Procurement in 2020: A New Financial Performance Expectation and Measurement Standard

Procurement and finance misalignment is as old as the practice of a CFO asking a buyer or purchasing director to go “get savings” in the business. The measurement of success (e.g., identified savings vs. budget impact) continues to be a thorn in the side of many companies that have not thought through all of the necessary elements of stakeholder alignment and savings implementation. In the Deloitte paper, Charting the course: Why procurement must transform itself by 2020, the authors suggest that there is much greater expectation today for procurement to create alignment with finance.

This includes both “a broadening alignment of procurement metrics with shareholder metrics: EBITDA, OIBDA RONA, ROIC, etc.” and “an increasing focus on total cost management and a signing-off on baselines to measure returns and performance.” Visibility and insight also factor into the priority measurement equation today with “analytics-informed reporting and decisions” playing a role in finance collaboration and engagement with procurement.

Yet by 2020, Deloitte expects that an even larger set of finance and procurement collaboration expectations will factor into play. These include “procurement gaining a seat at the tactical financial strategy (e.g., M&A, divestiture, JV, capital expenditure, etc.) table on equal footing with corporate development, sales, marketing, operations leadership, etc.”

Just as important, finance will also recognize and become better versed in procurement, going so far as to include “procurement contribution to revenue, margin, innovation alongside sales, pipeline and related metrics” in quarterly and annual reports as well as having the CFO “versed in detailed procurement activities” to answer questions of shareholders, customers, and the market.

This shift is more than nuance – it places the need for finance not only to depend on procurement savings and see line-level detail hitting budgets, but also for company leadership to be able to articulate and explain the value of procurement to the business, just as they would specifics of new product introductions, R&D pipelines, joint ventures, and other market moving activities.

This post is based in part on content from Charting the course: Why procurement must transform itself by 2020. If you’re interested in learning more about how analysts see the future of procurement and supply chain, register for our upcoming conference, Commodity/PROcurement EDGE

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