The B2B FinTech world hears it time and time again: eProcurement is becoming a strategic part of the enterprise.
Strategic supplier management, contract negotiations, electronic sourcing and transacting — these are all ways the procurement functions can, in theory, generate savings that promote a more robust bottom line and healthier cash flow for the enterprise.
According to the firm’s latest study, “Bridging the Gap Between Finance And Procurement,” released last week, much of the savings generated from a procurement strategy aren’t landing on the bottom line.
As it turns out, researchers found, very few members of both the procurement and the finance team within organizations surveyed by Protiviti say more than 80 percent of the savings generated by the procurement function land on the bottom line (7 percent of procurement execs and just 2 percent of finance teams).
According to Bernie Donachie, managing director and leader of Protiviti’s supply chain practice, that statistic spoke volumes.
“That’s a really shocking number,” he recently told PYMNTS, about his surprise that so few procurement professionals see the savings they work so hard for landing on the bottom line. “I thought the number would be higher.”
The survey did find that some savings are making an effect though.
More than a third of procurement professionals say that between 21 and 40 percent of savings land on the bottom line, but only 20 percent of finance professionals say the same. Across the board, it’s clear that there is a gap between how procurement teams and finance teams perceive the effectiveness of a procurement strategy.
According to Donachie, this gap between departments can pose a problem for corporations as a whole.
“We’re seeing more and more leaders talk about cash flow and working capital,” he said. “It’s really taken hold, and it is becoming more of an analysis that is done, in terms of working capital and cash per savings. This survey, for us, illustrates that more organizations are looking at the cash flow aspect of procurement.”
An increase in data available — and the technology that can analyze it — could be behind this.
“It’s about the analytic capabilities that organizations now have,” he said. “I think there is more data coming in at a much greater speed, and it allows you to look deeper. More organizations are talking about cash flow and working capital, and it’s an evolution we’re witnessing over the past few years.”
But if professionals aren’t seeing a positive link between procurement savings and a boost to working capital, then that disconnect could call into question the effectiveness of procurement.
Protiviti’s report didn’t call into question eProcurement’s ability to generate savings, however. Instead, it highlighted that those savings aren’t landing on the bottom line. As to where those savings actually end up, Donachie said he has one hypothesis.
“It could be that some organizations, when they find savings, rather than putting them to the bottom line they get redirected to fund another project or another effort,” he said. “When you ask, ‘Is it going to really affect margins or our profitability at the bottom line-level?’ I think some people are saying, ‘No, it’s going to get reallocated to something else.’”
Those savings could be redirected to prevent layoffs or add fuel to corporate investments, the executive explained, and that’s not necessarily a bad thing. What a company should do with savings realized varies greatly from business to business.
“We work for clients where they take those savings and reinvest it, and they feel very good about that,” Donachie said.
While the survey does not examine where those savings go, a key issue here, he continued, is that even if those savings are reallocated to fund strategic investments or other key projects for the enterprise, the finance team may not know about it.
“My hypothesis is that the finance team is making a statement that procurement talks a good game, but they don’t really see the savings come through on the bottom line,” he said. “I don’t think anyone in finance is saying, ‘Well, they probably reinvested it.’”
The data could reveal a deep pain point within the enterprise: a lack of effective communication between procurement and finance teams.
“We talk in the survey about centralization. There is a high percentage of leaders that have a centralized procurement and centralized finance departments,” Donachie said. “When you centralize them, communication is very easy to track and get across to each other — rather than having communication go across disparate organizations and different geographies.”
That type of communication may be able to fill a key gap between these two functions of the enterprise. And, depending on the organization, filling that gap could mean more savings from procurement lands on the bottom line — or wherever the organization needs it to go.
“There is a gap between the work procurement is doing and how the fruits of that labor get to the bottom line,” Donachie said. “They may be using those savings to fund something else, but I’m not sure everyone understands that. And I think that hurts the procurement function, and it hurts the business.”