In this blog post, Procurement Leaders invites Karen Sage, chief marketing officer at SciQuest, to explain how procurement and finance can develop closer ties for the benefit of the business.
Is your procurement department under pressure to ’get along better’ with finance? Perhaps your CPO is now reporting directly to the CFO. Whatever the situation, it is possible for finance and procurement to get along better, it is simply a case of realising that the two departments are all about meeting the same goals.
Procurement tends to overly focused on price, while finance is obsessed with control, compliance, and governance. Ultimately though both functions are playing for the same team.
Here are six things you can do today to improve your relationship with finance.
1. Stop talking about ’cost savings’
They don’t mean what you think they do, especially to others.
Procurement finds ways to get stuff cheaper. They claim they ’saved this much’. Finance doesn’t believe them and rolls their eyes. The problem is that the two departments use the term ’cost savings’ in different ways. While procurement means ’this product normally costs X and we got it for Y’, finance means ’we paid X for it last year and Y for it this year’. Finance only sees what you spent, not what happened with the price of commodities or anything like that. They’re only looking at what that expense cost last year versus this year.
Procurement has to help finance understand what it means by learning to speak their language.
2. Start talking about your processes
Instead of focusing on price, procurement and finance can find mutual ground when they start talking processes. Help finance understand what your sourcing activities yield. Explain your contracting methodology, demonstrate your demand management skills and how you forge and nurture supplier relationships. Prove how better supplier relations helps the business score better prices, but also other perks, like on-time delivery, better packaging etc.
3. Avoid a mandate to go through procurement
Do it through building relationships.
The last thing you want is for a mandate to come down that all spend must go through procurement. Ideally, you’ll win them over with your skills instead of forcing them in with a mandate. Take the time to get together with finance, as well as other departments, and demonstrate what you can do. When you prove that you can do a better job for less money, departments will choose to use procurement and it won’t have to be mandated.
4. Realise that procurement can end up being the bad guy
Unfortunately, procurement can become the unwilling tool for finance to use when slashing the budgets of other departments. Here’s how it works: procurement finds a way to save money on a specific product or service another department needs. Finance then rips that saving out of the department’s budget, leaving procurement to look like the bad guy who made it all happen.
There is, however, a way to still find these savings without the budget cuts. Say that IT needs to invest in new desktop computers for the workforce. They ask for a budget of $800 per machine for 1,000 workers, for a grand total of $800,000. Procurement can probably get the machines for $500. Instead of asking finance for a budget of $500,000, ask for 1,000 machines with a maximum budget of $800,000. This allows IT to hang onto the savings to spend on other needed items, while maintaining their relationship with procurement (and maintaining the trust built between finance and procurement).
5. Help finance understand the repercussions of making slow payments
In an attempt to hang on to more cash for longer periods of time, many finance departments decide to extend payment terms. While finance sees this as boosting the company’s cash holdings, what they don’t see is how much these practices actually cost the business in the long run. Suppliers start raising their prices to make up for the slow cash flow on their end. Many of them decide it’s simply not worth doing business with your company, meaning you have fewer suppliers to choose from. Worse, the company’s reputation is damaged because suppliers start talking about ’issues with payment’. Help finance understand the other side of the decisions they make regarding supplier payments.
6. Help finance see your case for higher inventory levels
Finance wants to see cash go toward expenditures that prove a real, measurable, and immediate ROI. This means that they aren’t fans of keeping lots of inventory. Finance doesn’t see that extra inventory can help protect the business in situations where there is a sudden spike in demand, driving up prices or hurting availability. Explain how not having the item (or having to pay significantly more for it) is detrimental to revenue.
When you better understand finance’s point of view, you can better articulate the procurement side of things. Do that and you’ll open up new areas of opportunities that have the potential to deliver untold value for the business.
Karen Sage is chief marketing officer at SciQuest.
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This contributed article has been written by a guest writer at the invitation of Procurement Leaders. Procurement Leaders received no payment directly connected with the publishing of this content.