Alignment between finance and procurement seems a natural enough partnership as there is cross over between metrics, numbers and processes. However, for procurement to build a strong alliance with CFOs, Treasury and Financial Control, CPOs and their teams must not only be able to put themselves in finance’s shoes and support their objectives but also go beyond the numbers. CPOs need to consider consumption, delivery and quantity, and have the capability to impact strategy by suggesting ‘what is really needed’ to achieve an outcome.
So how can CPOs and CFOs move towards such an alliance?
The roots already exist! Procurement must build on today’s leading strategies: a category manager could team up with a financial analyst, the two of them working towards and tracking savings-approaches and commodity-level bookings. Moreover, an analyst, working in tandem with a category lead, could suggest ways of reducing volatility and risk through hedging, treasury and related strategies that go beyond the traditional siloed approaches we see today.
Such activities might also include working to develop longer-term ‘off-take’ agreements with suppliers at lower tiers in the supply chain or perhaps working with raw material suppliers. A more collaborative approach could see procurement and finance jointly taking ownership of forecasting as well as developing intelligence regarding when and how specific correlations may break down.
For finance’s perspective, while they continue to play a key role in expanding the influence of procurement into areas where it is greatly needed – think professional services, capital equipment, facilities and healthcare – the joined-up ProcFin team can go further in opening up new avenues such as the involvement of procurement in M&A due diligence and post-merger integration.
A commercially astute and analytically robust team can come together to deliver to the organisation and at the same time influence organisational strategy with the aid of innovative procurement-led programmes to bring competitive advantage to the business.
For example, if procurement were to collaborate with product engineers not simply to streamline specifications regarding cost and availability, but more broadly taking on risk, performance and even market dynamics.
How can you do this?
Your journey may start by CXOs looking to build trust within the business. For example, the CPO might extend an empathetic hand and an open mind to work with spend owners to improve business outcomes by an exploration of the ways that demand specifications, buying decisions and supplier engagement activities are carried out.
Or perhaps it will start with the CPO presenting themselves as the go-to-person for risk management activities. The CPO would be financially fluent and able to converse with colleagues regarding commodities, currencies, political/regulatory and other emerging areas of risk. They would do this with a view to both opportunities and threats.
Whatever happens, procurement must step up to the challenges businesses are now facing. It must develop a mind-set that incremental changes won’t cut it and that it must earn the trust of the business to fully succeed.
More than anything else, procurement’s horizon must go far beyond the thinking of today; it must leverage creativity and knowledge; it must have an eye to the change needed within, and an eye on its obligation to the business.
We are talking about an elite group. We are talking about procurement which must transform itself and in so doing transform business capability. It must do this now or die.