Risky Disconnect Between Purchasing and Finance

July 16, 2009
Only 28% of CFOs said they believe procurement has a significant impact on financial risk exposure.

Less than half the chief financial officers and financial directors surveyed for a new study report any level of integration between their procurement and finance teams, and only 28% said they believe procurement has a significant impact on financial risk exposure. The study of 550 financial officers in the United States and Europe was released by Basware, a developer of purchase-to-pay solutions, in conjunction with the Kelley School of Business at Indiana University.

Mark Frohlich, an associate professor of operations management at the Kelley School of Business, said "The Cost of Control" study showed finance departments are "guilty of ignoring the real value that their procurement teams can bring to the financial health of their organizations" and that CFOs are not "making the most of what can be an invaluable asset in the fight against the recession."

Frohlich noted: "The fact that only 27% of CFOs consider that procurement has a positive effect on enterprise profitability suggests that the procurement role itself and the wider supply chain is not seen as a significant contributor to bottom-line performance. However, the companies in the study that take a more holistic, strategic approach realize higher performance."

The study found CFOs were focused on cost-cutting as a major priority, with 64% stating that bringing down costs was the top item on their agenda. Only 39% of the respondents said risk analysis was a major concern for them. A similar percentage said maintaining or improving margins was key. Just under a quarter of the financial managers said they were focused on environmental practices.

Given these results, Basware offered three recommendations for CFOs and procurement professionals:

  1. Have 100% visibility of spend -- both direct and indirect -- across the business. Only once it has a single, unified view can a business make tough financial decisions.
  2. Ensure that the right processes are in place to give precise control over who spends money and what they can buy, leading to improved business processes and capital management.
  3. Only by working strategically can finance and procurement make the decisions that will benefit the business as a whole. The businesses that achieve transparency throughout the entire purchasing cycle will be best equipped to emerge from the economic downturn in the best health.

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