Seeing the Light: Why More CFOs are Using Procurement as a Tool for Business Growth
A growing number of CFOs across Europe are now looking to their procurement teams to support their companies’ business growth strategies. Procurement is not just simply a back-office function, but a proactive business tool, able to deliver short-term gains and also help a business work towards long-term objectives.
So, what is driving this shift to pull procurement into more strategic discussions? The results of pan-European research commissioned by Maistro in 2018 show that efficiency improvements rate among the top three challenges for European CFOs, alongside growth and gross profit. Most CFOs surveyed (82 percent are focused on technology improvements as a strategic imperative to achieve these business goals; while 60 percent say improving supplier quality and reducing their supplier base is an operational priority in the short term. Implementation timelines and cost are cited among difficulties hindering the pursuit of these goals; while almost one in three respondents (30 percent) express anxiety about their business being unable to keep up with the pace of technological innovation.
This combination of significant short-term business challenges and the limits of in-house resources is leading businesses to revisit their approach to outsourcing and their adoption of modern technologies. Our independent research shows that some CFOs are seizing the opportunity to use new methods of outsourced procurement to pursue tactical and strategic objectives – whilst other CFOs and business leaders don’t yet realise what they could gain by doing this, or what they might lose if they fail to do so.
The current appetite for outsourcing procurement varies by country across Europe. For example, our research shows that more than one in three respondents in France (34 percent) believe outsourcing procurement would lead to optimal procurement performance, compared to only 19 percent of those in the United Kingdom (U.K). At present, 15 percent of companies across Europe actively outsource procurement services, but this ranges from 28 percent in France to just 11 percent in the U.K.
Our findings also highlight differing reasons behind this activity. Businesses in the Nordic countries say the key driver behind outsourcing procurement is the value of this approach as a means of trialling business initiatives in new markets. Whereas in Switzerland, the most important influencer is access to services that are not available in-house.
The fact that businesses in the UK cite a desire to meet cost-cutting targets as the primary driver for outsourcing procurement is concerning. It suggests that many UK businesses have yet to grasp the strategic and operational value that outsourcing could deliver. These organisations risk falling behind businesses, in the UK and elsewhere, that are using procurement to accelerate operational activities to hit their business objectives.
Businesses that are exploring ways to outsource certain areas of procurement now have a number of different options. The influence of automation, machine learning and cloud technologies is transforming the world of online procurement delivery platforms, enterprise crowdsourcing models, procurement-as-a-service offerings and B2B marketplaces. All these tools are able to accelerate procurement to drive efficiency and cost savings. Adopting technology like this does more than improve the efficiency of procurement. It also creates an opportunity for businesses to use procurement as a way to extend their service portfolio, or to expand operations into new territories, at minimal cost and risk.
Despite the benefits, many UK businesses still appear hesitant about proactively using procurement as a strategic lever in their business. Whatever the reason for this hesitancy, UK financial decision-makers and procurement professionals need to consider the value that new procurement methods and technologies offer: reducing spend, driving maximum benefit out of investment in new business services and enabling growth in existing and new markets.
CFOs and CPOs should also embrace the value that can be delivered to the business when they align their digital transformation initiatives. As Chartered Institute of Procurement & Supply (CIPS) Head of Knowledge and Product Development, Helen Alder, notes in her foreword to The Procurement Predicament, “procurement is a vital business partner for the CFO … pioneering CFOs are aware of and embracing new technology … to be used within procurement to modernise their businesses and expand into emerging markets.”
As businesses of all kinds embed digital processes throughout their operations, use of B2B marketplaces and other digital procurement technologies will continue to spread. Businesses that are slow to adopt them will fail to realise the benefits of becoming more efficient, more agile and more profitable.