The CFO's View of Procurement

Executive Summary:
The Chief Financial Officer (CFO) and the Chief Procurement Officer (CPO) share a common goal - improving the bottom line, but the approach that each take to achieve it, and as importantly, the language that each use differ greatly. While the average CFO is keenly aware of the strides the procurement department has taken in recent years to make itself more strategic to the enterprise, less than 20% view procurement's impact on overall competitiveness as very positive. The broad procurement transformation, that began a decade ago and has been chronicled by Aberdeen, still has a long way to go.

Best-in-Class Performance-
This Aberdeen research effort captured over 500 survey responses of which slightly more than 170 came from the CFO or finance department. The set of responses from finance professionals was captured in October and November of 2007 and are the focus of this report. Aberdeen distinguished Best-in-Class enterprises by the percentage of enterprise spend under management. Best-in-Class enterprises in this study are notable for the level of engagement between procurement and finance and their rigorous approach to savings measurement and capture. They also book 24% more of the procurement department’s projected savings rates.

Competitive Maturity Assessment-
Survey results show that the firms enjoying Best-in-Class performance shared several common characteristics including their approach to calculating and implementing procurement savings. The Best-in-Class claim an advantage in the area of core procurement skill-sets and knowledge as viewed by the CFO including negotiation and contracting skills, supply base knowledge, and overall process innovation.

Required Actions-
In addition to the specific recommendations in Chapter Three of this report, Best-in-Class performance starts with alignment and dialogue between procurement and finance. These “brothers in arms” should develop a platform that promotes open communication, visibility, and precise alignment on goals and objectives. Additionally, Aberdeen recommends that CPOs:

• Move away from soft measures like cost avoidance that cannot be quantified in an absolutely unambiguous way
• Hold itself accountable to a savings benefit that measures total cost over total cost
• Above all else, procurement executives reading this report should challenge the current view that it is procurement’s responsibility to negotiate budget reductions with the line of business

Once savings have been achieved, it should not fall to procurement to establish how this real benefit should be allocated across the enterprise, but rather to the line of business and / or finance...

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The CFO's View of Procurement-2007 (535 KB)