UK and US finance leaders on the role of Procurement in the business

The April 2020 Proxima Finance Leaders Outlook report, a survey* of CFOs and financial directors in the UK and the US, also has some interesting insight for procurement. It asks finance leaders about: geo-political developments and economic outlook, the use of data, technology and AI within business planning, talent and skills retention and acquisition, environmental sustainability and ownership and, interestingly for us, the role of procurement from the Finance perspective.

The survey produces five ‘insights’ which you can read about here, one of which is focused purely on procurement and finds that “the majority (of finance leaders) believe that the procurement function is ‘imperative’ for a financially successful business.” But when we look at the supporting numbers, they are not as high as we’d hoped. When asked about the role of good procurement in the financial success of their business, 54% of UK finance leaders and 55% of US leaders stated that it is 'imperative,’ and 44% of both UK and US leaders think it is ‘quite’ important. So, while it’s a majority, it’s not by very much, which is disappointing for procurement.

While finance leaders generally do think procurement should be measured within businesses against ‘revenue generation,’ finance leaders in both the UK and the US are most likely to describe procurement as a ‘savings delivery function,’ although 68% of UK and 62% of US finance leaders do value their procurement function in making their own ‘working life easier.’ That’s better, but what about the other third of finance leaders? Where does procurement’s value lie with them? And what can procurement do to improve it?

We wanted to know a bit more, so we had an interesting chat with Edward Winterschladen, Proxima’s Executive Vice President for Europe.

“Clearly,” he explained, “it does depend on what industry the business is in, but many firms we’ve spoken to recently still do see procurement as transactional and the risk monitor rather than the value driver. Procurement is still very much the processing engine that makes sure the business is doing the right thing: using the right supplier, using the right processes, ensuring the right contracts are in place, making sure the business remains legal and compliant and maintains control” -- all of those things are important of course.

“Where we see procurement making a difference, and it’s an area that the report leans towards, is in the indirect space. Here procurement is seen more as an enabler – take retail for instance. Bad customer experience has a direct effect on the brand. So if the lifts or tills don’t work (the indirects) they will have as much impact on the customer as the direct procurements in this space.”

“Of course, the perception of procurement has also changed somewhat in this time of crisis. The CPOs we’ve spoken to believe procurement has been thrust right into the eye of the storm. Now they are central to helping organisations shut down supply chains, and do it fast. It is procurement that will keep the supply base informed and maintain relationships for when they need to restart operations. How we treat our suppliers now will put us in good stead on the way out of this crisis – because in some respects it’s harder to re-start a supply chain than to close one down."

So procurement has had to step up to the mark in a period when decision times and communication times have been shortened, and its working relationship with finance has become more critical. The bigger question now is, how do we maintain that?

So this is where we go back to the question of – what about the other third?

“They are the biggest challenge,” says Ed. “These might be the smaller firms, where procurement is not well enough invested in or well enough resourced. This is where procurement must ask itself: what am I here for? Is it to save money and report savings, reduce supplier numbers or transaction costs? These are not the best KPIs and are not what excites procurement professionals. What does excite them is driving the front end of innovation. We have seen procurement’s greatest successes come from pushing the boundaries – but – not just with finance. The way for procurement to achieve status is to build advocacy across the whole of the business. Finance alone is not the success factor.

That doesn’t mean to say procurement should not report into finance, they are the only other function with weight and visibility across the organisation. But neither should they be their extended arm. Procurement needs to go out to the business functions and communicate how they can help, other than just lead with cost savings. They need to understand business requirements, give insights and help drive the digital agenda. In fact, our sense right now is that procurement has a once-in-a-decade chance of leading the digital transformation agenda, as they will meet very little resistance.”

How does procurement address the traditional friction with finance?

“The biggest point of friction between finance and procurement has been trust in the numbers. The mistrust comes where procurement reports savings without validating where they have come from. Procurement needs to be realistic about what the value is that they are delivering, make sure it is consistent and that everyone is aligned. Transparency and openness is critical now, as it’s the only way we can plan for whatever happens next as we emerge from this crisis, as firms have mostly done their crisis planning and now need to form their exit plans.

What we have seen work well, and is becoming more common practice, is where finance has a dedicated business partner that works alongside procurement. There is a lot more rigour in procurement nowadays, in terms of technology that drives governance, process consistency and especially the data that delivers insights and visibility, so if procurement could make a bigger play for that technology, they would be much better placed to work with and help finance, and build that trust.”

“One thing is for sure – we have been pushed into a new way of working, with working practices that reduce our carbon footprint and teach us that actually we can work well digitally, the trick is to make sure we keep the good things going as business returns to normal.”

 

 

* The survey was carried out between February 13 and 21 2020. The UK sample comprised 502 UK-based CFOs / FDs of UK-based companies employing 100+ people; the US sample comprised 501 US-based CFOs / FDs of US-based companies employing 100+ people.

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