Credit Crunch Heightens the Chief Procurement Officer's FSC Role

22 Jul 2008

The impact of the 2008 economic slowdown has led to several problems within the financial supply chain (FSC), such as rising financing costs and less available credit, particularly in the form of long-term capital, plus an overall increase in pressure to maintain margins for shareholders. The pressure to cut costs has extended further into the organisation than ever before and now impacts the activities of the chief procurement officer (CPO). The CPO must be brought into the realm of FSC management in order to address these issues, argued Wolfgang Steck, vice president and head of procurement solutions and supply chain UK at global management consulting firm AT Kearney, speaking at the Financial Services Club's Supply Chain Forum last week.

Focusing on the question, 'Are actual solutions good enough for your clients?', Steck highlighted the importance of effective supplier relationship management and efficient operating process management in the global sourcing of supplies. He pointed out that the extensive market changes have made it even more difficult for CPOs to achieve their savings target, listing barriers to success such as talent availability, sustainability, interest rates, inflation, currency risk, regulatory issues, commodity scarcity, and supply continuity risks. He added that procurement departments must change - they must be collaborative and build trusting relationships throughout the supply chain, doing away with "bully buying" tactics.

To address these issues raised by the economic turmoil, FSC management has to include CPOs, argued Steck. He said that recognised leaders in procurement have embraced FSC management. "CPOs must tap into FSC management. Automation is a must. They must be part of supply chain finance and actively look at how to help their suppliers," argued Steck. "FSC management requires multi-lateral relations and collaboration between buyers, suppliers and financial institutions. Banks have an opportunity to work with a range of suppliers up and down the supply chain."

Eric Sepkes, chairman of the Supply Chain Forum and ex-Citi vice president, questioned whether banks understand what CPOs need. "Most banks don't know who the corporate's CPO is. We [Citi] always thought that our client was the treasurer in the company, but I think that may be changing," he said. "Each corporate must look at the procure-to-pay (P2P) costs because what is needed is something that helps the company decrease working capital throughout the whole FSC." But during the discussion, a representative from a bank stated that "most CPOs don't know what working capital is - and they should."

Steck at AT KEarney contended that CPOs need to be sitting at the board level in order to achieve the level of integration needed for a corporate to get a complete overview of its supply chain. He outlined the three benefits corporates and CPOs will gain by integrating CPOs into FSC management:

1.Within processes: decreased paperwork, increased staff productivity, a link between the FSC and physical supply chain (PSC), increased collaboration, and decreased invoice exceptions.
2.Within financing: decreased financing costs, increased control over cash flow and better risk management.
3.Within the supply base: decreased cost of goods, access to new suppliers, attractive financing option, increased loyalty of supplier and an enhanced relationship, as well as connecting players in the supply chain.

First published on www.gtnews.com