With increasing cost pressure due to sustained inflation and tariff fluctuations, American companies are rushing to maintain their margins. The procurement department could be a powerful source of profit regeneration depending on whether the savings negotiated by the department are manifested to P&L and manifested as intended, or whether they are steadily eroding by post-contract vendor tactics.
However, a recent survey of over 100 CFOs with fine-tuning and CFO leadership revealed significant disconnections. Only 18% of CFOs in companies with more than $250 million in revenue are thought to be extremely knowledgeable in their procurement operations. Not surprising, it is not surprising that only 29% of large companies report high confidence in the procurement department's ability to provide measurable P&L alignment savings.
The problem is often structural. As individual companies or departments define the terminology, corporate procurement incentive plans tend to revolve around “savings.” But, oddly enough, buyers who benefit from procurement incentive plans often also target, monitor progress and verify results.
In fact, more than a third of large organizations allow procurement leadership to set their own KPIs and savings goals. This effect is a classic conflict of interest, which exaggerates savings, making it easier and more difficult for finance to trust numbers. CFOs are expected to regularly explain how savings initiatives are converted to P&L. However, in many companies, procurement runs scoreboards rather than finance.
The bigger the company, the less involved the CFO is usually in setting savings targets. For companies with revenues below $250 million, 45% of CFOs say they set their own targets, while for companies with revenues above $250 million, CFO leadership drops to 25% (procurement leadership plays a role in 36% of these companies).
Take it home is easy. As businesses grow, the capabilities that benefit from procurement incentive plans are more likely to design them, increasing governance risk unless finance insists on independent oversight.
Blind driving
Visibility follows the same arc. Only 31% of CFOs portray themselves as being extremely knowledgeable in procurement operations, with 13% admitting that they are low or accused of familiarity. Its familiarity has decreased significantly in large companies, from 35%, which is very familiar to small organizations, to 18% in large organizations. Large organizations are where procurement leadership is likely to set their own goals and where it is likely to exacerbate risk. If you are not very familiar with the funding that raises and the raising designs its own incentives, you have set reporting conditions that will not stand the settlement.
Only 38% of CFOs are confident that their procurement savings reach P&L. Confidence is higher in SMEs (43%) than in large (29%), and higher in P&L-sensitive ownership structures (42%) such as family- and employee-owned businesses and PE-backed companies compared to public, VC backing and other investor-owned businesses (32%). Governance is the lever. It improves reliability when finance owns measurements, and weakens when procuring both sets and verifying their own savings.
CFO's Winning Playbook
The Hackett Group's 2024 report lists cost savings at the top of its procurement agenda, and lists the report as a key development area for data and reporting. This reminds you that measurement quality is a constraint. Without a better analysis and a clean baseline, even honest teams will struggle to generate savings that finance can audit and defend. Distillation of the same study in the supply chain has been noted that technology procurement organizations provide much higher savings and more substantial ROI. This suggests that investment in data and systems is a prerequisite for reliable performance management.
CFOs need to standardize how savings are defined, use FP&A to monthly validation (up to the invoice level where initiative “erosion” actually occurs), and cut business unit budgets as soon as savings are booked. The key is to align the measurements with P&L in real time, so gain is captured rather than quietly re-speeding.
How to fix it
- Individual obligations. The designers and beneficiaries of procurement incentive plans should not examine the results.
- Standardize definitions and baselines. You agree how your savings are measured, what time periods your baseline covers and how leaks are handled. It demands that savings initiatives be “credit” in procurement at P&L.
- Reduce your budget in real time. If savings appear in P&L, reduce your budget so that profits are captured instead of re-speed.
- Invest in measurement. Audit-enabled analysis and reporting are prerequisites for reliable performance management.
These are not abstract principles. Fine-tuning research shows that finance increases confidence in the organizations that manage incentive governance, monitoring and measurement. If CFOs approach procurement and maintain control of incentive governance, research shows that savings are trusted and likely to land on P&L. When procurement maintains its own score, trust is eroded and value evaporated.
A reduction in the role of procurement is not a relief. CFOs need to play a role in aligning the incentives with P&L and establish a robust measurement system that can withstand rigorous evaluations. That's how CFOs can get their scoreboard back and keep their savings real.
