Being in leadership is a responsibility that can be hard to bear, especially when it means ensuring that you are constantly improving efficiency, effectiveness, and the bottom line. Procurement leaders—such as CFOs, CPOs, and finance professionals—face a daunting set of obstacles when looking to level up their procurement teams and P&L performance.
The good news is that we are here to help, bringing you nine different strategies to help CFOs and finance make the most out of procurement today.
Procurement’s Ongoing Challenges
Procurement faces many challenges that threaten an organization’s effectiveness, efficiency, and performance. Just one look at the discussions in the Foundry attest to this, as our interactive community forum is full of discussions around issues with talent, contracts, mitigating risk, D&I, and much more.
You are not alone if you feel overwhelmed by the many hats that modern procurement professionals wear.
So, the two-fold question of the day is: How much of this responsibility falls on the CFO, and how can the CFO and finance create procurement strategies to address these issues and help mitigate these risks?
According to our information from the Procurement Foundry and beyond, procurement leadership is feeling the weight of their evolving roles. Changing business dynamics and increasing layers of complexity are causing an expansion of the standard CPO position. Many Procurement Foundry members share that the most important priority—and biggest challenge—is finding good talent to build out the procurement organization and take some of the stress and responsibility off their plates.
This difficulty in getting the right talent in place is due to some talent wars occurring right now. It only adds fuel to the supply and demand fire and makes security quality talent a number one priority. As for number two and beyond? Risk mitigation, for one, and the list goes on.
Even statistics outside of the Procurement Foundry reveal what CPOs and finance are up against, and it’s intense. For example, according to the 2021 Deloitte Global Chief Procurement Officer (CPO) Survey, 74% of CPOs spend their time on transactional activities. There’s a better way to handle this.
9 Procurement Strategies for CFOs – What Are They?
We recently held a LinkedIn Live event with Ivan Makarov, VP of Finance at Webflow, who talked about strategies for CFOs and finance directors. Through our conversation, we gathered some excellent tactics CFOs, procurement, and finance can use to overcome common struggles. Here are nine procurement strategies for CFOs and finance.
1. Start Procurement Early
The first strategy is to start early. The beginning stages of building a procurement team are an excellent time to establish a good culture. Ensure you have discipline because it’s easier to do it now than when your company has grown much larger and the spend is in the millions. By that point, you will have already established how you do things.
One of most CPOs’ and leadership’s key roles is maintaining financial discipline within the company. Procurement is constantly buying things and continually implementing tools. Contracts also expand as the company grows. Consequently, you often have to renegotiate things you’ve contracted. By starting early, companies will see results years down the road when they have a solid process and contracts that make sense for the business.
In essence, you have to teach procurement how to behave the right way so that when you get to maturity (maybe that’s $500 million in third-party spend), you’re not scrambling to teach them how to behave properly. Instead, you’ve already been laying down that groundwork along the way.
2. Don’t Inhibit Profitability
A second strategy is not to allow policies to get in the way of being profitable. If a process takes too long and gets in the way of making money, it’s an ineffective process.
When it comes down to the speed of the business, we must ask ourselves questions like: Is what we’re doing accelerating the business and making it more sustainable? For instance, you could go a few extra cycles and get the best possible deal, but that might slow everything down. And that’s bad for business.
3. Work at the Speed of Business
It’s essential to work at the speed of business. The way I think about this is what I call inhibiting versus not inhibiting—the ability to deliver. And when you’re talking about teams like sales teams or engineering teams, the biggest concern for a leader and CFO is weighing the balance between needing to make sure your organization gets the sourcing element right.
At the same time, every day that you don’t have Salesforce in place for your sales team, you’re potentially losing millions of dollars in revenue every week. When you think of it this way, you are forced to ask yourself: How much do I want to spend haggling—the liability clauses associated with a contract or even the widget price. The reality is, if I had deployed it a month earlier, I would’ve paid for all the contract savings that I would’ve negotiated out of the deal.
Bottom Line: Work at the speed of business or bust.
4. Be Aware of Tech Debt
Watch for the pitfalls of incurring too much tech debt early on. We get it, it’s exciting, and you want the latest stuff that you feel will set you ahead of the pack. Not to mention, there is pressure coming from all sides to invest in the best.
Here’s a common scenario: going too fast and buying everything that your departments ask for without thinking about how all these tools interact.
This can lead to problems because you have too many tools in place. To fix this, you need to approach things holistically by considering the perspective of PNL, tools, etc. Talk about what purchasing the tech would do to the organization, even if the cost is within the budget.
5. Buy for Today, But Keep an Eye on the Future
It’s crucial to make sure you have the tools you need but that you can also expand or cancel as your team scales. I think of this a lot with subscriptions, such as software agreements. For example, say you currently have 500 employees, but you might be buying a three-year software agreement for your sales force that only has 35–50 people. You have to think about three years from now, when your sales team may be at 500–1,000 people, and be global versus regional.
It’s a delicate balancing act, where you have to buy solutions and contract those solutions with the end game in mind but still ensure that you have the flexibility to either slow it down or even speed it up in some cases.
The bottom line: You need to ensure flexibility and evaluate your vendor solution providers’ ability to fit your business needs today and tomorrow.
6. Know Your Contacts at Your Vendor
Vendors provide the goods and services vital to your operations, but relying on third-party partners involves risk. Make your life as easy as possible by becoming very familiar with your vendors. “Know your vendor” is a mantra that always rings true, especially when it’s time to sign and renew contracts.
When it’s time to renegotiate, you need to know who you’re dealing with. It’s inefficient to find your new contact if someone has moved on. It’s also poor supplier relationship management.
7. Time Management Through Automation
Procurement automation is a secret weapon that will revolutionize your time management. Procurement departments that have not found a way to automate mundane tasks are falling behind. That trend will only continue as procurement continues to transform.
One reputable person praising procurement automation is Tomer Gamlielle-Druyan, VP of Global Supply Management for the end-to-end cybersecurity solution known as Cybereason. During a webinar on best practices for implementing a technology-empowered procurement process, he had this to say in praise of automation: “Nothing can be left to human error. We have to have automation all the time. Automation works.”
At Procurement Foundry, we also place great faith in the merits of automation.
8. Leverage Your Finance Knowledge
As a CFO, it’s up to you to bring whatever strengths and skills you have to strengthen and support your team. These skills could include your finance knowledge, such as knowing about tax rates.
Why? Procurement people don’t necessarily think about sales and use tax, but sales and use tax can be a giant bear trap, especially for software companies and large organizations that are multi-geographically based.
9. Hire for Your Weak Points
Finally, it’s essential to know your strengths and weaknesses in any organization. After all, the saying goes: “You are only as strong as your weakest link.” For this reason, it’s paramount that you analyze your team and hire as quickly as you can for any missing pieces.
To learn more, connect with the Foundry, and join us at our next Zipper Lane event. And check out the full discussion with Ivan Markov if you haven’t already.
Michael Cadieux
Rich Young: 11/28/23 1:15 PM
Andrew Henson: 11/28/23 1:06 PM