How Digitization is Impacting the Evolving CFO / CPO Relationship

By Dennis Bouley

August 28, 2018 at 7:14 AM

The history of interaction between the Chief Procurement Officer (CPO) and the Chief Financial Officer (CFO) has, until now, been fairly predictable. The relationship can be characterized by three key observations:

  1. Both Procurement and Finance lack of a common language when it comes to recognizing savings. They have varying interpretations as to how those savings should be treated on the books.
  2. Procurement typically only looks at savings that are contracted (that is, how much in savings they generate through the negotiation of better contracts).
  3. Finance has a much broader interpretation of savings and tends to analyze all elements.

As a result of this traditional reality, Procurement often feels that its value and contribution to savings is understated in the eyes of Finance. According to Johan-Peter Teppala, CEO, of Sievo, a leading provider of procurement analytics software and services, part of the problem is that the CPO lacks the data to convince the CFO to view his team’s work as contributing more broadly to the overall savings scheme.

“Procurement often overlooks savings that take place after the contract is signed,” said Teppala. “Once the new contract negotiations end, the work of measuring savings seems to stop.  But the true power of the contract comes from the savings generated across the global business units.  And those savings only accrue because of Procurement’s work to make sure the business units are adhering to the stipulations of those contracts,” he said.

Proper tools enable a new degree of accuracy

The challenge is that Procurement staffs often don’t have access to the tools that allow them to consolidate the post-contract behavioral data (which translates into procurement-generated savings). However, as a result of new technology trends such as digitalization and exploitation of the new sources of data being generated and captured as a result of Internet of Things (IoT) growth, the ability for Procurement to capture this data is now both possible and affordable.

“When collaborating, both Finance and Procurement need to adapt and develop a deeper understanding of the other’s requirements and operations.  Procurement should develop a quarterly approach to savings reporting which aligns with Finance. Also, total spend needs to address both CAPEX and OPEX spending.  Whether or not the nature of spending is accrued or a one-off type of spend is quite different from the Finance perspective,” said Teppala.   “Bridging the gap in having both Finance and Procurement interpret the data in a similar way is the challenge. The contracted savings versus the realized savings is the perception gap that needs to be closed,” he said.

This is where the importance of technology and measurement systems comes in. Modern system take care of crunching the numbers (to minimize the amount of labor required by Procurement to prepare the spend saving information for Finance). Instead of number crunching, Procurement’s time is spent making observations of any deviations to the norm and acting on that. Machine learning and artificial intelligence (AI) are playing a bigger role in improving the relevancy and importance of Procurement spend data.

“We focus on building fundamentals for determining how Procurement measures savings so that CFOs and the finance community actually believe the numbers that Procurement and CPOs are passing along to them and reporting on,” said Teppala. “We try to enable our clients and companies through technology to make sure that Procurement and Fnance speak the same language when discussing savings. We provide a platform that CPOs and their staffs can use to communicate the savings that they deliver as a result of their work,” he said.

Sievo is a leading procurement analytics SaaS-based solution company that helps the world’s leading businesses understand and create business value by enabling them to take control of all procurement information. Sievo helps clients identify opportunities, translate these opportunities into projects, embed created value into budgets and ensure that savings hit the bottom line.



Tags: Spend management procurement artificial intelligence Procurement AI procurement and finance CFO and CPO
Category: News Article

Dennis Bouley

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Dennis Bouley is Editorial Director of MyPurchasingCenter.com and special advisor to MediaSolve Group, a strategic B2B marketing services firm focused on helping companies and institutions leverage the web and social media to achieve business goals. He spent 18 years at Schneider Electric as Managing Editor of Global Publications, and was responsible for cross-division management of the corporation’s white paper and customer success story processes. Prior to that, he spent 10 years working for IBM managing both small and large accounts. He holds a Bachelor of Arts in Journalism from the University of Rhode Island and holds a Certificat Annuel from the Sorbonne in Paris, France. 


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