It is universally acknowledged that the CFO’s role means balancing a growing list of priorities, mandates, and reporting, and the job is not getting any easier. CFOs play a range of critical roles in their organizations, including (but not limited to) crisis manager, functional leader, thought partner to the CEO, and, not to mention, chief financial officer.
Of the many metrics that CFOs monitor and work to improve, procurement spend—and the numerous metrics it influences—is one of the most significant.
Managing with foresight
Advanced data analytics in procurement allows CFOs to get ahead of problems and spot opportunities for savings and efficiencies that boost profitability and organizational performance. These tools have not always been available—as long-serving CFOs will tell you—but they are essential to deliver on procurement’s changing role and responsibilities. Today’s procurement expectations continue to shift from the supplier and category perspective to an activity that is driven far more by cost center and financial reporting priorities and concerns.
Advanced procurement analytics solutions can bridge these different views and thus enable full collaboration between finance and procurement.
Monitoring with procurement analytics
Budgets. The largest share of cost is likely to be constituted by external spend, and the earliest possible indication of a variance and its drivers allows the CFO and their team to steer the organization in the right direction in response to these changes. This might mean seeking a deeper understanding of headwinds or tailwinds emanating from raw material price changes or dealing with disruption to long-established supply chains.
Hitting revenue targets. The last few years have seen major disruptions to business and commercial activity in the form of global health crises, chip shortages, the blocking of critical supply routes, and demand shifts. Supply security is an important driver for hitting revenue lines, which is why analytics—which gives CFOs and their teams supply chain risk and revenue-at-risk transparency—helps to navigate disruptions and secure revenues.
Delivering on improvement targets. In the past, procurement savings were hard to reconcile in bottom-line results. Connected spend analytics and savings reporting make it far easier to reconcile savings into reported numbers and assess the contributions achieved. In this way, today’s procurement analytics capabilities are moving toward measuring true cost reduction through a holistic and systematic value capture process.
Fulfilling increased reporting requirements. From data and insights on supplier diversity to carbon reporting, legislation and internal business initiatives are driving an increase in what needs to be reported and how. For CFOs, the starting point for reporting remains a curated single source of truth containing all the necessary data points. This will include spend data and specific information provided by suppliers—for example, supplier information regarding compliance with the EU Corporate Sustainability Due Diligence Directive or diversity scores.
The journey to net zero. For many organizations, this goes beyond the reporting of procurement spend and implied Scope 3 emissions. Showing a decarbonization strategy and progress along the way is fundamental to being recognized as a responsible, leading organization. Alongside employer branding risks and benefits, this has hardening financial implications in areas such as the ability to access financing or enable future portfolio decisions.
Beyond reporting
Beyond the transparency that supports better risk and revenue performance are further insights that lead to better decisions, more innovation, and growth through smart and wide use of procurement analytics.
Procurement and procurement analytics play a central role in optimizing product development, increasing corporate agility, and enabling a balance between optimizing for various KPIs and maximizing return on investment.
A high-performing procurement function is an organization’s hidden superpower. CFOs need to continue to consider the traditional risks and levers of the supply chain and costs of materials, but getting it right today also means quick, easy, and regular access to analytics that will help them clearly see what is working and what needs to change.