Strategy

CFOs Need Procurement as Their Right-Hand Man. Here’s Why.


by FEI Daily Staff

CFOs who want to get ahead of the curve should look to sourcing and procurement to guide the business both financially and operationally.

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Finance is a driving force behind any successful business — and the CFO is the crucial leader at its helm, steering operational strategy in a direction that maximizes value for the organization. With the digital revolution, finance has a whole new set of opportunities to take advantage of. According to an Accenture study, the finance function can make a “profound impact” on its performance by exploiting digital technologies.

Despite this, many finance teams still lag behind in this department. A recent Harvard Business Review (HBR) report, created in partnership with Scout RFP, found that enterprises aren’t taking advantage of digital technologies in nonconsumer-facing operating activities. CFOs who want to get ahead of the curve should look to these activities – particularly sourcing and procurement – to guide the business both financially and operationally. Here’s how:

Expediting savings

Generating hard savings is great. Generating those savings at an accelerated rate is even better. As finance leaders turn to procurement for hard-dollar and soft-cost savings – which, as the HBR report points out, will ultimately drop to bottom line – procurement has the ability to expedite those savings through a more strategic approach to vendor relationships.

Companies can drive these savings by honing in on more efficient internal sourcing practices, cutting down on time-consuming manual processes. These increased efficiencies can have a big impact on the ROI that finance leaders see from strategic sourcing. It’s important to note just how significant these returns can be: Enterprises identify returns of up to ten times their original investment from strategic sourcing processes, according to the HBR paper.

Improving outcomes

The remit of procurement is growing, as Neil Aronson, head of global strategic sourcing at Uber Technologies Inc., points out in the HBR report: “It’s not just about cost savings—which was the traditional mind-set of the procurement function. It’s about continually improving and reevaluating how we’re buying to make sure we’re getting the best outcomes.” By recognizing (and harnessing) what procurement brings to the table, finance leaders can dramatically improve outcomes for the entire business.

While ‘business as usual’ sourcing may see significant returns for individual departments, ‘big picture’ sourcing will have a significant impact on the entire on the entire business. As Dean Edwards, vice president of global strategic sourcing at Levi Strauss & Co., notes in the report, strategic procurement oversight is key. Individual teams engaging in overlapping sourcing activities on separate fronts can waste valuable resources, but strategic oversight from procurement allows for the pooling of those resources. This in turn creates more impactful vendor relationships for the business as a single unit.

Solving business problems

CFOs should also look to procurement for a fresh perspective when it comes to solving business problems. Due to its far-reaching nature (procurement departments are involved in most, if not every, department in the organization), procurement is uniquely positioned to see and understand departmental and overall business needs. This gives CFOs a more accurate look at what technology and processes will be most beneficial in the long run.

The need for a future-focused perspective when making long-term internal strategy decisions is especially important to ensure high ROI on each investment that a CFO makes. As the report stresses, “This can be particularly important in extremely fast-growing organizations that need to move quickly to find innovative solutions for an ever-changing constellation of business needs.”

For procurement departments with a core focus on strategic decisions, their efforts can drive up to 400 percent ROI, according to the HBR report. As the CFO role evolves, it is more important than ever for finance leaders to acknowledge this potential and tap procurement as a right-hand man to guide the business to a successful future. After all, CFOs only have benefits to gain from accelerated savings, a deeper enterprise perspective, and fresh eyes on business problems.

 

Andrew Durlak is co-founder and VP of operations at Scout RFP.