10 December 2009 | Jake Kanter
Finance chiefs have a narrow view of what procurement departments can achieve, research by Aberdeen Group found.
A survey of 176 global finance professionals and buyers revealed that purchasing departments are measured only on how much they can save. CFOs said their four main key performance indicators for procurement cover price-reduction achievements and the cost-effectiveness of running the department.
“Despite an ability to drive value and execute against a wide range of business objectives, deviations on savings measurements are basically the only metrics used by the CFO to measure the performance of the CPO,” the report said.
It added that there was a “save first, ask questions later” attitude among finance executives, which meant that 32 per cent of those questioned do not formally measure the accuracy of procurement savings.
Poor communication between the two departments is largely to blame for a lack of alignment and narrow performance targets, it said. In addition, finance chiefs have a dim view of procurement’s ability to innovate, its use of technology and impact on product development.
However, it found the pressure on purchasers and financiers is identical at present, with both treating cost-cutting as their first priority.
Some of the best performing buyers strike up a good relationship with finance by clearly articulating their “value proposition”, leading to greater responsibility. The report also recommended increasing communication with finance through regular formal and informal meetings, while ensuring that conversation does not always focus on performance.
“The CFO-CPO relationship remains a work in progress,” it concluded.