From Cost Center To Growth Lever: Why CFOs Should Prioritize Direct Spend

For many Chief Financial Officers, direct spend – the money spent on direct materials and services that go into a company’s products – remains an underappreciated lever. Historically, direct spend has been viewed as a cost of goods sold to control, largely managed by procurement and operations. Yet this perspective is changing, and for good reason. In product-centric industries, direct materials can represent the largest portion of total expenditures – often up to 80% of overall spend. Ignoring such a substantial cost driver is a missed opportunity. By elevating direct spend from a mere cost center to a strategic focus, CFOs can unlock new margin improvements, optimize cash flow, and strengthen supply chain resilience.

Direct Spend: The CFO’s Overlooked Priority

CFOs are increasingly recognizing that direct spend deserves more attention at the executive level. According to a recent Coupa Strategic CFO survey, 39% of CFOs still view direct spend as a challenge or basic cost center, while about 60% acknowledge it as strategic but in need of better alignment with business goals. In other words, virtually all finance leaders know there is untapped value in this area, but many have yet to actively seize it. This gap in focus represents a critical blind spot. Direct spend is the largest and most influential cost driver on the income statement, impacting gross margins, cost of goods sold (COGS), and ultimately the bottom line. Treating it with a “blind eye” or leaving it solely to the operational side means leaving money on the table and exposing the company to avoidable risks.

Why has direct spend historically been overlooked by CFOs?

One reason is organizational silos: procurement and supply chain teams traditionally manage supplier negotiations, bills of materials, and production inputs, while Finance tracks financial outcomes. CFOs have tended to focus on indirect spend (SG&A and overhead costs) where they have more direct control and visibility. Indirect procurement improvements (e.g. cutting discretionary spend or automating procure-to-pay) have been championed by Finance in many firms. Meanwhile, direct spend processes often run on legacy ERP systems or spreadsheets, with CFO involvement limited to approving budgets or reviewing variances. This separation can make direct spend feel “out of sight, out of mind” for finance leaders.

However, the volatility of recent years – from supply disruptions to commodity price swings – has underscored that direct spend is far from a fixed cost of doing business. CFOs who prioritize direct spend management can transform it from an operational necessity into a strategic performance lever. The potential upsides are significant: even a few percentage points reduction in direct material costs can translate into substantial margin expansion. Improved procurement of direct inputs can free up cash, reduce balance sheet inventory, and avert expensive production delays. In short, direct spend isn’t just about cost control – it’s about value creation and risk mitigation at an enterprise level.

From Blind Spot to Strategic Driver: The Business Case for Focus

Leading organizations are now turning their attention to direct spend as a frontier for financial improvement. What can CFOs gain by shining a spotlight here? In Coupa’s recent CFO Direct Spend Masterclass, experts outlined how refocusing on direct spend can turn this area from a “blind spot” into a strategic growth driver. Key benefits include:

• Visibility & Cost Control: Gaining end-to-end visibility into direct spend helps find hidden costs – from procurement process inefficiencies to unexpected freight charges or supplier price hikes – before they hit the financials. With better data, CFOs can identify and eliminate waste, ensuring that every dollar spent on raw materials or components is competitive and justified. This proactive cost management directly protects profit margins.
• Working Capital Optimization: Tight oversight of direct spend can reduce the cash-to-cash cycle. Often, lack of coordination in purchasing and production leads to overstocked inventory or obsolete materials, which tie up cash and increase holding costs. By aligning procurement with demand and eliminating excess stock, companies reclaim trapped working capital and free up cash for strategic initiatives. In financial terms, this means lower Days Inventory Outstanding and a stronger liquidity position – outcomes any CFO can applaud.
• Supply Continuity & Risk Reduction: Direct spend focus goes hand-in-hand with supply chain resilience. CFOs who engage in direct procurement strategy push for stronger supplier relationships and diversification of sources for critical materials. This ensures supply continuity and reduces the risk of costly disruptions (like line shutdowns or expedited shipping fees due to shortages). The financial translation is fewer surprise expenses and more stable revenue delivery. In an unpredictable global environment, such resilience planning is a strategic asset.
• Improved Forecasting & Predictability: When Finance works closely with procurement on direct spend, it enhances forecasting accuracy for COGS and margins. CFOs can get ahead of commodity price fluctuations or foreign exchange impacts on input costs. With integrated data and scenario planning, leaders make more confident, data-driven decisions about pricing, sourcing, and inventory. The result is greater predictability in financial outcomes, which translates to more reliable earnings forecasts and reduced volatility – a key concern for boards and investors.

In sum, by treating direct spend as a strategic driver, CFOs can cut inefficiencies, boost cash flow, and safeguard the business’s profitability. The conversation shifts from “How do we minimize this cost?” to “How do we leverage this spend for competitive advantage?” This is the essence of turning direct spend from a mere cost center into a growth lever.

Speaking the CFO’s Language: Translating Procurement Value into Financial Impact

A crucial element in bringing focus to direct spend is financial translation – the ability of procurement leaders to frame their initiatives in terms that resonate with CFOs and finance teams. Procurement may inherently understand the operational value of, say, qualifying a second-source supplier or negotiating longer payment terms. But to get full C-suite buy-in, those efforts must be expressed in financial outcomes like margin improvement, risk reduction, or cash flow enhancement. In other words, procurement needs to speak the CFO’s language.

Consider the following examples of how procurement initiatives around direct spend can be translated into finance-centric metrics:

In each case, the procurement action is mapped to a tangible financial result. This kind of translation is powerful. It not only helps the CFO understand the value of direct spend initiatives, but also ensures that procurement and finance are aligned on common goals. For instance, a procurement team’s success in negotiating savings should visibly move the needle on gross margin or EBITDA – and if it doesn’t, both sides can investigate why (e.g. leakage, demand changes, etc.). By establishing this shared language, CFOs are more likely to support investment in procurement tools or process improvements, because the ROI is clear in financial terms.

Procurement leaders can facilitate this by developing dashboards and reports that bridge operational metrics with financial KPIs. Instead of reporting “savings achieved” in procurement terms, they can report impact on COGS or working capital in finance terms. Likewise, risk mitigation efforts (like qualifying backup suppliers for a sole-sourced component) can be translated into avoided revenue loss or quantified risk reduction. The more procurement can illustrate direct spend management as driving business outcomes – not just procurement department outcomes – the more attention and resources CFOs will devote to it.

A Path Forward: Aligning Finance and Procurement (the S2P Framework)

How can CFOs and procurement leaders put these ideas into practice? It requires a collaborative approach and often, enabling technology. One strategic move is adopting an integrated Source-to-Pay (S2P) framework that unifies processes from sourcing all the way through procurement and payment. In the past, direct procurement activities (like supplier selection, contract management, purchase planning) often lived in separate systems from the financial side (purchase orders, invoices, payments). Today, modern S2P platforms are breaking down these silos. For example, Coupa’s unified design-to-pay platform provides one place to manage all spend – direct and indirect – with end-to-end visibility. Such a system connects the dots: sourcing events, contracts, and purchase orders for direct materials flow seamlessly into the accounts payable and spend analysis process.

The S2P approach means CFOs can finally get a comprehensive view of total spend. With guided workflows and real-time data, finance and procurement teams are literally on the same page – seeing the same numbers, trends, and risks. An integrated platform enables prescriptive insights: for instance, AI-driven analytics might flag that a spike in commodity price is driving up costs in a certain category, prompting procurement to act before it impacts the P&L. Or it could show that inventory on hand for a critical item is above optimal levels, prompting a strategic review of purchasing frequency. In short, S2P tools help translate operational data into the financial impact quickly, which aligns everyone on priorities.

Of course, technology alone isn’t a silver bullet. CFOs should also foster a culture of partnership with procurement. This means involving procurement leaders in strategic planning and budgeting discussions, and vice versa – letting finance have insight into procurement’s supplier strategies and challenges. Joint KPI setting is useful: for example, target a certain reduction in COGS % or a boost in inventory turns, and make it a shared objective for both finance and procurement. Regular executive reviews of direct spend performance (just as many companies do for indirect spend or SG&A budgets) can keep the focus sharp.

Ultimately, making direct spend a CFO priority is about connecting the dots between the shop floor and the balance sheet. When CFOs treat direct expenditures not as a black box to be managed by others, but as a strategic domain where they can apply financial leadership, the business stands to gain. The biggest cost line item becomes a source of competitive advantage – driving cost efficiency, supporting growth, and insulating the company from shocks.

These insights are drawn from Coupa’s Source-to-Pay framework and a recent CFO Direct Spend Masterclass session (available here). By translating operational improvements into financial outcomes, CFOs and procurement leaders together can turn direct spend from a blind spot into a bright spot on the executive agenda – one that delivers real dollars-and-cents value to the enterprise.