Procurement Strategies for CFOs: Driving Cost Savings and Efficiency
Procurement is a critical function for any business, and as a Chief Financial Officer (CFO), you play a crucial role in ensuring that your company’s procurement practices are effective and efficient. You may face challenges such as choosing reliable suppliers, controlling costs, and managing orders.
Research-backed procurement strategies can help CFOs achieve their goals while minimizing risk exposure across global supply chains. By implementing the right strategies, CFOs can reduce costs while still maintaining high quality standards.
This blog will cover the current challenges facing CFOs and procurement teams and several strategies that can be implemented to drive cost savings and increase efficiency.
The Pressures Facing CFOs
No doubt about it – there is A LOT of pressure on your shoulders as a CFO. It is a vital role in any organization to manage financial risks and ensure stability, but with the rise of Artificial Intelligence (AI) and Machine Learning (ML), you are now expected to be equipped with the best digital tools for data analysis.
In fact, according to Gartner®, “by 2025 50% of FP&A leaders will have enterprise-wide data strategy as a key responsibility.” With 36% of leaders prioritizing AI implementation in finance [1].
It is also likely that you work closely with your Chief Procurement Officer (CPO) or your procurement team as they are your biggest champions for managing suppliers, keeping costs down, and mitigating risks.
However, if your procurement team is like every other company, they are stretched thin and likely sitting on mounds of data that they don’t have time to analyze. You would like to work effectively together, but where do you even get started?
Developing Your Procurement Strategy
If you don’t already have one, the best place to start is by developing a procurement strategy. According to EY’s CPO Officer Survey, “80% of respondents confirmed that they are rewriting their procurement strategies.”
Having a clear strategy is essential for ensuring that your procurement efforts are aligned with your overall business objectives. Your procurement strategy should consider factors such as your budget, data analytics, risk tolerance, and supplier relationships.
It is also imperative for you to consider less tangible, but just as important items, such as cross-departmental collaboration, talent, digitization, and ESG efforts. You’ll want to work closely with key stakeholders to determine the relevant business impact KPIs to measure performance against.
Once you have outlined all of these elements, you can start to focus on the challenges your organization faces and the top five aspects of your procurement strategy that will solve them.
Challenge 1: Increase in Commodity Prices
In the last three years, there have been many external factors that have challenged the procurement industry. COVID-19, Brexit, and the Ukraine crisis are just a few events that have caused less supply availability due to logistics. This means that prices for everyday commodities have skyrocketed, demand has increased, and CFO’s worldwide are shaking their heads in disbelief at money spent.
Strategy 1: Meeting Margins with Cost Savings
EY’s survey stated that, “20% of respondents were either unsure of their budget for procurement digitization, or did not have one.” This is where cross-department collaboration comes into play. As CFO, make it clear what budget can be allocated to cost saving initiatives such as investing in Predictive Procurement Orchestration software.
By initiating a touchless procurement cycle, tools like Arkestro can give you insights on the economic value of an opportunity and offer clear recommendations of prices you should pay for items. Not only will this save you money without increasing headcount,, it will help you save time and allow you to meet your margins. GEP’s CPO Report states that 78% of CPO’s consider reducing operational costs as a high priority, which shows your procurement team might be on the same page.
Challenge 2: Supply Chain Disruptions
The procurement and supply chain industries are currently like the wild west. Your procurement team is having to worry about a multitude of scenarios, from increased raw material costs, to longer lead times, to sustainability risks. What plan of action does your company have in place, should one of these scenarios occur?
Solution 2: Mitigate Risks
Hopefully you are one of the 81% of respondents who are incorporating contingency planning and risk mitigation as key components of updates to their sourcing strategies (EY). If not, take a step back and understand every potential impact that supply chain disruptions can have on your organization.
It is improbable for you to be expected to know everything going on in the world at any moment, but by leaning on tools like Arkestro, you won’t have to. Our software ingests information from your internal systems, and we are also looking at external sources such as ESG, market, and risk data to ensure you stay ahead of any risks.
Challenge 3: Supplier Frustrations Using Multiple Systems
The source-to-pay process can be a frustrating one for all parties involved. Companies implement new technology that isn’t easy to use and suppliers are hesitant to be onboarded. There also might be multiple systems to log in to. The good news is that 81% of CPO’s hope to enhance the speed and efficiency of source-to-pay activities over the next 12 months (GEP).
Solution 3: Establish Strong Supplier Relationships
It should be no surprise that strong supplier relationships are critical to effective procurement. By building strong relationships with your suppliers, you can negotiate better prices, get access to better products and services, and establish a more efficient supply chain. Be open and honest with your suppliers about your organization’s sustainability targets and diversity and inclusion principles.
Arkestro can help you obtain optimal results by reducing friction between suppliers and your business, prevent bad transactions in real time, and suggest prices that will satisfy both parties. There is no need to sign into Arkestro as our software can embed easily into your ERP. Your procurement team will also spend less time working on manual tasks so that they can spend time improving your supplier relationships.
Challenge 4: Lack of Procurement Digitization
The good news is that “nearly 68% of people believe the adoption of procurement technology is a pathway to achieving resilience in their supply chains” (EY). The bad news is that there are many roadblocks in the way of securing that adoption. You’ll need to assess the staff you have, your scope of services, and funding to understand what technology you can invest in.
Solution 4: Embrace Technology
Technology can play a crucial role in streamlining procurement processes and improving efficiency. Once you assess your barriers to innovation, consider the software and tools available to you and learn what will be best for your current and future needs. Invest in an easy-to-use procurement software that can help automate routine tasks and provide real-time data on purchasing activities.
Ardent Partners’ highlights the difficulty CPO’s face when measuring their teams’ level of proficiency for technology. “Only a sliver (4%) replied they were sophisticated users with systems that are highly adopted. And only a small group (11%) of procurement departments reported advanced technology usage by targeted users.” User adoption is key, so expect to set aside a significant amount of time for training and establishing power users.
Challenge 5: Drowning in Data
We get it, data can be overwhelming, but it can also be a powerful tool that fuels digital transformation. GEP’s CPO Report highlights the top data barriers for procurement departments, which include “poor or incomplete data (46%), data enrichment (42%), efforts relating to digital transformation specifically to reduce manual data entry (39%), and data existing across multiple systems (25%).”
Solution 5: Use Data to Drive Better Procurement Decisions
Data is critical to effective procurement. By analyzing data on supplier performance, purchasing patterns, and other relevant factors, you can make more informed procurement decisions and identify opportunities for cost savings and efficiency improvements.
The beauty of tools such as Arkestro is that we utilize machine learning to find patterns, identify anomalies, and create insights that are forward looking around potential risks, savings & process improvement opportunities. The best part? This is all done autonomously, so you can gain everything you need to know without all the noise.
Predictive Procurement Helps CFO’s Meet Any Challenge
Procurement is an ongoing process, and it’s essential to continuously evaluate and improve your procurement practices. Regularly review your procurement strategy, supplier relationships, and data analytics to identify opportunities for improvement and optimize your procurement processes to meet any new challenges.
By keeping these key principles in mind, you can help ensure that your organization’s procurement practices are effective, efficient, and aligned with your overall business objectives.
Predictive Procurement Orchestration is a powerful tool that can help CFOs optimize their procurement efforts to meet these objectives. You can derisk crucial supply, source more frequently and faster, prevent bad transactions in real-time, reduce friction with suppliers and the business, and ultimately lower costs. Curious to learn more? Watch a demo or reach out to speak to an expert.
[1] Gartner, Top Priorities for Finance Leaders in 2023.