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CFOs want value

June 16, 2011

Today I presented at a conference for Chief Procurement Officers in Milan. One of the most interesting sessions was a panel of Chief Financial Officers sharing their views and opinions about Procurement.

A recurrent theme was that they believe Procurement needs to partner with Finance to generate value and to support business strategies, not just to cut costs. Each of the CFOs expressed some disappointment in the readiness of procurement to be more rigorous, to ‘do the right thing, not just the easy thing’. They suggested some key questions that need to be asked, such as:

– is the supplier an asset to our company?

– is Procurement providing realistic budgets for supplier payments and do they understand supplier cash needs?

– is Procurement hiding behind rules and process, rathe than exercising good judgment?

One of the panel members discussed the ‘red ocean, blue ocean’ approach, where the red ocean is the ‘traditional battleground approach’ and described how his company had used the recession to better evaluate suppliers, to understand that there was no point asking them to give if they are struggling more than their customer.

The conversation highlighted the importance of Procurement looking at potential from internal efficiencies and lowering the cost structure threshold. The panel felt that CPOs must ensure increased interactions with operations ‘to achieve a quantum leap in performance’, but acknowledged that ‘Procurement has been so tactical for so long, it is a lot to ask that they suddenly become strategic, that they suddenly master the skills of reengineering and process redesign’.

The importance of relationship management was also stressed and they built on my presentation that had advocated a shift to achieving better outcomes. This change demands greater creativity and an end to ‘short-term savings’ as the primary goal. But to gain confidence from the CFO, ‘Procurement must be a better partner, we need them to develop more in-depth projects which they commit to management’. The panel urged greater investment in human capital and a readiness to developing ‘more specific savings targets which they share openly with suppliers and involve the supplier in creativity to reach those goals’.

One questioner suggested that a way forward is to appoint more financially literate CPOS, perhaps people with senior finance experience. But while the CFOs felt that some job rotation is beneficial, they did not agree with appointing senior finance executives to the CPO position. “That would simply reinforce the role’s relationship with a focus on price, with a ‘cash early, pay late’ mentality”, observed one. “What we really need is new insights, new ideas and leaders with the courage and imagination to propose new KPIs for their function.”

“I would welcome joint work to look at the right KPIs”, confirmed another. “My door is open for that conversation”.

In a note of some irony, the CFOs agreed on the importance of category management and the extension of Procurement’s oversight of all spend relationships. “So do you have Procurement negotiate rates with your banks?” one delegate asked. “No”, was the universal reply. “They have some way to go before I would trust them to do that”.

2 Comments
  1. Another spot on post Tim. It is vital for procurement to act as a partner of finance, supporting business strategies – more than just cutting costs. Your note about “Procurement has been so tactical for so long, it is a lot to ask that they suddenly become strategic, that they suddenly master the skills of re-engineering and process redesign” again is spot on.

    We all talk about becoming more strategic yet our behaviours often fall short of our words – this is not to say we haven’t tried. Anyone working in indirects/GNFR/Non-core procurement will tell you that they are under-staffed, under-invested and generally under-stated as a function within the greater business. But could this be a fallacy of our own doing?

    CFOs are beginning to look to procurement for insight across their entire business expenditure. In many cases, they are also looking for advice and leadership on budgeting more strategically, reducing risk, encouraging innovation, improving service levels while keeping costs low.

    In a recent post in our Redefining Procurement Series (http://info.buyingteam.com/buyingBlog/bid/51273/Redefining-Procurement-Series-Becoming-a-Great-Leader) we discuss this very notion of procurement leadership in more detail.

    Ultimately, the question remains, does procurement have the right skills to take on this leadership role – or should the business look externally?

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  1. It’s The Long Game – Collaboration Between CFOs and CPOs Drives Real Savings | The Amplifier blog

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