Chief Financial Officers (CFOs) and Chief Procurement Officers (CPOs) should consider working cohesively to reimagine sourcing policies amid an economic downturn in 2023.
The global industry has somehow recovered from the turmoil imposed by the recent pandemic and its aftermath. Moreover, with the finance industry veterans predicting an economic downturn very soon, it has become essential for business leaders to think about reimagining business operations to ensure business continuity in disruptive times. The pandemic shed light on the supply chain gaps and what businesses need to work on to avoid business disruptions. Procurement of raw materials needs a substantial amount of investment to ensure a better production process. Errors and mistakes in Procurement can be financially draining for every enterprise. CFOs should consider designing and implementing the best procurement policies to mitigate the financial risks that Procurement exposes businesses to.
Following is a playbook for CFOs to mitigate procurement risks that have a tremendous impact on organizations’ finances:
Implement relevant tools in the enterprise research planning tech stack
Enterprises will increasingly require procurement technology solutions to be more consumer-like, intuitively designed, and agile to improve efficiencies, better work with their business stakeholders, and help to do more with a leaner staff. CFOs should integrate procurement tools that enable them to make the right financial decisions about procuring raw materials, especially during an economic downturn.
“Automation will bring a more consumer-like, self-serve buying experience to the enterprise. AI is having a profound impact across entire organizations; injecting automation into key enterprise functions, including Procurement, and leveraging it to bridge data silos that inherently exist is dramatically more efficient and effective,” Says Keith Hausmann, CRO at Globality.
CFOs, CPOs, and CIOs should work cohesively to make the right purchase investments, which can help the procurement teams to establish cross-functional teams, leading to real-time discussions that could explore savings opportunities beyond commercial levers. CFOs that want to get rid of the pressure on pricing should find out ways to minimize ownership costs by upgrading the design that encourages production excellence too. Upgrading the product design by structurally reducing the cost of production by eliminating the waste in the manufacturing process.
CFOs should work in collaboration with the procurement team to explore new sourcing opportunities either offshore or onsite. It is one of the most effective ways to get an in-depth understanding of various raw material qualities and their prices. CFOs and CPOs need to create a perfect balance and diversification between all the new suppliers in the supply chain and make necessary changes in the procurement cycles to avoid financial loss. CFOs need to enforce strict procurement policies that create cost pressures on the team always. Procurement leaders need to have backup suppliers ready that offer the same quality raw materials at a lower cost to save a substantial amount of finances.
“Indirect spending will become the focus of C-suite efforts to improve their bottom line. Indirect spending can account for 20% to 40% of revenues yet rarely draws c-suite attention. Where companies were once able to squeeze margins from their supply chain, rising costs for products across the board are preventing them from tapping that source. Instead, companies will tap indirect spending, such as Technology, Marketing, and Real Estate outlay, in order to preserve earnings, margins, and profitability. There will be more strategic focus on indirect spending and less emphasis on simply slashing budgets,” adds Keith.
Hire the right procurement talent with finance skills
As finances can be impacted tremendously because of wrong procurement decisions, businesses need to attract, hire and retain talents that have the financial knowledge to make strategic decisions. There are a few procurement tools that can be integrated into the FinTech stack that gives the sourcing teams a holistic view of cost-saving opportunities.
“Within procurement teams, skill sets will shift from transactional abilities to relationship management and problem-solving. As data analytics and automation become more prevalent, companies will no longer need large procurement teams focused on transactional work. Instead, procurement talent adept in strategic problem solving and relationship management will be much more in demand,” adds Keith.
Effective procurement teams should have the ability to leverage insights derived from technology and artificial intelligence while accomplishing transactional tasks more efficiently through automation. This approach is one of the most effective ways to free up the budget that businesses can save during an economic downturn in 2023.