In ten years’ time, the procurement profession and the role of the Chief Procurement Officer (CPO) has changed in many unique and profound ways. Yet, just like 2010, CPOs and other procurement leaders are entering the new decade grappling with intense challenges (some old, some new) and driving forward to achieve aggressive goals and objectives.
On that front, I’m pleased to continue with our exciting, new series on CPO Rising – “20 for 2020” which examines a broad range of CPO-driven topics. Today we continue with 20 for 2020: Key Themes for the Modern CPO’s Agenda (#13 – Monetization / Value Creation), which is designed to help procurement set their organizations’ course for the critical months and years ahead. Enjoy!
20-for-2020: Theme #13 for the Modern CPO’s Agenda: Monetization / Value Creation
Chief Procurement Officers and procurement teams have, for more than a decade (i.e., since the Great Recession) been charged with doing more with the same or fewer resources than before — to turn water into wine, to make lemons out of lemonade, and so on. It is, and has been, in the CPO’s DNA to create value within their operations — to monetize the source-to-settle process to not only save money for organizations, but actually generate revenue that can be returned to budgets and boost bottom lines. There are more than a few ways that this can be done. Here are six.
- Analyze spend to find savings opportunities: Procurement teams can find hidden savings opportunities within historical spend data — such as identifying low percentage of spend under procurement’s management, seasonal spikes or lulls that can be optimized for costs, or business-unit specific spending behaviors that can be more cost effectively adjusted. Capitalizing on any one of these insights can return significant cost savings to an organization’s budget and bottom line.
- Pull more enterprise spend under procurement’s management: Discovering, via spend analysis, that a procurement team manages very little organizational spend (even if it’s only ~60%, industry average) can start a conversation about increasing procurement’s role in managing more of a company’s spend. Remember: for every dollar that procurement manages in new company spend, it saves an average of 12% to 18% on associated costs. These savings can be further returned to the company’s budget/bottom line.
- Use eSourcing to competitively source contracts: Using eSourcing methods and technologies puts the “strategic” into strategic sourcing by increasing procurement’s field of competitive options when issuing RFx on new sourcing events. Likewise, conducting reverse auctions, wherein competing suppliers bid down the cost of their proposals, enable sourcing and procurement teams to extract more value from the sourcing process than merely conducting three bids and a buy, or allowing wide-scale off-contract or maverick spending.
- Use ePayables solutions to reduce invoice- and payment-processing costs: By digitizing and automating a company’s accounts payable (AP) operations, they can link the invoice-to-payment process seamlessly, which would facilitate faster and more efficient invoice and supplier-payment processing. These, alone, can result in six-fold reductions in time and cost to process invoices, fewer manual invoice exceptions, and reductions in supplier payment costs by between 55% and 80%.
- Optimize payments to save more on supplier payments: Electronic payments and payment methods are fantastic ways for Chief Financial Officers (CFOs) and AP / Finance teams to monetize the payment-end of procure-to-pay (P2). Supplier enablement that makes it easier for suppliers to accept electronic payment, purchasing cards that earn cash back, and early-payment discount incentives that can earn rebates on payments are no-brainers for CPOs and CFOs to actually make money for the organization.
- Manage cash to avoid deficits, generate interest: There are benefits to remaining liquid. With supply chain finance (or third-party finance), AP and procurement teams can tap financial institutions for lines of credit to pay suppliers while keeping more cash in reserve, perhaps in a high-yield savings account earning interest in the process. Having more cash on hand buoys organizations during rough seas and makes headway in calmer waters.
Final Thoughts
There are numerous ways for CPOs and CFOs to extract more value from their daily operations and generate extra revenues that can be budgeted into the organization’s bottom line. You don’t have to look too far to find these opportunities: they’re on either side of the source-to-settle spectrum, and Best-in-Class AP and procurement teams are especially adept at identifying and realizing them.
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20 for 2020: The Key Themes for the Modern CPO’s Agenda (#12 – Consumerization)
20 for 2020: The Key Themes for the Modern CPO’s Agenda (#11 – Supply Chain Risk Management)
20 for 2020: The Key Themes for the Modern CPO’s Agenda (#10 – P2P)
