The title of this article was the response I received to the question “How does your CFO measure your performance?” that I posed to the director of procurement for a billion dollar plus revenue company at the end of my visit earlier this month with this procurement team to discuss ways to jump-start their new sourcing initiative and begin to lay the ground work for an organizational transformation (I was also able to tour their world-class warehouse and distribution operations).
Since we had just spent the previous four hours discussing the procurement team’s operations, strategies, successes, and challenges, the answer was not unexpected. This procurement team exists as a small group inside the company’s finance department. It is led by a director who admittedly spends half of her time focused on more traditional finance projects. By her team’s estimation, they touch less than 10% of all indirect (including services) spend. This was estimated using a spreadsheet assembled by an analyst who spent weeks manually massaging and attempting to organize the company’s ERP data. While the team recently signed a deal to run a few eSourcing projects this year, there are no other supply management solutions in place.
While company “tradition” and the heritage of being the only horse in a one-horse town present huge obstacles to change (and organizational transformation), the issue of greatest magnitude is their complete lack of traction with the CFO. Not only has the CFO shown no interest in sourcing and procurement, he has identified “sacred cow” categories that cannot be sourced, ever and dismissed ideas presented by third-party strategic sourcing consultants. Things are so challenging for this team that one of their ‘top’ ideas to drive value is to move more spend onto the company’s p-card platform and generate a higher year-end rebate (I do not recommend this). This team faces a difficult reality. Unfortunately, it is a reality that exists far too often in 2010.
While we tend to highlight the strategies of Best-in-Class CPOs and other procurement leaders as a way to help educate less advanced teams, we should not forget that many procurement organizations are struggling like the group I’ve just described – hamstrung by leaders that do not support them and systems that provide no real view into enterprise spend and unable to make a case for change on their own. If this describes your situation, you are not alone.
Despite a somewhat bleak situation, all hope is not lost for the procurement team described above. I have faith that this scrappy group will slowly, but surely build momentum for their sourcing initiative in 2010. They have had some small sourcing successes in recent months and they have begun to gain traction with one business unit. The company is also in the process of hiring a new Finance VP that will manage the procurement team, while reporting directly to the CFO. The procurement team saw it as a big victory that one of the desired skills listed in the new job requisition was the bullet ‘Procurement experience.’ I suggested some strategies to help generate support and interest in the new sourcing program and some nuanced ways to find other allies within the company. I also offered to discuss best practices in procurement-finance relationships with the CFO and/or new Finance VP. Whether I have this opportunity or not, I plan to visit with this team later in the year and get an update which I’ll also provide here.