About the relationship between finance and procurement | EBG Network
Following up on the topic of how and to what extent finance and procurement could or should co-operate. There is also a LinkedIn-thread which. Yes, we have a brand new Spend Matters briefing / best practice paper, which looks at the sometimes troubled relationship between finance. Good cooperation between the procurement and financial departments depends on e.g. the will of the company management board.
Compliance and gatekeeping Uncoordinated buying behavior across an organization negatively impacts metrics, such as catalogue or purchase order PO penetration.
It also hampers effective negotiations with suppliers, while further reducing visibility and spend control. Supplier relations Having each function manage suppliers independently can lead to ambiguity and inconsistencies. Conflicting messages from finance and procurement can negatively impact relationships with suppliers as well as suppliers' performance. Take a copy for yourself Download PDF Profitability Procurement must appreciate the commercial implications of the purchasing process, including accruals in relation to goods received not invoiced GRNI.
About the relationship between finance and procurement
Finance has to provide for GRNI, and significant provisioning can impact business profitability. Payment on time To pay suppliers to terms, finance and procurement need to align their PO and invoicing processes, and communications with suppliers.
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Organizations often pay late because of PO overages, error-prone manual processes, or issues with goods receipts. Late payment can create cash-flow pressure for vendors and impact supplier relations and future contract negotiations.
Businesses will also fail to capture early payment discounts if invoice processing takes too long. Centers of excellence Running helpdesks or contact centers separately can duplicate effort and drain resources. Integrating these activities delivers an improved, more structured approach to handling supply chain queries. Harnessing the value of an integrated approach The value of integration is significant, but to realize the benefits companies must adopt the right levers figure 1 through their choice of operating model and technologies, metrics and governance, and data management.
Target operating model Transforming Procure to pay end to end requires an advanced operating model with enabling technologies and practices that can lower costs while improving processes, contract compliance, and spend control. Designing the right target operating model goes a long way towards forging strong collaboration between procurement and payables. By using advanced organizational structures, such as global business services, outsourcing, or a hybrid, companies can create source to pay centers of excellence that bring together procurement operations, payables, and master data management teams.
These structures encourage cross-pollination of resources and talent. Moving parts of procurement and payables into a center of excellence also allows organizations to benefit from streamlined invoicing and helpdesk services. This supports a unified supplier management program, which promotes faster payments and high vendor leverage. Digital technologies Our experience indicates that procurement and finance often deploy a disjointed ordering and payables system with disparate workflows and master data modules.
How to build a great relationship with the finance department - Supply Management
Governance and reporting Typically, procurement and finance have tracked different metrics and KPIs, which has led to separate governance and reviews. While procurement may look to reduce costs, through early payment discounts and supplier leverage, for example, finance focuses on efficiency metrics, such as payment cycle time, operating costs, days payable outstanding DPOand working capital.
These objectives are often not aligned. Introducing a joint governance rhythm is critical to aligning objectives. This can be achieved by setting up a governance board with representation from both sides to track and measure the relative merits of discounting and DPO, and by analyzing interprocess links and coordinated metrics, such as DPO. Data management Having well-managed data in accordance with accounting rules plays a key role in ensuring that procurement and finance are united, and that governance and reporting standards are accurate and not open for interpretation.
In fact, many procurement departments are increasingly looking for candidates with experience working across a range of functions. A varied background typically ensures an understanding of business strategy as a whole and consequently of how and why procurement should work with other functions. Alternatively, a simpler way is to physically move someone from one function to another.
Even if only for a week, this process often serves to illustrate the issues faced by the department, as well as its strengths and weaknesses. On a more personal level, this approach also helps create a stronger relationship between finance and procurement.
Getting both functions to work together from the onset of an initiative will ensure both are able to contribute from the start. This will in turn lead to mutually beneficial, shared objectives as well as a more optimised process. There are of course other areas where procurement and finance can support each other. Procurement and finance speak much the same language and as such the former is able to speak to finance on behalf of other departments.
Say, for example, marketing has managed to deliver a certain percentage of savings and wants these reinvested in a new campaign. Procurement can help marketing evaluate the possible benefits of the proposed campaign and then put these to finance. Procurement and finance share many objectives and it makes no sense for the functions not to work together.
Years of working separately have made bringing the two together a challenge, but it is one that is well worth tackling.