What does Finance Think of Procurement?

CFO Research Services recently produced a white-paper on CFO’s Views on Procurement – Information, Risk, and Money, sponsored by Ariba, that had some interesting insights on how some top senior finance executives view the procurement function.

The following are the points that I found most interesting in this 20-page study:

  1. improvements in cost management & decision support capabilities
    top the finance agenda
  2. companies see the greatest opportunity in managing external spending
    on production inputs and on indirect costs
  3. executives see greatest benefit from sourcing goods through preferred
    vendors and improving supplier interactions
  4. finance executives say their companies are unable to gather timely and
    accurate information on purchasing activities and have poor forward
    visibility on spending
  5. relationships with vendors are managed with combinations of technology
    and manual processes
  6. purchasing systems are not a cure-all, but companies that have adopted
    technology are better able to take full advantage of preferred providers,
    to find opportunities for savings, and to gather and use information;
    furthermore, in adopters, there are sustained differences in executives’
    views on the effectiveness of the procurement function and the quality
    of information that flows out of it
  7. many respondents cited a need for greater coordination and integration of
    the procurement function with the rest of the company
  8. some respondents noted the lack of an optimal sourcing strategy given a
    complex supply chain as well as difficulty with proper pricing, volume
    discounts, and vendor communication

These give me the following take-aways:

  1. Finance, even though they might not yet understand the procurement function in many organizations, can be convinced of its importance.
  2. This bodes well since Aberdeen’s recent Direct Materials Sourcing Study found that companies with best-in-class direct materials sourcing programs can achieve 28% year-over-year cost reductions and services like Rearden Commerce and Noosh are popping-up to tackle various aspects of indirect costs
  3. This only emphasizes my points that you need to:
    Collaborate, Collaborate, Collaborate, Collaborate
    Collaborate, Collaborate, Collaborate, Collaborate
    Collaborate, Collaborate, Collaborate, Collaborate
    Collaborate, Collaborate, Collaborate, Collaborate
  4. This demonstrates the need for e-Procurement across the board.
  5. Companies need to invest more in Supplier Relationship Management and Collaboration Systems to increase productivity.
  6. This demonstrates the need for e-Sourcing across the board.
  7. The importance of center-led procurement and cross-functional collaboration emerges as the crystal ball clears.
  8. Great supply chains require Total Value Management and Best-Cost Country Sourcing at their foundations.

And even though the final page from the sponsor, Ariba, was mostly marketing, I have to agree when they state that The survey results are a powerful proof point that elevating the procurement function and its processes and information is critical to creating strategic business advantage.