CFO's playbook: Mastering strategic procurement

In today’s digital age, imagine a procurement team with access to all relevant data on cost structures, supply availability, lead times, and more.

Such a team would be in a prime position to negotiate the best prices, adapt its planning on-the-fly, or switch to alternative suppliers during shortages. This is not a distant dream but a reality that many CFOs are inching closer to, thanks to big data and advanced analytics.

A recent report from McKinsey reveals that many chief procurement officers (CPOs) expect a 40% increase in annual savings and a 50% reduction in value leakage from their digital procurement programs.

How to drive value creation?

Modern procurement practices now leverage tools that delve deep into historic purchase orders and invoice data, creating what’s known as a ‘spend cube’. But it doesn’t stop there.

With the integration of artificial intelligence, these tools are now capable of automating the once tedious process of data cleanup and classification.

For category managers, this means having dashboards at their fingertips that not only display data but actively highlight sourcing opportunities.

Moving beyond visibility, the realm of collaborative and advanced sourcing is opening new avenues for strategic procurement. There are now solutions in the market that meticulously guide category managers through every step of crafting comprehensive category strategies.

The beauty of these tools lies in their collaborative nature. They do not just streamline the strategy development process; they foster collaboration, ensuring that all stakeholders are on the same page. The results speak for themselves.

Companies that have embraced these tools have not only met their savings targets but, in many cases, exceeded them by an impressive 20%, according to McKinsey.

But perhaps the most anticipated advancement in the procurement world is the concept of the Supplier X-ray.

This is not just a tool; it is a vision of the future where procurement teams have real-time profiles of their suppliers. From cost structures to lead times, every piece of data is accessible and up-to-date.

The anticipation around multi-tier supplier visibility is palpable, and companies are eagerly awaiting the full realisation of this concept.

PassportCard, a leading international travel and private medical insurance provider, faced challenges with its initial procurement system as it expanded. Their unique insurance offering, which allowed direct payments for medical services, required a robust and flexible procurement system to support their growth.

Their journey from recognising the inefficiencies of their initial system to transitioning to a more adaptable solution, highlights the importance of choosing the right tools for procurement.

Using a specialised procurement management system, from Precoro, PassportCard streamlined their processes, from purchase order creation to approval, and gained real-time insights into their spending.

This transformation not only optimised their operations but also provided the finance team with unparalleled visibility and control over company expenditures.

Sealing the value gaps

CFOs also need to be cognisant of value; this is where procure-to-pay solutions can help prevent ‘leakage’. By harnessing the vast amounts of order and invoice transaction data, these solutions are now predicting order configurations for repeat buyers.

The result? Reduced processing time and a push towards the use of standard order templates.

Calm, the global mental health app, faced challenges not from an unrealistic technology roadmap, but from their initial contract lifecycle management and deal desk management solution that could not keep up with their rapid growth.

As the business expanded, the need for a centralised system for managing contracts became paramount. Their journey from grappling with inefficient solutions to successfully implementing Ironclad, a new CLM and deal desk solution, in under 90 days, underscores the importance of adaptability in procurement tools.

With Ironclad, Calm not only streamlined its contract management but also achieved significant operational efficiencies, such as reducing contract turnaround time and automating order forms.

This transformation not only optimised their operations but also empowered their teams to focus on more strategic tasks, highlighting the profound impact of choosing the right procurement tools.

Charting the digital course

For CFOs, the future of procurement is not just about leveraging new tools but about understanding the specific value drivers offered by each tool and aligning them with their company’s unique needs.

While many of these tools are still in their infancy, early adoption and experimentation can pave the way for significant value creation.

As McKinsey’s report aptly puts it, these tools will only deliver their true value in the hands of capable talent. Therefore, as CFOs look to the future, it’s not just about the tools they adopt but the teams they build and train.

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