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In the News | Clippings from the Week Ending 15 July 2011

  

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Shared characterstics of CFOs and CPOs; The Procurement Outsourcing Supply Market

Qualities of Successful CFOs – Same for CPOs?

At a recent Finance Directors event, Deloitte gave a great overview of perspectives from an ex-CFO on influence and leadership:

• Ensure clarity on parameters of your role and that of your team – what are the organisation’s expectations of you? Are these aligned with your expectations?
• Understand your ability to contribute personally and as a team leader/ member to delivery of group strategic ambitions – how do you add value?
• Meet regularly with many of your key stakeholders, internal and external, and obtain understanding of their perspectives and expectations
• Break out of silos – do you have empathy for other’s challenges?
• Retain wider perspective – what is happening across the organisation and externally that may impact you and how you respond/behave?
• Identify (and be identified as) trusted advisors/mentors (either internal or external)
• Get out into the business
• Determine your key potential challenges / priorities as a [finance] leader and how you are going to address them – and communicate these to your team, peers and bosses.

Interestingly enough, if we substitute the words CFO for CPO and finance for procurement, we are now reading a not too dissimilar set of criteria for exactly what procurement needs to do in order to be seen as an influencer and a leader within their organisation.

Procurement’s role 5 years ago was primarily outward looking, towards the supply base, focusing on driving the best deal from the market. However increasingly, senior executives and stakeholders are now looking for increased value, risk mitigation, spend control, transparency / granularity (insight) and change management more so than the usual beating up of suppliers for an additional % off last year’s rate.

We are seeing a ground swell of commentary and editorial coverage around Procurement’s rise to stardom. However a fundamental barrier to Procurement reaching its full potential, as with Finance, HR and IT, is that the skills needed to progress to the next echelon within business are missing from many established procurement teams – primarily those associated with leadership and internal stakeholder engagement.

The Procurement Outsourcing Supply Market

Professional Outsourcing Magazine recently published an article offering insight into the make up of the Procurement Outsourcing market space, identifying key drivers of change, barriers to entry and best practices.

Drivers of Change:

• Reduced spending budgets and increased pressure to reduce the cost of goods purchased.
• The need to implement internal spending controls and assure compliance.
• The need to ensure that sourcing terms and conditions negotiated are reflected in purchasing.

Barriers to Entry:

• There is a lack of established source-to-pay capability in the market, with many vendors having strong transaction P2P capability, but less experience in sourcing.
• There is also a lack of breadth and depth of category management skills and a lack of single points of responsibility for source-to-pay within client organisations. This means responsibility is often shared across Finance and Procurement.
• Procurement outsourcing is an increasingly competitive, but still slightly immature market.

Best practices include:

• Organising indirect procurement by region rather than globally.
• Separating of indirect and direct spend teams.
• Consolidating the supply base.

Further to these points, I think there are a few more crucial items which need to be added:

Drivers of Change:

• The need for better (depth / breadth) category knowledge and expertise.
• The need to challenge business rules, ways of working and behaviours to drive business performance improvement – moving from having procurement conversations to business conversations.
• The need for greater transparency into Total Cost across the business.
• Finally, and most importantly, the need to deliver value back to the business, and not just another year-on-year saving number.

Barriers to Entry

• The skills needed to progress to the next echelon within business are missing from many established procurement teams - primarily those associated with leadership and internal stakeholder engagement.
• The term Procurement Outsourcing is often associated with a traditional F&A, HR, IT BPO operation (which is about shifting non-core operations to a low cost [usually offshore] location to run the process more cheaper and more efficiently). Where as Procurement Outsourcing, as we see it, is about enabling the procurement operation to become more effective by leveraging the skills, knowledge, technology, processes and cross industry/client perspectives from a third party provider (often filling gaps in existing procurement teams).

Best Practices
The second point of separating directs from indirects is a great point, one which we have talked about from a Retail perspective, and can be applied to almost any industry (after making some slight adjustments of course).

One key best practice that is missing from the list however is the need for procurement to be involved at the start of any sourcing or purchasing project. Again coming back to skills, trust and leadership – this means developing relationships with stakeholders and senior management (becoming an internal advisor) to ensure everyone understands the value that procurement can bring to the table and the risks involved by leaving them outside.