Working from home due to the COVID-19 crisis is disorienting for most of us, and yet we see one bright spot emerging from it: The opportunity to automate critical operations online to replace time-consuming, manual tasks.
Let’s face it. Now that most of us are forced to work from home our challenge becomes more critical than ever to create seamless, online communication to outline certain ongoing priorities with our colleagues and employees. For example, finance and procurement teams follow common priorities, many of which can be aided with automated applications (see Figure 1).
Figure 1: Chief Finance Officer and Chief Procurement Officer Priorities
CFO data1 CPO data2
For both teams, most chief financial officers (CFOs) and chief procurement officers (CPOs) consider those priorities critical for the coming year and expect goals for the current year to be met on time regardless of the shift from working onsite to home.
So, it’s highly likely that managers in your organization know that they must rapidly create new ways to work remotely from home that are just as effectively as before.
Research shows that even before the COVID-19 crisis, these leaders had ranked the following three priorities among their top 10 choices:
- Reducing costs,
- Managing risk, and
- Increasing cash flow
All three will be very critical in effectively recovering from the impacts of COVID-19 on our businesses.
But despite having these common goals at heart, procurement and finance teams are still not well aligned. The ATKearney and CIPS report titled Building a Bolder Legacy, showed that ”…within the CFO and finance community, 71 percent report that procurement lags most functions in terms of the rigor and depth of performance tracking. Only 20 percent report that their procurement organizations have very clearly defined, well understood, and widely respected performance metrics.”3
Furthermore, about 60% of CFOs believe less than 50% of procurement reported benefits could be realized (assessed as profits or profitability gained), or even worse they believe procurement is uninformed about what was (or could have become) realized benefits.
After doing some digging, I think you can really pin down the reasons for this apparent discord, to several deficiencies when it comes to these teams effectively collaborating.
Let’s take a closer look at why procurement and finance teams are often not well aligned.
Figure 2: Why focus areas are poorly aligned in many organizations
The main issues stem from these teams, and their leaders, looking at different data, speaking a different language in operational frameworks, and often, suffering from a serious lack of company-wide agreement on what constitutes successful performance measurements in these focus areas!
Often, no visible link exists between the CFO’s strategy, and the overall performance measurement that actually exists at a functional level. So, in such a case, no clear link would exist between purchasing performance and financial reporting.
Purchasing performance also often covers “softer” metrics that a CFO may not value. And as a result, the organization would then lack effective tools to automatically collect metric data and show how all the metrics do impact one another.
A resulting lack of faith in the metric results can cause CFOs to hesitate to include CPOs in the planning phase, therefore CPOs have a minimal impact on setting up a savings target and generate a budget. This, in turn, makes it even more difficult for CPOs to respond to an action plan that they haven’t been involved in creating!
These are not new challenges! But we can overcome them if we all get better at collaboration, and if we expect to succeed in our new remote, at home working environments. Collaboration can no longer be taken for granted as an automatically fluid process. It must be formalized, and spread over multiple defined channels of communication, and data. Importantly, collaboration must be fluidly shared and commonly visible before we can work together effectively.
SPECIFIC AREAS AND PRACTICAL STEPS TO OVERCOME THE CHALLENGES!
As both procurement and finance professionals, we will undoubtedly be asked to review and unearth new ways to recoup any losses suffered by our business during this time of remote online working. There are many ways to capture and define savings, but they often differ for both the CPO and CFO.
Let’s say as a procurement professional you set about working on savings against Last Price Paid (LPP) or purchase price variance (PPV). You put the goods out to tender (up for bid), and you find at least three quotes. The least costly offers a a saving of $100K. So, you negotiate with your preferred supplier and settle on $80K in contracted savings.
But, then, suppose the usage forecast is incorrect, or a global pandemic occurs, and you end up buying less. Or a major “value leakage” occurs, and no one will buy from the contract you spent such a long time negotiating. Either your savings will disappear, or you end up breaking even. If the budget is set based on last year’s expenditure, and you don’t come in with a bottom line saving against budget, your CFO sees all this saving as neutral or nil!
So, what do you do about it? It looks like this:
- Start early with planning by ensuring all CPOs are actively involved in your budget and savings plan set up.
- Align procurement metrics with financial goals and make sure they are visible.
- Build clear key performance indicators (KPIs) into your “source to pay”4 seamless solution – the more automated the process of collecting these performance results, the better!
- Minimize savings (value) leakage by using an automated workflow, particularly between sourcing and contract management and your procurement process. So, you can directly influence what people buy via the use of catalogues linked to negotiated contracts!
- Consider tapping into group procurement organizations (GPOs) for improved purchasing power.
If you’re not using a Cloud-based strategic sourcing tool to assist in running your savings projects, The Hackett Group has found that you can increase the percentage of recognized savings by up to 12%, or reduce the total cost of sourcing by 13% with efficient use of an eSourcing tool.5 It certainly keeps all your documents accessible in the Cloud and makes supplier management easier to manage the process from home!
In Part 2, Sophie digs deeper into the how’s and why’s of collaboration, both internally and with 3rd-parties. If you’d like to see how source-to-pay and order-to-cash technology can accelerate your alignment and collaboration agenda and working processes, schedule a no-obligation demonstration.
1. Grant Thornton CPO survey 2018
2. Deloitte Global CPO survey 2019
3. Building a Bolder Legacy – the Procurement Mission Is Underway, 2015, A.T. Kearney, Chartered Institute of Procurement & Supply, ISM
4. Source to Pay, by definition, is the entire end-to-end procurement process from spend management, strategic sourcing, supplier management, contract lifecycle, right through to downstream processes that cover purchase requisitions, purchase orders, receiving, and invoicing. This process is ideally covered by a specialist eProcurement software to streamline the process via workflow and automation in one platform, in order to maximize efficiencies, savings and spend compliance.
5. The Hackett Group, 2017, Sourcing Cycle Time and Cost Measurement Study
This blog first appeared on FutureOfSourcing.com