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 (#19 – Cash Management), which is designed to help procurement set their organizations’ course for the critical months and years ahead. Enjoy!
20-for-2020: Theme #19 for the Modern CPO’s Agenda: Cash Management
This article was written before the COVID-19 outbreak became a global pandemic and threatens to push the global economy into a deep recession. Yes, the context has changed, but more importantly, everything about cash management has become more important to procurement teams. Cash is the lifeblood of any business operation and understanding net cash positions allows executives to sleep at night.
As the business world rapidly changes, developing new industries, new ideologies, and new ways of working, business leaders must evolve or risk becoming irrelevant. Procurement functions that understand the importance of cash management can unlock critical opportunities in the months ahead. Even the most immature units should have an objective of improving the organization’s cash management. Ardent Partners research has shown that it is the Best-in-Class departments that are the most strategically involved in the strategies that influence cash management. Only through a keen focus on the future, as well as clear-eyed examination of future needs, will procurement be able to weather the storm and even grow its value to the organization.
It has only been in the last 5 or 6 years that many Chief Procurement Officers (CPOs) were given targets and responsibility to impact enterprise cash. This shift was an industry-wide recognition that procurement is well-positioned within the enterprise to implement cash management strategies, including:
- demand management
- negotiating payment terms
- ensuring compliance
- driving cost reductions and savings
- managing projects and investments using a total cost of ownership (TCO) analysis
- managing supply holding costs
- driving process efficiencies
Procurement’s convergence with AP and Finance and the better alignment of their people, processes, and technologies, naturally followed. For instance, procurement will have greater visibility into enterprise spend, and be able to exert its influence using the above strategies. Furthermore, aligning processes with AP-Finance – linking the two departments in the procure-to-pay (P2P) process – will further position procurement to better manage cash for the enterprise.
Other process automation tools, like automated expense management solutions, can also help enterprises better manage cash as they give managers near real-time visibility into their employees’ spending habits, and allow finance teams to invoice customers quickly and accurately, reducing costly errors and securing faster remittance.
Recommendations for Improvement
Procurement’s convergence across the enterprise means that they will increasingly need to manage cash, despite the associated challenges. Thus, we offer some recommendations as to how procurement teams can improve.
- Formalize the relationship between the CPO and CFO: Stronger communication and reporting is needed between these the high-level leaders of the enterprise. It is vital that both groups get on the same page as it relates to responsibilities, goals, and business objectives. These areas (and the larger relationship) should be developed in a formalized manner with regular interactions and status checks. Enterprises that allow a CFO-CPO ‘gap’ to exist will find themselves exposed to the demands of an increasingly volatile and global marketplace. But the CFOs and CPOs that are able to have a formalized relationship will have a better chance of stabilizing enterprise performance in the near-term and building a foundation for long-term finance-procurement success.
- Create a clear communication plan to any suppliers impacted by new payment strategies: Against the backdrop of rapidly evolving supply chains, how organizations communicate, collaborate, and transact with their trading partners and the enabling platforms that they utilize take on increasing importance to business operations. Many suppliers are being seriously impacted by the coronavirus pandemic. Leveraging solutions and solution providers that enable more suppliers, more quickly, accelerates the “time to value” in a P2P initiative and allows the trading partners to divert resources away from the tactical aspects of the relationship and focus on the more strategic ones.
- Develop and improve cash management skills: Unfortunately, when it comes to cash management, people are the weakest link in the people, processes, and technologies As we outlined in our recent Skills for the Modern Procurement Pro article on cash management, Chief Procurement Officers (CPOs) and other procurement leaders recently rated their procurement staffs as well below average (akin to a D+) for managing cash. There is a clear skills gap between existing capabilities and needs. As a result, we recommend that procurement teams undertake a crash course in cash management strategies and skills. This is job one for CPOs who’ve got the “urge to converge” with cash management.
- Align AP and Procurement teams and processes: Another move that procurement should already be doing is collaborating with AP and aligning processes and goals. Ardent’s research has seen an increased focus on collaboration between the two functions and greater cash management is just one more reason for them to design and complete a comprehensive P2P process. Aligning people and processes with AP and Finance and instituting a true P2P process will also pave the way for the adoption of technology solutions including ePayables solutions, which can drive invoice processing efficiencies and provide the visibility needed to develop better cash management strategies. Best-in-Class companies are 25% more likely to be using ePayables solutions today but they are nearly three times as likely as All Others to have taken on the primary responsibility for cash management.
RELATED RESEARCH (Sessions in The CPO Rising 2K20 Virtual Series)
Maximizing Spend Management with AP Tools & Data
CPO Strategies: Paving the Road to Recovery
CPO Rising: The State of Procurement in 2020
CFO Leadership in the Time of Coronavirus
