Cost management is a priority for every business. Procurement outsourcing can offer a number of benefits, including visibility and control of costs
Top business performance improvement through procurement outsourcing offers a compelling way for a CFO to punch beyond the realms of finance, argues Matthew Eatough, CEO at Proxima, an end-to-end procurement services provider, whose clients include BG Group, BDO , British Airways and WM Morrison.
“For example, during the budget-setting process it’s difficult for a CFO (chief financial officer) to challenge budget-holders from a position of real insight into underlying cost drivers for suppliers, innovation coming from the marketplace and so on,” says Eatough. “Often what happens is an annual ritual of dispute between the CFO and the budget-holder. This rarely leads to a meaningful discussion about the underlying value for money, how to stretch the impact of limited funding, or how to achieve broader strategic goals.”
Cost management is clearly part of the finance agenda and, to manage costs effectively, Eatough argues that there must be commercially minded procurement capability in the process, working strategically with finance and budget-holders to maximise the impact of expenditure.
“Procurement is like an internal consultancy that spans all functions and influences people across the organisation, from the top down. The challenge is that procurement is complex. It spans vast areas of spend, such as IT , marketing, professional services and HR . It requires numerous skill sets, such as influencing, negotiation, change management, leadership and communication,” says Eatough. “And it depends on your ability to efficiently run a multitude of processes, such as manage tenders, deal with suppliers, track savings and match purchase orders to invoices.
“Typically, suppliers devote more time and expertise to maximising the value they get out of an organisation than the organisation invests in maximising the value it achieves from suppliers, therefore organisations often lose out. So when the CFO is dealing with functional heads who are experts in their own field, the ability to talk their language is paramount to enable trust and allow the CFO to influence their area of responsibility.”
Eatough says procurement outsourcing is attractive to a CFO given the nature of what it can deliver.
“We see procurement as an undervalued and underdeveloped business resource. What surprises people is the size of the achievable return on investment – far greater than other types of outsourcing, and it’s a major untapped opportunity for many large organisations. In 2011 we delivered more than £40m of cash for a FTSE 100 client – cash which went straight to the bottom line. Another client has estimated that their profit margin would be 20 per cent lower without the influence of procurement.”
Eatough often refers to making organisations leaner, fitter and stronger. For a CFO, this translates into greater visibility over what spending activity is going on in the organisation, and improved control over this activity in terms of cost management, updated and managed policies, streamlined procedures and better budgeting controls. The benefits go far beyond cost savings. Procurement outsourcing promotes cross-functional working and a unified culture, Eatough adds.
“It’s about enabling change, enhancing management control and del ivering extraordinary, and often unexpected, results. That means providing organisations with a procurement solution that enables them to change the way they think and operate. It’s this change that ultimately delivers business success,” says Eatough.
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