The evolving mandates of the CPO and CFO
From the February 2017 print edition
These days both the chief procurement officer and chief financial officer have the same
mandate. Historically, the CFO role tends to be influenced by the controllership stereotype. This is to ensure that all statutory requirements have been met while effectively managing cash flow to meet or exceed shareholders’ expectations. It also involves establishing appropriate levels of internal controls, exercising adequate financial reporting and execution of accounts payables transactional processing.
Similarly, the head of procurement stereotype—before evolving to a CPO role—focused on achieving cost savings by targeting the lowest prices, fulfilling compliance requirements by approaching a handful of suppliers through a formal tendering process, and establishing contractual compliance through either a purchase order or contract.
What we’re witnessing today is that stakeholders have raised the bar for both the CFO and CPO to take more strategic roles, moving away from a controllership approach. This makes the roles strategic change agents and business enablers contributing to the business strategy, driving innovation while managing risk and building capacity. Below are some perspectives that the CPO and CFO share:
Strategic planning—The CFO is expected to be a key influencer and collaborate with business executives to shape the overall business strategy. They can identify opportunities while anticipating risks and the ability of the business to mitigate risks and maximise ROI. The CPO would also contribute by addressing the supply markets trends, industry maturity, suppliers’ capabilities and potential levers that could drive business enablement for growth through the leverage of the organization’s competitive advantage. Defining business strategy offers a roadmap for both the CPO and CFO to collaborate during budgeting and the development of the category plans.
Innovation and Business Enablement—Due to global competition and stakeholder demands, organizations search out and invest in innovation to enhance competitive advantage and increase customer-centricity. The CFO must enable the business in venturing to new horizons and take risks that could yield more returns. The CPO collaborates with the business and CFO to explore innovation opportunities that can be seized by building relationships with market players, conducting market intelligence and exercising due diligence.
Optimization of Working Capital—Organizations often focus on maximizing revenues through business growth. However, optimizing working capital could lead to greater results and increases profile margin. The CFO can enable this by collaborating with the CPO to position strategies with strategic suppliers and for global sourcing, including: currency hedging, shorter payment terms and implementation of multiple inventory management approaches.
Revenue enhancement—The CFO’s main objective is to ensure the business is not only lucrative but that revenue streams are sustainable. With category management expertise the CPO can influence the spend for several years by partnering with strategic suppliers to identify levers that could optimize total cost of ownership, boosting the bottom line and expanding the profit margin. The CPO would leverage the organization brand and explore opportunities for commercial propositions.
Risk management, governance and compliance—Traditionally, the focus of the CFO is ensuring all policies that reflect statutory requirements are put in place with the appropriate level of enforcement. Recently, there’s being a significant shift to identify types of risks beyond procedural ones, such as supplier disruption, ethical procurement, political uncertainty and so on. CPOs would play a pivotal role in identifying these risks and proposing mitigation strategies that touch the entire procurement processes. The compliance mandate has been expanded—rather than focusing on gaps it also addresses strengths within policy and procedures that organizations could leverage.
CSR—Much focus has been placed on corporate social responsibility (CSR) and the role organizations should play to support the community and stakeholders beyond commercial aspects. The CFO would consider CSR as a strategic objective given its impact on brand and reputation. The CPO would ensure that ethical procurement is integrated across all business aspects while working with strategic suppliers to drive sustainability across the supply chain.
The CFO and CFO relationship might be influenced by business structure and to whom the CPO reports. Even with the common practices of the CPO reporting to the CFO, the opportunity to collaborate and drive business enablement across the above areas is great and the success rate would most likely be high. The more organizations realize that procurement operates for business enablement and value creation, the higher the chances for the CPO joining the C-suite