Tag Archives: strategic procurement

Strategic Procurement: A CFO’s Guide To Getting There!

Ever felt like a different perspective on that age-old plea: “Help! I need to be more strategic!” would do your procurement team the world of good? Here’s what a CFO has to say on the matter…

Register now  as a digital delegate for The Big Ideas Summit Chicago!

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 per cent visibility over enterprise-wide spending with:

  • 100 per cent of your e-procurement users funneling all indirect spending through the e-procurement solution
  • 100 per cent of invoices, both direct and indirect,  being processed through the AP automation solution
  • 100 per cent 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.

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:

1. Support Working Capital Strategy

53 per cent of organisations 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. Read more on strategic payment programs.

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. Read more about the future talent needed for Procurement in Gartner’s article, Start Preparing Now for the Impact of AI on Procurement.

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.

On 28th September, Procurious is bringing The Big Ideas Summit to Chicago.  Register now  (It’s FREE!) as a digital delegate to gain access to all of the day’s action and LIVE video from our speakers and attendees. 

2016 – The Year of Procurement Transformation

Transformation – the word on procurement’s lips. But when will real strategic change be realised for the profession?

transformation

If you were to pick one word to describe 2016, you could probably settle on volatile. There has been major change afoot in global markets and politics, which has lead to unprecedented volatility and upheaval.

In the past few weeks, we have been talking to some of our Procurement partners about the topic of change and transformation within their organisations, and more broadly in the market for our ‘Autumn Market Insights‘.

It prompted us to think about what has actually changed? Clearly the spectrum of change is quite varied. However, a common theme coming out of these discussions was ultimately that Procurement was, is, and always will be, about getting cost out of the bottom line of the business.

Transformation on the Procurement Agenda

How aggressively this is approached will obviously vary from business to business depending on its agenda. But surely this is why Procurement is critical to any business?

What this has allowed over time is for Procurement to have a seat at the “top table”, rather than being part of a broader function that reports into Finance.

Increasingly we are seeing businesses turning to a more category aligned approach to Procurement, bringing in experts in their field to drive category strategies forward and having the gravitas to collaborate with stakeholder groups.

However, as of one of the CPO’s we spoke to pointed out there can be risks to this approach. There can be a risk that a Procurement team member becomes so immersed within their stakeholder group that they “go native”, and move away from the Procurement agenda.

And the Buzz Word Is…?

If the buzz word for Procurement in 2015 was “strategic”, we would say 2016 is all about Procurement transformation. We are working with four large and well respected organisations at the moment in the South, supporting their transformations.

But what does Transformation truly mean? Does this simply mean a change in process or ways of working or is it something much larger? We have to consider transformation as fundamental change across the business – the processes behind procurement, the remit it covers, and the tools used. This is true transformation.

Clearly 2016 is very much about driving this Procurement transformation agenda. These are exciting times for the profession. And, as we approach the end of 2016, it can only add to Procurement being at the forefront of an organisation’s DNA.

Procurement Heads is all about getting to know great Procurement people and recruiting Senior Procurement professionals.

Procurement Heads understands the value of working in partnership, both in helping people develop their careers and in supporting organisations to build world-class teams.

Procurement Faces Balancing Act as Business Uncertainty Rises

According to new research from the Hackett Group, procurement faces a balancing act in 2016 thanks to rising business uncertainty.

Business Uncertainty

  • Key issues research shows budgets and staff expected to rise slightly in 2016
  • The Hackett Group recommends that to improve agility and reduce cost, procurement must harness the value of Big Data and control tail spend

According to new Procurement Key Issues research from The Hackett Group, Procurement leaders expect operating budgets and staffing to increase slightly in 2016. This comes at a time as they attempt to balance the need to reduce costs, with the desire to become a better strategic business partners and other priorities. 

Increased business uncertainty and risk are driving a resurgence in traditional cost reduction strategies, according to research. At the same time, the research identified critical development gaps in four key procurement strategy areas:

  • Becoming a better strategic partner to the business.
  • Increasing spend influence.
  • Improving agility.
  • Tapping supplier innovation.

These are seen as important targets for capability development.

Harnessing Big Data

To improve agility, The Hackett Group’s research recommended that procurement organisations become more information-driven and harness the value of ‘Big Data’. Unfortunately, the research found that over half of the study respondents currently lacked a formal market intelligence program, or were only in the earliest stages of adoption.

Study respondents also identified predictive analytics and forecasting as the trend with the greatest transformational impact for procurement over the next decade.

Finally, The Hackett Group’s research recommended that, to unearth new sources of savings, procurement examine tail spend. This is­ the 20 per cent of spend that is spread thinly across up to 80 per cent of suppliers.

This is an area where most procurement organisations have not focused heavily.  But with effort, The Hackett Group estimates that savings of 3-5 per cent for less mature sourcing organisations is possible, in part by identification of high-dollar maverick spending that should have been strategically sourced.

A complimentary version of the research is available for download, following registration, here.

Cost Reduction Pressures

According to The Hackett Group Global Procurement Advisory Practice Leader, Chris Sawchuk, “For 2016, companies are expecting to see business uncertainty and risk increase, along with greater struggles to grow revenue. So the pressure to reduce costs is increasing. At the same time, procurement leaders need to balance this with other more strategic priorities, like becoming a better strategic business partner.

“This is challenging, because for 2016, procurement operating budgets are expected to increase by just 1.1 per cent, and staffing will only grow by 2.2 per cent. So procurement can only afford to fund its highest-priority initiatives. One clear differentiator we saw in the research this year was the recognition of the value of improved market intelligence.

“Procurement leaders are realising that higher-quality information can help them drive greater business value. Big data has been a game changer when it comes to customer analytics, offering an unprecedented ability to quickly model massive volumes of structured and unstructured data from multiple sources. But procurement’s lack of maturity in market intelligence is a significant obstacle that must be overcome,” said Mr. Sawchuk.

The Hackett Group’s 2016 Procurement Key Issues research  is based on results gathered from executives from nearly 180 large companies in the US and abroad, most with annual revenue of $1 billion or greater.

Chris Sawchuk is a keynote speaker at the Big Ideas Summit on April 21st. Chris will be talking about how procurement is applying key agile capabilities in the areas of leadership, talent, service placement and information-driven performance.

If you’re interested in finding out more, visit www.bigideassummit.com, join our Procurious group, and Tweet your thoughts and Big Ideas to us using #BigIdeas2016.

Don’t miss out on this truly excellent event and the chance to participate in discussions that will shape the future of the procurement profession. Get Involved, register today.