CFOs are Ignoring Supply Chain Risks as Cost Cutting Tightens

GUILDFORD, England - Global Study Highlights Increased Risk of Missing Links Between Finance and Procurement

- Just 28% of CFOs say procurement has a significant impact on financial risk exposure - Less than half see any level of integration between procurement and finance processes - Almost 60% of indirect spending untracked by global organizations - 64% of respondents rate cost cutting as top priority, where as just 39% cite reducing risk as a priority

Chief Financial Officers in organizations across the globe are shunning risk management in favor of cost cutting, and are failing to treat supply chain dangers seriously enough according to a major new piece of research released by a leading academic and Basware (www.basware.com/Pages/default.aspx) today.

The current downturn is profoundly affecting businesses around the world, and The Cost of Control is the first major global study investigating the issues impacting finance and procurement. An insight into the views of 550 financial directors[1] and CFOs from organizations around the world, the research is supported by Professor Adrian Done of Barcelona’s IESE Business School.

Findings from The Cost of Control revealed that in spite of a high-risk economic environment, CFOs are failing to recognize the importance of closely managing supply chains through procurement, with just 28 percent of respondents to the study saying that they believe procurement has a significant impact on financial risk exposure.

Commenting on the findings, Professor Done said: “Businesses today are defined by their supply chains and some of the high profile business failures of the last 12 months point to this as a root cause. Finance departments across the globe have been guilty of ignoring the real value that their procurement teams can bring for decades now, so there is real truth in the suggestion that CFOs aren’t making the most of what can be an invaluable asset in the fight against the recession.”

“The subsequent finding that only 46 percent of financial chiefs see real integration between purchasing and finance processes makes this particularly alarming, as it represents a major break between two departments that should be working closer than ever to combat the downturn,” he continued. “With the suggestion that just 27 percent of CFOs consider that procurement has a positive effect on enterprise profitability, this all suggests that the procurement role itself and the wider supply chain is not seen as a significant contributor to bottom line performance.”

Perhaps unsurprisingly, raw cost cutting was also seen as a major priority for the CFOs questioned in the study, with 64 percent stating that bringing costs down was the top item on their agenda. At the same time, strategic goals seem to be taking an alarming backseat for many, with only 39 percent citing risk analysis as a major concern for them, and a comparable 39 percent believing that maintaining or improving margins was key. In contrast, and unexpectedly given the strategic emphasis in recent years on green sourcing and paperless offices by many companies in today’s economy, only 24 percent of respondents remained focused on environmental practices.

Basware’s Steve Muddiman said that the results point to a severe disconnect between the finance and procurement departments: “There should be a sense of trepidation on both sides of the fence when reading the results of this study. While heads of finance everywhere are looking at how they can bring greater security and stability to their organizations, they seem to be missing a major piece of the puzzle in overlooking the procurement teams as a major strategic advantage.”

Muddiman continued: “But while procurement professionals will likely feel that their strategic value is being missed by their finance colleagues, procurement is a vital function that can give a business the edge when times are economically tougher. At the same time there needs to be serious thought invested into why procurement still isn’t seen this way.”

The Cost of Control also reveals that businesses are leaving significant levels of data and process out in the wild, making accurate visibility of corporate accounting next to impossible. CFOs surveyed admitted that only 42 percent of indirect spending - such as marketing or consulting spend - was being captured by their organizations, and that only 50 percent of purchasing processes were automated, leaving major room for human error.

To help tackle the challenges identified in The Cost of Control, Basware recommends a three-step plan to CFOs and procurement professionals alike:

1. It is vital that all organizations have 100% visibility of spend - both direct and indirect - across the business. Only once it has a single, unified view, can a business make tough financial decisions

2. Ensure that the right controls are in place to give precise control over who spends money and what they can buy, leading to improved business processes and capital management

3. Only by working truly strategically can finance and procurement make the decisions that will benefit the business as a whole. The businesses that achieve transparency throughout the entire purchasing cycle will be best equipped to emerge from the current economic downturn in the best health

For a full copy of The Cost of Control insight study, please contact Octopus Communications or visit www.basware.com/control.

About Basware

Basware is the global leader in purchase-to-pay solutions with more than 1,500 customers and 850,000 users in over 50 countries around the world. With Basware, organizations can reduce the cost of buying and paying for goods and services and gain visibility and control of their entire spending process by automating manual processes, from sourcing, contract management, purchasing and supplier collaboration to invoice automation. Basware solutions and services enable substantial cost reductions across businesses and deliver value by providing compliance and control, as well as fast return on investment. The solutions are distributed and implemented, either on site or as a service, in Europe, the US, and Asia-Pacific through an extensive network of Basware offices and business partners. www.basware.com

About the research:

The Cost of Control study was conducted for Basware by independent research company Loudhouse during May 2009. Results came from a range of businesses across the globe, with all respondents occupying CFO, Financial Director or equivalent level roles. The size of the organizations at which those surveyed are employed ranged from 1,000 to 50,000 employees.

Interviews were conducted to present a proportional picture from across the globe, with 100 respondents surveyed in each of the USA, UK, Scandinavia and Germany, with 50 responses each from Spain, Benelux and France completing the total of 550.

About the Professor Done and the IESE:

Adrian Done is assistant professor in IESE’s department of production, technology and operations management and research associate with the Advanced Institute of Management (AIM) in the UK. He earned his Ph.D. from the London Business School, University of London and his MBA from IESE. He also holds a Postgraduate Certificate of Education from the Open University and a Bachelors Degree in Mechanical Engineering from the Loughborough University of Technology.

IESE Business School is widely recognized as one of Europe’s top international business schools. Founded in 1958 in Barcelona as the graduate business school of the University of Navarra. IESE has facilities in Munich, New York and Sao Paulo. It offers the MBA, Global Executive MBA, Executive MBA and PhD in Management degrees, as well as a wide range of executive education programs for global senior executives and Continuing Education programs for alumni.

———————————

[1] The Cost of Control study features insight from CFO and FD level respondents with 100 surveyed in each of the USA, UK, Scandinavia and Germany, with 50 responses each from Spain, Benelux and France completing the total of 550.

Source: Basware OYJ

Press contact: Lakshmi Rajendran/Chris Ewens, baswareuk at octopuscomms.net, +44(0)8453-700-655