The Purchasing Chessboard is inspired by the logic of supply power and demand power—a concept that governed the dynamics in the bazaars of Babylon, raised trading powers such as Venice to greatness, and formed the basis of the British Empire. Since publishing the first edition in 2008, we have seen that it works in any industry, for any category, anywhere in the world. Because it is intuitive and easy to use, it has become the main procurement strategy tool for most leading companies around the world.
Procurement comes in many forms. The most basic one—albeit the one we ardently reject—is that of a transactional function that executes “commercial arrangements” struck between business stakeholders and suppliers. This type of procurement, whether based on a mindset or behavioral model, is indicative of missed value-creation opportunities and talented procurement professionals who are relegated to lesser careers. If you are the chief executive of a company and this is your view of procurement, you might as well fire your entire procurement team and replace them with Ariba, Oracle, or SAP. In other words, transactional procurement is repetitive, boring, adds little to no value, and is perfectly suited to process automation tools.
Our view of procurement—or of what it should be—is markedly different. We envision a function that not only supports a company’s strategy but also contributes to or drives the strategy. The CPO has a big picture perspective, leads by influencing key stakeholders, and has tremendous impact on the company’s wellbeing. Some call our ideas lofty, or nice in theory, or wishful thinking. We beg to differ.
To help explain our view, let’s take a closer look at the well-documented actions of someone we consider to be the world’s best CPO. Apple’s Tim Cook. What Cook has accomplished at Apple is what we point to when describing a CEO who thinks like a CPO who thinks like a CEO.
Cook’s philosophy during those early years was best described in a 2008 interview with CNN: “You… want to manage it [inventory] like you're in the dairy business, if it gets past its freshness date, you have a problem,” he said.
Under Cook’s leadership, Apple has taken a hands-on approach. The company has become increasingly prescriptive when working with suppliers, planning manufacturing processes, specifying the required equipment, tools, and fixtures, and sending armies of manufacturing experts into the ODM factories to manage execution.
Encouraged by the success of this hands-on style, Apple got bolder and ventured deeper into unique production methods and technologies. A good example is its adoption of CNC machining. The traditional laptop computer chassis frustrated Apple. With its fairly complicated geometry, the only feasible way to mass produce them appeared to be screwing on or gluing together five to 10 individual parts. The problem, of course, is that with each additional part, production tolerances mounted. Squeeze a traditionally made laptop and you will hear it squeak.
Apple looked for an alternative way to make the chassis and came up with CNC machining. It was a fairly slow and expensive way of making small volumes of highly precise parts. Or at least that was the conventional thinking. Apple defied this thinking, adopting CNC machining to produce high volumes of unibody chassis that are in every MacBook, iMac, iPad, iPhone, and Watch produced today. The trick was to turn a small-volume technology into a mass-production process. Apple spent several consecutive years purchasing almost the entire worldwide production of CNC machines. Today, the machines are installed in Chinese factories owned by Foxconn and its competitors, providing Apple with a considerable edge.
Everyone knows that Apple has significant demand power. What many people don’t know is that Apple rarely just pulls the commercial lever to squeeze suppliers on cost. In fact, some suppliers compare working with Apple to signing on with the U.S. Navy Seals. “Apple’s supplier executives are extremely demanding, but at the same time they know exactly what they are doing,” explains a supplier. By working with them, we have made such progress that it will help us tremendously when competing for business elsewhere.”
Apple illustrates what can be achieved when the CEO understands procurement and the CPO thinks like a CEO. Finding a Tim Cook clone at the helm of an Apple-like company will not happen anytime soon. Then again, cloning Cook is not necessary. There are numerous enlightened CEO-CPO combinations working their magic at companies around the world. We know this because we work with them every day, helping to deploy our Purchasing Chessboard. These companies are doubling their savings on average and getting game-changing value from suppliers.