Friday Rant: The Finance and Procurement Disconnect

Earlier this week, Phil Fersht (of Horses for Sources), invited me to join him for a panel discussion at SSON's Finance Transformation event. I was the "procurement" representative on the panel -- others included a general BPO practice lead for a large global firm and a VP of Sourcing (BPO/Captive sourcing, not sourcing as we think of it on these pages) for a bank. Aside from having to relearn a ton of jargon to effectively participate (e.g., "achieving process optimization before moving to value-add"), I was stricken (based on reading the audience of F&A types and a few quick discussions with attendees) by how few grasped the nuances of key procurement aspects and cost savings approaches. Many seemed stuck in the mindset of what originally led to the misalignment and occasional failures categorizing many early procurement BPO attempts built out of shared services and often offshore-focused ideals.

Granted, I think the offerings of procurement BPOs have changed significantly, evolving in many ways with the needs of procurement. But it seems that the typical F&A mid-level to executive manager still misses out in the importance of prioritizing sourcing-driven cost reduction, total cost sourcing, savings implementation, compliance, and vendor management as the key areas to focus on in such an engagement. Along similar lines, it also appears to me that the "operational efficiency first" argument is still alive and well in this group, especially for those who continue to look at procurement as a function rather than an exceptionally powerful cost lever.

What can be done to bridge this finance and procurement disconnect, especially in procurement BPO? I honestly think supply chain and procurement style boot camps would go a long way to helping the cause. Imagine a week long session with professors such as MIT's David Simchi-Levi, who gave a very elementary but nonetheless useful introduction to both SCM and sourcing principals at Procurement Leaders yesterday (ironically, this was not the audience that needed it most -- that would have been the SSON audience the previous day).

By introducing (and more importantly, illustrating with real world examples) concepts such as total and landed cost management, supply risk/contingency planning, supplier collaboration/cost take out and commodity hedging for volatile markets, teachers like Simchi-Levi could open the eyes of controllers, treasurers and finance shared-services/sourcing types -- not to mention some behind-the-times CFOs -- about the true impact of procurement on the business. I fear that without such an intensive introduction, we'll continue to see BPO decisions made for the wrong reasons, a continual failure to implement identified sourcing savings, growing compliance gaps and rising supply risk, not to mention an awful lot of money spent on software where only 20% of the value is ever realized.

Jason Busch

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