In the early days of the firm, I did a regional tour to visit different procurement organizations to get their feedback on my plans for CPO Rising and Ardent Partners.
The title of this article was the response I received to the question “How does your CFO measure your department’s performance?” that I posed to the director of procurement for a billion dollar plus revenue company at the end of my visit with this procurement team. Procurement reports into finance.
We had just spent a few hours discussing the procurement team’s operations, strategies, successes, and challenges, so, 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 spent 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. They developed their estimate 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” presented huge obstacles to change (and organizational transformation), the issue of greatest magnitude that I could see was their complete lack of traction with the CFO. Not only did the CFO show no interest in sourcing and procurement, he had also identified “sacred cow” categories that could never be sourced and aggressively dismissed ideas presented by third-party strategic sourcing consultants. Things were 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 still exists far too often.
While we tend to highlight the strategies of Best-in-Class Chief Procurement Officers and other procurement leaders on CPO Rising 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 left wholly 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 and I hope to provide an update this spring. 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 and report 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 and suggested sharing best practices in procurement-finance relationships, like those discussed in this archived webinar, with the new Finance VP.
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