Make savings real: The secret to ending the CPO failure cycle
Finance and procurement collaboration
Organizations can take a new approach for procurement and CPOs to create meaningful and lasting impact on the P&L with full Finance and executive backing.
Developing a new charter
Why do most CPO’s typically hold their jobs for only a few years? CPO comparative longevity points to a series of connected, fundamental problems that directly hinder procurement’s ability to impact performance, including:
- Reporting, responsibility, and operational disconnects between procurement leadership and the rest of the executive team
- A limited (procurement) charter that makes it difficult for CPOs to impact budgets; apparent in the typical CPO’s inability to fully account for savings in financial planning and reporting
- Limited CPO involvement in annual planning processes and periodic forecasting activities, resulting in a limited ability to impact continued expense management
- An inability to define a consistent, measured means of how Procurement can engage Finance through the course of the procurement process
In order to change its value orientation, procurement should develop a new charter that establishes the function as the spend steward and leader in guiding how savings are identified and implemented. At the same time, this charter should complement Finance’s role in making the decisions to impact budgets and the financial forecast. This approach requires that Finance leadership remains the steward of the P&L, keeper of the books, and manager of expense ratios. But if Finance “owns” the savings number, what is Procurement’s role? Simply put, it’s to make things happen as the identifier of savings and manager of spend, which includes managing ratios just as Finance does.