Top Tips for Effective CPO/CFO Engagement 

We are delighted to feature this guest post from Omer Abdullah, Co-Founder and Managing Director of The Smart Cube, professional services experts specialising in procurement, analytics and research. 

CPOs and CFOs make for natural allies, given the inherent overlap in their priorities and financial responsibilities. What can the CPO do to ensure they can align as closely as possible to the CFO? In my discussions with CPOs across different industries, there are some strong commonalities that help strengthen the relationship with the CFO, here are some top tips from my professional experience and learnings:

Engage with the finance team early in the strategy and goal-setting process

Agree on the procurement performance scorecard. It is important to look beyond the traditional savings-related metrics and focus on total cost, performance and innovation, with some areas of suggested focus, such as:

  • Illustrate the alignment of procurement activity and performance with the business strategy. For example, Environmental, Social and Governance (ESG) factors are also increasingly important for many businesses – in particular, those that outsource large components of their operations need to stay on top of their supplier base (across multiple tiers). In fact, organisations need to be as concerned about what their suppliers do as they are about what they do themselves, and the CPO is in prime position to influence and control that – an important factor for many CFOs as they control the risk register. The CPO can also manage vertical specific requirements, for example meeting and managing health standards in life sciences.
  • Feedback market/supplier insights relevant to the overall competitive and corporate strategy. The CPO can provide greater strategic insight to the CFO, driving a lot more value rather than simply delivering the lowest unit cost. For example, CPOs look not only at the costs of a category, but also assess the types and capabilities of suppliers, what they offer, as well as what level of innovation they can bring into the business.
    • One such area where the CPO can focus is supplier-enabled innovation (SEI). With 25-45% of revenues coming from product innovation and up to 65% of innovations sourced externally through external partners and suppliers1, SEI is of increasing importance for financial growth.
    • There is also a 40%2 faster route to commercialisation for externally sourced innovations, helping companies stay ahead of the competition in ways that would be more difficult to deliver from a purely internal approach. SEI also helps companies gain faster entry into new markets and get into them rapidly by leveraging the expertise and IP from their partners.

The CPO needs to ensure the overall team has the right quantitative depth and analytical capabilities to extend the reach of procurement into the business

They also need to be able to speak the right language to work well with the CFO and their teams.

  • This could be a hybrid in-house and outsourced team – with the internal team bringing company knowledge and strategic depth and the external team delivering specialist depth in areas such as data analytics, customer category insights, and tools and technologies. Working with third-party partners can enhance your internal team to get the right blend of expertise and skills, which can also add real value to the CFO by bringing the outside world in more effectively.

Look for innovative solutions to upscale procurement performance and credibility

Get solid, insightful visibility of spend using granular spend analytics, and moving to predictive spend outcomes is ever more important. Forecasting and providing a future view, taking different risk scenarios into account, is paramount for strategic planning - look at the current global tariff wars and the impact on global supply chains.3

  • The tools and technologies available to the CPO also provide greater scope to support the CFO in wider business demand management. By showing specific, targeted category spend insights, the CPO can provide consistent internal benchmarks and a deeper understanding of the cost drivers to ensure effective demand management across a business. In other words, not only lower total spend, but also more efficient and effective spend.
  • One growing area is patent research and analysis, which can be used as a key business tool for making procurement, and strategy-related decisions, a catalyst to derive dynamic insights, from early indications about future strategies of competitors or suppliers, to innovation trends within a category, or new product development and market entry.
    • For example, tracking suppliers’ patenting activity can help save direct costs, either by renegotiating lower price points for contracts with suppliers whose products are going off-patent or by restructuring the supplier base wherever the procured products are likely to get patent protection. In addition, it enables more informed engagement with suppliers, rather than simply a one-way relationship.
    • Ensuring you are aware of all aspects of a supplier’s business means you can identify potential areas of mutual interest and collaborative innovation opportunities, thus driving new value.

 

1 Source: Institute of Supply Management Presentation at ISM2017, https://www.instituteforsupplymanagement.org/files/2015/Conference/ISM2017_Presentations/AC_ISM2017_ShantanuDas_FINAL.pdf
2 Source: Source: Institute of Supply Management Presentation at ISM2017, https://www.instituteforsupplymanagement.org/files/2015/Conference/ISM2017_Presentations/AC_ISM2017_ShantanuDas_FINAL.pdf
3 Source “US-China tariffs in charts: global supply chains at risk” – Lucy Hornby and Archie Zhang in Beijing, July 5, 2018, The Financial Times

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