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CFO's Role - purchasing and compliance management

To the CFO community

I am curious to know how medium sized companies ($25-$150 M in annual revenue) approach purchasing. Specifically the following 

- Is the purchasing function part of CFO organization? if yes, is the function focused on - direct materials (Raw material etc.) or indirect materials (office supplies, IT,Print,professional services) etc.

- How are CFO's ensuring compliance to spend policy. (Authorization, conflict of interest,controlling rogue spend etc.)

- How are CFO's ensuring that purchasing function is playing a significant role in  Opex and Capex reduction.

Looking forward to your feedback

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Interesting question - it all depends on what your firm does, what type of controls are designed and separation of duties.

An example of "type of controls" is: Some companies use POs only for as you put it direct materials, but are haphazard about indirect. So you know what is going on with your inventory but have no control over most of the other spend (indirect), as well as calculating cash flow on that spend.

Simple answer, all money and the spend thereof is the venue of the CFO. While purchasing of Raw Materials, etc. may be directly under the COO, but the CFO controls the budget, the requirements for how items are purchased (necessary PO's, approvals, paperwork, etc), the spend policy (budget), etc.

Indirect may be distributed, but those policies and procedures are also controlled by the CFO.

Sachin Sharma
Title: Helping Mid Market CFO's control cost th..
Company: ProcureDesk
LinkedIn Profile
(Helping Mid Market CFO's control cost through effective procurement, ProcureDesk) |

Thanks for the insights. In larger companies the purchasing role/CPO generally reports into CFO but seems like in SMB's it is mostly under COO.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

A contrarian view....

1. Does it really matter? If the success/effectiveness of a function depends on who it is under and NOT what it is supposed to accomplish, the company has more serious problems than figuring out where the function should fall under.

2. We are still operating in a hierarchical paradigm and not function (and success/goal) based one. As long as everyone knows the functions' objectives and ALL the necessary tools/resources and information/data are given and accorded that function, then it does not really matter if the Purchasing function is under ...as an example....say HR (or independent), right?

3. Positive side effects of the view are the following (among others):
a. Flatter organization
b. Objective/goal based function/position
c. Less politics (IMO)

4. As a CFO (personally), it is more important for me to influence (across the whole organization) than control. To me, "control" means the organization is not yet mature enough to trust individuals or functions. But that is just me.

I admit, this is UTOPIAN thinking....but it does not hurt to ask the questions and challenge existing paradigms.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

To further refine control, that can mean directly, indirectly, thru memo, policy whether written by myself or delegated but signed off by me as the CFO.

The larger the firm or the more diverse the nature of the spend the less hands-on, direct interaction one can have.

Those who can't delegate fail as the organization grows. Those who can't hire and manage managers is destined to fail as the organization grows.

Sachin Sharma
Title: Helping Mid Market CFO's control cost th..
Company: ProcureDesk
LinkedIn Profile
(Helping Mid Market CFO's control cost through effective procurement, ProcureDesk) |

Emerson and Wayne,

Both of you have very valid points, Emerson point on influence is very valid, the goal should be to increase the influence over entire spend and organization vs. taking the control angle. However, it is equally important (Wayne's point) to have controls and policies in place and then the focus should shift to implementing those controls in a user friendly way while keeping the needs of operations in mind.

Coming to question on where the function should report .. that has more to do with the mindset, In larger organizations, purchasing departments under CFO's focus lot on cashflow, cost reduction through strategic sourcing. On the other hand, purchasing departments reporting to COO's or other departments are more focused on day to day tactical activities like PO processing etc. That is just my opinion and hence posting this for community to chime in.

Also when it comes to cost reduction(negotiating better costs with vendors) through strategic sourcing, I feel that there is very limited leverage for SMB's to negotiate better costs because of the volume, so not sure how medium sized companies address this challenge. Any thoughts?

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