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CFO strategies for maximising cost savings through procurement

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Insight
Summary

Authors: Lucrezia Bassano, Alex Gooch, Murray Matheson

Third-party cost reduction remains a priority on the executive agenda, with Finance and Procurement teams leading the charge to identify and pursue savings opportunities. However, what is often underestimated is the role of a CFO and their executive peers in laying the groundwork for successful cost saving programmes. 


In this article, we cover:

  1. The organisational preparation a CFO should complete before launching a cost saving identification programme.
  2. How to make the most of available data.
  3. How a CFO should assess if their organisation is ready to realise the identified cost savings opportunities.

Procurement teams will typically drive the technical elements of identifying cost reduction opportunities. However, it is up to senior business leaders to prepare their organisation for both the assessment and the subsequent delivery of identified opportunities. 

Our experience shows that when opportunity assessments are effectively managed and fully supported by senior leadership, the rate of a successful outcome increases by 40%. 

Setting the stage for success: Ambition and preparation

When approaching an opportunity assessment, senior business leaders should consider the critical actions below:

  • Define scope and targets: The opportunity assessment’s focus must be clearly defined, whether that be addressing a full scope of spend, specific areas like indirect procurement or additional targets such as Working Capital. Lay out parameters like timelines and set concrete targets with the expected bottom-line impact and return on investment. Without a clear direction, the assessment cannot yield meaningful results. 
     
  • Secure executive time and commitment: Secure time and effort commitment from executive peers; executive buy-in and accountability are crucial to achieving the momentum required for successful programmes. If their involvement in other pressing initiatives means they will lack availability, it may be worth reconsidering the timing or scope of the assessment.
     
  • Make room for “blue sky” thinking: Encourage an open-minded approach that invites all ideas to the table. This includes revisiting previously rejected ideas and evaluating ideas that require investments to unlock savings. At the beginning, make room for thinking that isn’t limited by existing capacity or capability; this can be refined later on.
     
  • Establish robust governance and decision-making processes: Set up strong governance to ensure that identified opportunities are reviewed in an open forum where decisions can be made based on a solid business case rather than being dismissed too early without proper assessment.

 

Timing and context are key to impact

Typical scenarios where an opportunity assessment can be particularly advantageous include, but are not limited to:

  • Budget planning: Aligning an opportunity assessment with your budgeting process allows for the seamless integration of identified opportunities into financial planning.
     
  • Market changes: Inflationary pressures may provide additional impetus to review supplier relationships to retain margins.
     
  • Company performance: If the cost base shows continued year-on-year growth, an opportunity assessment could be timely to understand and address the gap.
     
  • Company Changes: An opportunity assessment can help organisations ready themselves for an acquisition, private sale or an IPO.

Maximise the use of data to drive opportunities

A lack of spend visibility narrows the organisational focus to a budget level – this restricts an organisation’s ability to consolidate cross-functional spend and maximise value. 

This is precisely where CFOs can and should take the lead on aligning stakeholders from various parts of the organisation and finding synergies to maximise impact.

Building a full, organisation-wide spend cube upfront, with clear visibility into costs across business units and spend categories, helps CFOs ask the right questions and grounds the assessment in a realistic view of your current operations. 

 

Turning plans into action: Realise savings from the opportunity assessment

Identifying opportunities is only the first step. To deliver on those findings, CFOs and senior leaders must ensure that the necessary commitment, resources, and capabilities are in place. The following actions are key:

  • Focus on the right initiatives: Momentum is critical. Keep the focus on a group of core initiatives that match available resource levels and organisational ambition; often it is better to grow momentum through delivery than launch too broad a programme.
     
  • Bring in the wider executive team: Delivering stretch targets will require significant time investment and an openness to change from various parts of the organisation. Building executive awareness and securing senior sponsorship is key to realising the identified savings. In action, this can range from high-level executive discussions to setting explicit targets in budgets that align with the developed initiatives.
     
  • Assess Procurement’s ability to deliver sustained results: Evaluate whether your procurement function is well-positioned to deliver on the identified opportunities. Consider the following:
     
    • Does Procurement’s remit cover the entirety of the spend targeted by the programme?
    • Does Procurement currently have the skills and capacity to deliver results?
    • Is Procurement well-positioned to contribute to key company goals? 
    • Can you upskill existing employees, or could temporary resources be the answer to meet a specific, time-bound need?
    • Should the business invest in more senior procurement resources to help drive a transformation programme? 

Conduct a skills assessment, including contributions from other teams that work with Procurement to understand how Procurement and its ability to enact change in the organisation are viewed.

Is your organisation ready for an opportunity assessment?

If your organisation is approaching a budgeting cycle, experiencing cost pressures, or preparing for a major transition, an opportunity assessment could be the catalyst for meaningful change. For CFOs and senior leaders considering an OA, ask yourselves:

  • Are you coming up on a new budget cycle, have an instinctive view that there are cost savings available but don’t know how to quantify them? 
  • Are you preparing for a significant financial or strategic event?
  • Are you facing market pressures that require a re-evaluation of your cost structure?

If the answer to any of these questions is yes, now may be the time to explore how an opportunity assessment can help you to unlock value.