Philip Letts, CEO of global procurement platform blur Group says now is the time for CFOs and CPOs to unite.
Technology is changing accounting and financial management forever. That much we know already.
But in an era of economic and political uncertainty, when CEOs repeatedly cite cost reduction as their number one priority, is now the time for CFOs to push on and embrace technological change in a far wider sense?
Right now CFOs should be telling their teams that a key reason for their existence, processing accounting transactions, is gone. But the seismic change will not stop there. Technology is already impacting on another vital aspect of how organisations manage their finance – procurement.
Recent reports from the likes of EY, PWC and Deloitte have revealed the scale of procurement waste, which globally now stands at £1.56trillion a year. Yet spend optimisation, particularly across indirect spend, remains an Achilles heel for many CFOs, despite the recognised savings that can be achieved.
Today, some 20% of organisational spend is typically unmanaged, made up of the tail spend of numerous low-value transactions, often uncontracted and through many suppliers (up to 80% of the entire indirect spend supply base).
Ultimately, cost reduction is a key part of any business case for the use of technology. And responsibility for achieving cost efficiencies rests with the CFO. So they need to be ‘ahead of the curve’ when it comes to process improvements and system changes, including automation.
Just as CFOs need to guide their finance teams as they rapidly consider their future roles as technology takes over more of their ‘everyday’ tasks, so CFOs should be considering the role of their procurement teams.
Online global marketplaces, self-service portals, mobile apps and artificial intelligence providing transparent processes, access to suppliers across the globe and detailed insight on the price and demand across the full range of business services and goods, and indeed on suppliers themselves, is already starting to transform what for too long has been seen as the poor relation within financial departments.
According to Deloitte’s most recent global procurement report published in December 2016, the use of cloud-based platforms and mobile technology by procurement functions has doubled in just 12 months.
In accountancy, technology means less time spent on financial close, allowing more time to be a strategic asset to the business. The same shift is true for procurement functions, where the most progressive have already moved from fulfilment of contracts to spend optimisation including right-sourcing and fractional outsourcing.
Adopting technology for procurement covers a range of activity that sits under a CFO’s remit:
- Implementing competitive bidding
- Digitising the purchase of business services to achieve savings and speedier delivery
- Developing a fraud prevention strategy including digital procurement and a compliant process for vetting suppliers
- Adopting a cloud-based business services catalogue – with vetted and up-to-date suppliers
- Strategic sourcing, coupled with creating strong supplier relationships – to ensure strong alliances with key suppliers and innovation
Just as most organisations have taken the key step of investing in software as a service (SaaS) models for their financial accountancy needs, simplifying processes with little or no customisation, so the same trend is happening in procurement.
And just as in accountancy, those that stick with legacy on-premise systems are also realising that having customised, non-standard systems and processes is costly and unsustainable if they expect to remain competitive.
Adopting and using technology successfully first requires a clear strategic approach, which is why CFOs should be the drivers to make procurement a more strategic and effective function using the right technology in the right way.
CFOs share many of the same preoccupations as CPOs, with cost control, risk management, technological advancements and talent development the top CPO priorities identified by Deloitte. Digital technology is receiving more investment, but often lacks the strategic context to maximise the potential benefits for the business (just 40 per cent have a clear digital strategy), which is why the CFO’s involvement is crucial.
The closer the working relationship between a CFO and CPO, the easier it will be to fully understand and maximise the opportunities across key aspects of a business – the efficiency of internal systems, how well suppliers are managed, compliance, evaluating the range of technology and sourcing options across direct and indirect spend.
In an era of on-going cost reduction, done strategically and driven by the CFO, a focus on procurement can start to drive stronger and longer-lasting cost reduction across wider aspects of the organisation. Where once we talked about procurement and supply chains, now is the time for spend management and spend optimisation strategies to come to the fore, and for CFOs and C-suites to consider the opportunities they bring.