In this ongoing series, we’ll share some insights on our snap poll conducted with the Institute for Supply Management on procurement and finance alignment. As we wrote here and here on the topic, the idea is for procurement to not placidly accept a narrow operating model that destroys value and keeps procurement and finance in their respective silos, but rather to make spend management a jointly managed process where both groups influence and enable each other as true partners. This series is not about procurement bashing finance.
Like any good relationship, partners must communicate their needs. If one partner is not willing to hear the other partner and accept the relationship as a partnership, then the relationship will be strained, and outcomes will degrade. Each partner can come from a different planet as long as they can understand each other and appreciate the diversity. In fact, we’ll show how better spend management outcomes are associated with higher procurement/finance alignment on various dimensions. The relationship is 3-pronged:
- How procurement can support finance’s objectives
- How finance can support procurement’s objectives
- How both groups can work together as part of an effective joint service offering to the business
A firm really has to do No. 1 and No. 2 if it wants to do No. 3. So, we’ll focus on all these, but with particular emphasis on Nos. 2 and 3. To use a popular culture metaphor, take the movie Jerry Maguire and the following quotes:
- “Show me the money!” is finance’s cry to see hard cost savings of any sort – with headcount reductions or reduced purchase prices. But, procurement needs to not just advocated for itself, but push for a more balanced scorecard of supply that includes all metrics that meaningfully increase profitable growth and a brand multiple – even if realized outside a fiscal calendar year! Procurement must not only take a leadership position in total cost management, but also help finance do the same, which leads to the next quote….
- “Help me … help you.” There are countless studies citing CFOs saying they don’t necessarily believe procurement savings claims or see the results drop to the bottom line. This isn’t a big secret – and procurement groups are more than willing to admit it. However, ever wonder why that savings visibility and tracking (and related spend/contract visibility) is not in place? Do you have the right investment and tools? Do you have effectively policies and data standardization? Is the spend management operating model effective? If you do some root cause analysis, you’ll find that the effectiveness of procurement value realization is strongly statistically correlated to these factors being in place. We’ll get into that later in the series, but the biggest thing here is to get procurement and finance having real conversations about what they need from each other and how to help each other. Just doing that will help identify common objectives that lead to aligned improvement initiatives to jointly create change.
- “You had me at hello [savings].” OK, I added “savings” in there, but if procurement is generating greater than even the average 6X procurement ROI realized by our study population, and if nearly 60% of these same firms are having their savings validated, finance is leaving huge money on the table by under-investing in procurement resources – even if contingent resources of any form are applied. And this 6X is likely understated based on the savings assumptions being used, which we’ll get into later.
- “You complete me.” Can finance really perform good spend management without procurement – especially given the slow and steady march toward outsourcing (broadly defined)? Can FP&A groups really do their jobs without effective spend planning data (future looking views on demand, input costs, price/availability risk, risk mitigation factors, etc.) for indirect spend and supply planning for direct spend? Hint: The answer is no. Yet go to any FP&A conference and all you will hear is talk about rolling forecasts, getting off spreadsheets and so on. On the flip side, can procurement really perform proper spend management on external spend when the overarching spend management process for “big spend management” (i.e., all spending) has some fundamental challenges (e.g., “use it or lose it” spend policies)? Again, the answer is no.
It’s time to put a cost to this dysfunction and stop the madness. We did – and we will (or at least will try to help you do the same). Stay tuned for more – much more!
If you’re a practitioner and would like to participate in the study and get the Full Monty results when the study is done in a few weeks, here is the link to participate (if you do the full study, you’ll also be entered into a drawing to win an Apple Watch or 1 of 10 monthly subscriptions to Spend Matters PRO. With only about 100 full study participants so far, your odds are decent!).
And if you like what you’re reading, please consider subscribing to Spend Matters Plus (and ISM of course!) so that you can help us help you solve some of the systemic problems that are plaguing supply management professionals and their enterprises.