Five reasons CFOs need procurement digitisation

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As Chief Financial Officers have the responsibility to manage and plan a company’s finances, they have the final say over procurement decision-making.

CFOs need a clear picture of the company’s finances and look for saving opportunities in all their forms. For this reason, digitised procurement and vendor management system processes can be of great interest to them.

Prasanna Rajendran, Vice President at Kissflow, discusses how moving to electronic procurement brings value to Chief Financial Officers.

1. Budget Control

Making sure that budgets stay under control is among the primary focuses of CFOs. This can be challenging to accomplish in manual procurement processes. 

The problems begin right in the beginning because of low visibility into accurate inventory levels: underestimating stock levels can lead to unnecessarily large orders, and overestimating them and ordering small amounts can cause repeated orders. Both the cases lead to extra costs. 

Similarly, procurement teams may not have sufficient information about available vendors to compare the prices of dealing with them to choose economical deals. The manual procurement function is also often dominated by dark purchases and rogue spending. All these make budget control an ordeal.

Procurement digitalization solves such issues. Sophisticated cloud-based procurement solutions allow accurate inventory tracking, so the employees who raise requisitions and the approvers of PRs and POs can gauge situations accurately before sending Purchase Orders ahead. Such platforms allow procurement personnel to compare real-time vendor and product data as well, so they can find the most reasonable deals.

As the tech-enabled platform centralises the procurement function, it tracks all related expenses. So, dark spending is mitigated. Additionally, enforcing a central channel through which all purchase requisitions go through also ensures that POs are only opened to approved suppliers, reducing rogue spending. All this makes budget management efficient and straightforward.

2. Spend under management

Spend Under Management has many definitions, but a commonly accepted one is that it refers to the fraction of addressable spending to total spending. Here, addressable spending refers to spending on authorised supplier contracts or the expenditure that falls completely under procurement management. 

Having a managed spend is among the top priorities of CFOs. So,  greater the value of SUM, the more centralised and planned an organization’s spending. Digitalization can make this possible.

When the procurement function is digitised using a cloud-based platform, procurement personnel have to raise Purchase Requisitions on the central software, which automatically routes them for approval. Relevant authorities can approve and consolidate vendors of strategic importance and set up the platform to only allow PO system to be forwarded to those vendors. This benefits SUM in two ways:

Firstly, such a method ensures that only set approvers authorise the PRs. Secondly, as POs are only opened to a chosen few vendors, maverick spending is eliminated. In this way, the organization’s purchases stay accounted for, and extraneous expenses are eliminated in line with the CFO’s aims.    

3. Spend forecasting

CFOs realise how spend forecasts are critical for an organization to be able to plan its growth. However, in order to forecast properly, the organization’s spending history and patterns should be clear. And manual procurement processes fail to deliver a clear, cohesive picture because of their fragmented nature. 

As the organization shifts to cloud-based procurement channels, the software involved keeps track of spending and budget and generates reports and KPIs as required. The resulting visibility into spending patterns can also let procurement and finance teams identify areas where expenses can be cut down. Equipped with accurate data and a toolset that provides descriptive analytics, the finance team can establish forecasts with an accuracy that is impossible to achieve by manual means.    

4. Cost savings through eliminating manual work

As Chief Financial Officers mean to bring down an organization’s costs, they should consider employing automation to bring labor overheads down. The savings generated by this process go beyond the costs associated with an increased number of work hours.

Businesses today face talent shortages and often over-hire to compensate for them. At the same time, their own employees have manual, redundant work piled up for them. This is especially true in procurement and AP teams, where data entries, contract management, etc., waste time and labor. By eliminating manual tasks, the organization can free up its underutilised talent and save on hiring while improving efficiency with automation.  

Digital procurement platforms completely eliminate redundant work. It automates the creation and maintenance of all data entries and audit trails. Three-way matching between Purchase Orders, Goods Receipt Notes, and Invoices is automatic as well. As there is no paperwork involved and the organization of data hardly requires manual input, workers save on time and effort. This gives them time to focus on aspects of strategic importance, and the organization benefits from reduced expenses.  

5. Avoid unapproved purchases 

Unapproved purchases are detrimental to budget management, and so CFOs need to be able to prevent them. This task is easier said than done, especially in larger organizations where requirements can be numerous and approvers too few. Communication delays further exacerbate the risks of unapproved purchases as when items are required urgently, team members can take it upon themselves to arrange them. 

Manual procurement processes do not allow sufficient control or oversight to monitor and reduce instances of unauthorized purchases. Digital procurement processes, on the other hand, can accomplish the task efficiently. 

Procurement software has automated approval workflows. This means that PRs and POs are only forwarded after a complete approval cycle. It also allows you to set extra tiers of approval when a Purchase Order exceeds a certain amount. As the entire process commences digitally, employees do not have to spend time chasing approvers, who are notified whenever requisitions and orders are pending their approvals. 

So, when an organization implements digitalization and does not allow any orders to proceed through manual means, it can eliminate unapproved purchases.    

Conclusion

In order for an organisation to move ahead smoothly, the C-suite should have insight into the functioning of individual teams and departments. Traditionally, CFOs have mainly been requiring procurement departments to cut down costs. However, only focusing on savings without thinking about improvements and investments can hamper the company’s growth and foster inefficiencies.

CFOs and CPOs need to coordinate to identify areas where finance and procurement teams can be facilitated so that the organization succeeds unhindered. Technology offers a great solution in this regard, and organizations need to accelerate adopting it to adapt to the digitised world.

About Author

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Prasanna Rajendran is the Vice President at Kissflow, where he heads the business operations of Kissflow Procurement Cloud, a flexible procurement software for procurement teams to streamline all their purchasing processes in a single place.

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