Technology Changes Game for Procurement

Fueled by business networks, function becomes more strategic in eyes of finance according to new survey from CFO Research Services

SUNNYVALE, Calif., April 17, 2012 – Digital communities and the technology underlying them have changed the world. As consumers, we are more connected and enabled to shop, share information, and make better decisions than ever before. And these technologies are having a similar impact on procurement. According to a recent survey of more than 200 global finance executives, the use of business networks and the technologies underlying them is helping to transform procurement from a tactical function to a strategic contributor to company success.

“Procurement has traditionally been recognized and rewarded solely on the basis of its cost-cutting ability,” said Sam Knox, Senior Vice President and Director of Research at CFO Publishing. “But through the productive use of automated systems, the function has been able to move beyond simply meeting savings targets to help address larger, more-complex issues such as managing cash and capital, managing risks to business performance, and expanding into new markets or business lines.”

In December 2011, CFO Research Services launched Reaching New Heights: The Dividends of Collaboration Between Finance and Procurement, a survey of more than 200 senior finance executives at companies throughout North America, Europe and Asia conducted with support from Ariba. A follow up to CFOs’ Views on Procurement-Information, Risk and Money, a similar effort conducted in 2007, the survey sought to understand how CFOs’ views of procurement have changed and determine whether the function is playing a more strategic role in helping them achieve their goals. Among the key findings:

Procurement is transforming to make a higher-value, strategic contribution.

In the past, the dialogue between the finance and procurement functions was largely transactional. Finance executives traditionally viewed procurement’s job as simply acquiring goods and services at the cheapest possible price and on the best terms. But advances in technology, multi-disciplinary skills, and macro-economic factors have dramatically changed this view.

When asked to characterize how procurement has evolved over the last three years, nearly three-quarters of respondents say it has become “more strategic-minded.”

Technology is fueling the transition

What’s behind the shift? “The global recession has put the squeeze on margins—drawing finance’s attention to the impact that procurement can have, beyond meeting savings targets,” Knox explained.

Additionally, trends toward outsourcing and increasingly global strategies have stretched supply chains, introducing a completely new set of both opportunities and risk.

“Working collabora­tively, and equipped with the appropriate technology, procurement can help to tackle these issues and become effective stewards in more strategic initiatives,” Knox said.

Among the areas in which the finance executives surveyed say procurement can play an expanded strategic role:

  • managing working capital
  • managing risks to business perfor­mance
  • expanding into new markets or business lines

Nearly half of the respondents whose companies participate in business networks saw “great opportunity” for procurement to become more involved in managing working capital, compared to 39 percent of those whose companies don’t. In terms of expanding into new markets or busi­ness lines, one-third of those polled whose com­panies use networks see a “great opportunity” for procurement to increase its contribution, while only about 17 percent of those whose companies don’t participate in these networks felt the same.

There’s still work to be done

While procurement has made great strides in transforming into a more strategic capability, there is room for improvement. When asked to choose the most impor­tant change that procurement can make to increase its contributions to corporate goals, more than half of all respondents selected “improve process efficiencies.” Another 40 percent chose “improve collaboration with supplier net­work,” “increase automation,” and “improve discount and rebate capture with suppliers.”

“The opportunity for procurement to contribute to the company’s strategic agenda has never been greater,” said Tim Minahan, Chief Marketing Officer of Ariba. “As the findings of this report indicate, procurement should play an increasingly important role in driving not only cost savings but also value creation for the enterprise. But to do this, they must forge an even closer alliance with finance and further automate key commerce processes—from sourcing and order through invoice and working-capital management—both within the enterprise and across their supply chain.”

It’s a big vision. But, says Minahan, “With the help of commerce networks to connect trading partners and streamline inter-enterprise processes, it can be fulfilled.”

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Karen Master
Ariba, Inc.