Strategic Procurement: A CFO's Guide to Getting There
Tuesday, 19 Sep 2017
What do we hear from procurement professionals all the time in the industry of Procure to Pay? “Help me be more strategic” or “I want to demonstrate the value of procurement” or “Give me the tools to practice strategic procurement” or “How can I influence the big decisions being made?”
The good news is, there is a way to make these things happen – but you must be keenly focused on two things: data and analytics.
Get Perfect Vision with Complete Data
To even think about being strategic, there’s no way around it – you must tap into your company financial data and that data has to be comprehensive and clean. To build the complete data set, you must get 100 percent visibility over enterprise-wide spending with:
- 100 percent of your e-procurement users funneling all indirect spending through the e-procurement solution
- 100 percent of invoices, both direct and indirect, being processed through the AP automation solution
- 100 percent supplier on-boarding to ensure all invoices are being converted to e-invoices, regardless of supplier sophistication.
Layer this data with the power of analytics to quickly glean actionable insights and you’re ready to build your strategic procurement team, enabling everyone to see clearly to make informed decisions.
1. Support Working Capital Strategy
Keep Your Eyes on the Prize
As a CFO, I firmly believe that for both Finance and Procurement to be successful in achieving organizational goals, there must be strong collaboration between the CPO and CFO. The unique talent that exists in these functions needs to be leveraged to build and analyze the full financial profile of the company and see the possibilities for the future. From my perspective, CPOs can foster this collaboration and create a strategic procurement team that has their eyes on the prize by doing these 3 things:
53 percent of organizations use payment terms as a strategic lever to manage cash flow.1 As the owner of supplier relationships, Procurement is in a unique position to support Treasury in the management of working capital by negotiating advantageous payment terms with suppliers. Procurement can help the company keep cash on-hand longer by:
- Working with large suppliers to extend payment terms and pay later.
- Managing the long tail of the supply chain through a virtual card payment program that enables suppliers to get paid quickly, while the company pays later.
By working directly with suppliers to arrange the right payment terms for the company while benefiting the suppliers, Procurement ensures that Treasury can accurately forecast cash flow, properly invest in growth areas and optimize working capital overall. Supplier relationships also improve as financial volatility is minimized for suppliers, reducing risk in the supply chain. Additionally, a strategic procurement organization can generate a new revenue stream through virtual card payment programs that offer cash back.
2. Use Innovative Technology to Control Costs
Generating cost savings has always been a part of traditional Procurement, but now more than ever CPOs have access to innovative technology and advanced analytics to support these efforts. For example, artificial intelligence built into e-procurement solutions can continually scan procurement data to alert Procurement to savings opportunities like consolidating orders for bulk purchasing, better rates offered by different suppliers, reducing off-contract and rogue buying, optimizing inventory carrying costs and reducing other areas of wasteful or unnecessary spending. CPOs can also give approvers the ability to see how orders affect their budgets in real-time and educate other departments on ways they can make the most of those budgets – spreading the procurement talent across the company to help everyone. Suddenly, Procurement goes from being seen as the spend police to a helpful, collaborative arm of the business. Procurement professionals can also use automation tools to run strategic sourcing events to quickly identify and collaborate with the most cost-effective partners. With the right source-to-pay solution, Procurement is better positioned to quickly save costs and free-up time for more strategic initiatives.
3. Develop the Right Talent
To achieve a strategic procurement organization, CPOs need to ensure they are developing and acquiring the right skills within the procurement department to focus on data analysis. Strategic procurement organizations steer away from a focus on squeezing cost savings out of suppliers and are moving to data-based decision-making that pivots the business one way or another to get ahead. According to Gartner, “the emergence of machine learning and AI is introducing the need for analytical skills and an understanding of data science and technology.” With rule-based and tactical activities becoming increasingly automated, the skill set needed in Procurement will involve working within that complete data set every day to derive the right insights for strategic initiatives like, right-sizing the supply base, spending smarter, reducing risk in the supply chain, improving supplier relationships and properly maintaining supplier data.
If CPOs stay focused on these areas, they will be able to realize their goals for strategic procurement and the perception of Procurement across the organization will change. If there’s one thing to take away from this article and my perspective on strategic procurement, it’s that you must set your sights on the data flowing through your organization in order to be effective.
See the Light
At Basware, our customers and their suppliers transact over the world’s largest open business network. That means we’re aggregating data across millions of financial transactions, creating an unmatched data set and layering that information with a powerful out-of-the-box analytics suite. If you’re ready to see how this data can make you more strategic, reach out – we’re ready to help.
This blog originally appeard on Procurious.com.
1Research Report: Creating Payment Energy, MasterCard & Basware