the strongest people should be in charge of supply management," he notes. "This is where the greatest opportunities are for cost savings. Fortunately, I'm starting to see this trend take place."