Chief Procurement Officers see responsibility increase
By William Gindlesperger, Chief Executive Officer, e-LYNXX Corporation
The modern day chief procurement officer (CPO) has a significant role in delivering value to shareholders, customers and the public. But the CPO’s success is very dependent upon collaboration with the chief financial officer (CFO). That is one of the findings of the most recent Capgemini Global Survey of Chief Procurement Officers, first published in 2010.
“Increased collaboration between the two key ‘money crunchers’ in the organization not only makes sense, but is a prerequisite to success,” said Hamish McKechnie-Sharma, a Capgemini Consulting Principal, in published remarks.
In addition to 79 percent of chief procurement officer respondents stating that procurement must be more focused on “improving an organization’s bottom line,” 70 percent said organizations must develop means by which “measurement on procurement performance in financial terms” is achieved. This goes hand-in-hand with procurement and finance collaborating from the beginning of a fiscal year on what a savings is, setting up criteria to measure savings and ensuring that the path to savings is totally transparent.
Towards this end, there has to be a means by which savings, improved efficiencies, strong quality controls and full transparency, accountability and reporting are delivered and documented. There also has to be an agreement between the CPO and the CFO that continuing to use traditional – and antiquated – procurement practices must stop. No longer can a few vendors be the sole sources for goods and services. No longer can negotiated pricing, influenced by personal relationships and vendor perks to the buyer, drive procurement decisions. No longer can work be awarded without true competitive bidding.
Savvy CFOs and CPOs are embracing new methods that address the issues of high costs, questionable efficiencies and limited transparency. One such method that is proving itself is automated vendor selection technology. AVS Technology is reducing costs for procured goods and services by 25 percent to 50 percent, with the average cost savings for licensees of the technology being 42 percent. These reductions are in the actual procured costs of the goods and services when compared with their historical prices, excluding efficiencies and staff reductions which yield additional cost reductions.
Driven by AVS Technology, vendors – all carefully screened and objectively qualified by the buyer -- are automatically selected to compete for work. Only those best qualified to produce each project are invited to submit bids. Participating vendors lower their prices, in a competitive bidding environment, to fill gaps in their production schedules. The buying organization benefits from deep discounts. The winning vendor is awarded work that it otherwise would not have.
For the buyer, there are additional benefits. When the technology is used with a robust web-based workflow and communications system and best practices, the process delivers total transparency, full accountability for all participants (buyer and vendor), strengthened quality controls, assured timeliness and significant efficiency gains. Also, an indelible and auditable task-by-task record of each project is established for future reference. This approach, already licensed by a host of businesses and other organizations, can be used for a wide range of applications including specialty products, commercial printing, temporary staffing, direct mail, POS, construction services, publications, packaging and transportation. Using the 42 percent average savings of current AVS Technology licensees as the benchmark, each $1 million in procurement costs achieves $420,000 in cost reductions for procuring the same goods and services. This is dead serious money as organizations typically procure 2 to 20 percent of their gross revenues.
These type results encourage CFO and CPO partnerships. Enlightened management today sees the chief financial officer and the chief procurement officer as equals with both having seats at the executive team table. No longer is procurement relegated to being a back-office function. The Capgemini survey also found that more than 70 percent of purchasing functions now report directly to boards of directors and more than a quarter report directly to chief executive officers.
Co-ownership of the procurement process by finance and procurement will result in savings that are achievable, proactively managed and sustainable.
Tradeshift: Pioneering eProcurement and Digital Trade
Tradeshift helps transportation and logistics organisations digitally transform their processes. The company offers a suite of services, including spend management, accounts payable and invoice automation, eprocurement, and supplier collaboration through a dedicated B2B supply chain marketplace of more than one million businesses.
As disruption and digitisation continue to accelerate, demand for Tradeshift’s solutions has grown dramatically. The company recently announced the signing of 20 new global enterprise customers since the beginning of its financial year on 1 February, while the number of active businesses transacting on the Tradeshift platform rise by 52 per cent year on year.
Tradeshift Chief Revenue Officer Christope Bodin expects that growth trajectory to continue, as the economy begins to fully reopen and the world works towards recovering from the pandemic. “We are well positioned to support the wholesale digitalisation of business processes,” Bodin said. “For organisations looking to grow in a post-COVID economy, this is fast becoming an organisational standard.”
Tradeshift in Brief
- HQ: San Francisco, USA
- Employees: 800 located in offices in 13 countries
- Customers: 500+ in 190+ countries
- Total on-platform transaction value: $1tn
- Platform: 1.5m companies connected
Key Tradeshift customers: Volvo, Kuehne+Nagel, DHL, Air France-KLM Group
Tradeshift: From $1 to $1 trillion
The company was established with a mission to “connect every company in the world, digitally,” according to Lanng, and followed the trio's earlier product EasyTrade, a pioneering open-source trade platform.
In July 2021, just over a decade since launch, Tradeshift announced passing a new milestone: the cumulative value of transactions processed across its platform passed the $1 trillion threshold. To put that in perspective, Tradeshift said it took two years to reach the $1bn milestone.
Commenting on Tradeshift’s current and future standing, chief executive Christian Lanng said: “We’ve helped a lot of businesses to stay operational and get paid during an extremely volatile period. Every time a business joins our platform it unlocks a whole ecosystem of relationships that we can help to digitise. This sets us apart from the majority of enterprise software providers who remain preoccupied with building connections one at a time.”