What Skills Are You Missing?

?How big is the skills gap for you and your Procurement team?

Part 2 of 3

Much is written about the inventory of skills needed to succeed in Procurement.  Usually, that is done from a Procurement perspective. We look at general business skills like Communications and Influencing. We look at more specific skills, such as Category Management, Negotiations, and the like.  We look at hard vs. soft skills. All good, but it only takes you so far.  I prefer to look at it from our stakeholders’ perspective. 

A defining characteristic of our job is that we sit in the crossroads of Finance, Legal, and “The Business.”   Our primary role is to understand the needs of these three organizations and somehow balance them all.  And that requires us to have certain facility in the language and skills of those organizations. Let’s take a look at each.

Part 2:  Finance and Accounting

Note 1: If you do not understand the difference between Finance and Accounting, you should. I will not spend time on it here but go ahead and google “The Difference Between Finance and Accounting,” or send me a personal note and I’d be happy to help clarify.

Note 2: This will not be a discussion on Savings Calculation and Reporting Methodology. Sorry if you are disappointed. That subject is worthy of a textbook on its own, and if you ask ten CPOs or CFOs for the “right way” to calculate and track savings, you will get at least eleven different answers. That said, all the items discussed below will help you contribute meaningfully to those debates.

Let’s flag right away one essential skill you need: Systems and tools.  If you need help every time you want to pull spend data from your P2P system or have to ask someone to manipulate an Excel spreadsheet for you, you are limiting your productivity, and your career. We are well past the point where ignorance of Excel is acceptable. 

Now, the harder stuff. Bear with me – this can get very dry. I see your eyes glazing over already as you have flashbacks to your freshman Accounting class. But it is critically important. If you want to be taken seriously by C-Level executives, you need to speak their language, and their language is Finance and Accounting.  

Here is a very simple Finance example:

A supplier offers you an additional discount in return for a three-year pre-pay of the contract. Is it a good deal?  If your first response is to send it over the Finance for their opinion, you are doing it wrong.  

You need to be able to calculate (or validate) the interest rate being proposed, and send it over to Finance with a recommendation (along with your analysis of whether or not a three-year term makes sense from non-Financial perspectives). Finance can then look at hurdle rates and cash-flow concerns and decide if it makes sense in the bigger picture. But if you just send over the proposal and ask, “is this any good?” you will lose credibility and be perceived as a nuisance, not a partner.

Procurement needs to be at the table when the business case for a purchase or project is being made.  We cannot get a seat at the table if we don’t speak the language or add value. Too often, we pat ourselves in the back for understanding the Total Cost of Ownership (rather than just the purchase price), while we have little or no understanding of the Total Benefit of Ownership. What is the return on the investment (ROI)?  What factors contribute to that return, and what are the risks? What assumptions are being made in that calculation? What is the financial impact of delaying the negotiations another month to squeeze out an extra few percent on the discount?

What about Income Statements and Balance sheets? Can you read them? You may rely on someone else to evaluate and track the economic health of key suppliers, but you really should have some sense of these things for yourself. Do you not check the stock price and SEC filings of suppliers before you meet with them? You should. It can be invaluable in understanding their priorities and motivations and trends in the market.

What about Depreciation and “Book Value?” Do you know the depreciation schedule for the assets you are sourcing? You should, and along with it, the difference between OPEX and CAPEX. 

How about Tax? If you don’t understand the fundamentals of sales and use tax, you can make expensive mistakes in your contract and ordering documents.

This may be all very obvious to you, but is it to the people you manage? Understanding the fundamental concepts and vocabulary of Finance and Accounting is a critical skill too many procurement professionals lack.