Spend Matters welcomes a new guest post from Marie Meliksetian, Managing Director of Procurement Outsourcing Services, North America at Xchanging.
“Whether in operations or corporate activity, whether you’re looking at the procurement of materials or logistics or services, the collaboration with finance can make or break a relationship.” – Les Ball of Eaton Corporation
It is common knowledge that CFOs and CPOs share similar goals within the company. They are both tasked with responsibilities around increasing cash, cutting cost, and enforcing compliance and business control to reduce risk. The two titles have a laser focus on achieving savings, monitoring, and controlling risk while leveraging technologies and processes for greater transparency and value. Working hand in hand, procurement and finance can garner more meaningful results at a higher level that still encompass effectively cutting expenses, streamlining transaction costs, and mitigating potential liabilities.
So why do CFO and CPO relationships continue to take a back seat? Communication and engagement gaps are the top two roadblocks that I’ve observed over the years of working with various corporations.
Communication – Speaking the other’s language is essential. For those in procurement, having metrics, precision, and general financial acumen in preparation for meetings will improve the results and general working relationship. When skill shortages are identified, finance may also be willing to help build those skills – improving capabilities and learning to work together at the same time.
Engagement – Depending on the company’s maturity, CFOs often work more closely with other business units. To their detriment, too many companies continue to see procurement as a simple purchasing organization that places orders and negotiates the price instead of a strategic sourcing organization with industry knowledge and commercial capabilities. As such, the business units continue to fill the role of the sourcing and procurement organization, especially in the area of indirect procurement, under the pretext that procurement is not qualified or lack the industry experience to handle business category strategies. Accordingly, this type of business model encourages the CFO to work more intimately with other business units (i.e., CIO, CMO, HR, etc.).
Not all is lost, however, and there are steps that the executive suite can take for closer collaboration between CFOs and CPOs.
- Consider having CPOs report to the CFOs. There is finally a shift taking place where more companies are bringing both departments together. This positions the CFOs to have necessary orientation and responsibility to the procurement targets, related savings, and compliance management.
- Engage in regular reviews. Reporting is not sufficient to creating a closer relationship between CFO and CPO. Dedicated and regular interaction around common objectives and metrics should be part of the calendar throughout the year for performance success. Part of this includes engaging the other business units to get buy in across the board and assign focal points from each to review and approve outcomes.
- Assign procurement focal points that can speak the finance language. This will allow a better and stronger benefit interlock for a common objective—higher rate of earnings, improving working capital, etc.
- Develop and agree on common savings measurements. Having a pre-agreement on savings definition and measurement model is half the battle fought in regards to communication, collaboration, and consistency.
- Work together to develop company policies. Manage and measure compliance across business units and target offenders. Set up a rating system that compares company processes as they are against the goal policies and work towards improving ratings to meet policies for clearly defined success.
A collaborative CFO and CPO relationship amounts to many gains and overall, a stronger company that is more prepared to thrive in today’s marketplace.