CFOs say saving costs is top priority
But many say purchasing can do better
Paul Teague -- Purchasing, 6/30/2009 4:08:50 PM
Purchasing professionals need to work more closely with their colleagues in finance, and that includes working harder to convince finance of the value purchasing brings to companies.
That's one of the top conclusions to come from a recent survey conducted by software developer Basware on attitudes of chief financial officers toward purchasing.
Eighty-eight percent of chief financial officers responding to the survey say that identifying costs savings opportunities is their top procurement objective for meeting wider strategic goals. But only 54% say they are satisfied with purchasing's efforts in that area.
Moreover, only 50% say they are satisfied with purchasing's efforts in cutting non-essential spending, an objective that three-quarters of respondents say is among their top priorities.
More than half of respondents say that procurement is getting more strategic, and more than 60% say that the role of the chief procurement officer is getting more challenging. But only 27% say that procurement has a positive effect on enterprise profitability.
Basware conducted the survey in conjunction with the Kelley School of Business at Indiana University and the IESE Business School at the University of Navarra in Spain. The survey recorded the views of 550 financial directors and CFOs from large enterprises around the world.
In many ways, the survey results show that CFOs are blinded by their fight to reduce costs, says Adrienne Dunn, assistant professor of supply chain management at the IESE Business School and one of the directors of the study.
His study co-director, Assistant Professor Mark Frohlich, of the Kelley School of Business, says the results show how desperate CFOs have become during a weak economy.
There were a few potential contradictions in the answers CFOs gave to survey questions, Frohlich says.
For example, most were unhappy with purchasing's efforts to negotiate better prices from suppliers-one of their top priorities. But 41% say supplier stability is the top risk they face right now as they develop finance strategy. They're not making the connection between efforts to squeeze cost reduction from suppliers and suppliers' ability to survive, Frohlich says.
The survey did show that the CFOs' satisfaction with cost-saving strategies is influenced by the levels of process automation within their companies. Sixty-eight percent of respondents say that in companies with highly automated purchasing processes purchasing and finance are more likely to have maximized savings in the past 12 months. Still, respondents say there are efficiency gaps in data capture, automation and integration. Less than half say they think purchasing and finance are integrated effectively.
"CFOs seem to be living in ivory towers," says Dunn. "They're blind to the issue of risk to the supply chain." But he also says purchasing has to work harder to satisfy finance. "Coming up with cost savings over the last decade has been easy," he says. But, he adds, CFOs think purchasing can do better. "CPOs have to show their stragegic importance," he says.
Frohlich says his analysis of results reveals that survey respondents fall into three general categories. Most are cost cutters, he says, who aren't concerned with cash flow, investor relations or even profitability.
The other two categories, he says, are "cash flow-ers," who don't rate cost cutting as high but who also aren't concerned with profitability or investor relations; and holistic CFOs, who are concerned with cost cutting, cash flow and investor relations.
"The CFOs concerned with cash flow will be ok if the recession doesn't last much longer," he says.
See also: How to speak like a CFO.
Running the Numbers
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