Procurement is a business function that offers so much in the way of value. However, its not always easy to showcase the full spectrum of what procurement provides to other teams or get the necessary buy-in from sponsors or stakeholders to support procurement activities. In fact, one of the common pain points for procurement practitioners is the ability to align finance.
Finance is a critical business function. So much of what guides operations is based on the bottom line and therefore it is absolutely essential that procurement align with finance. Without this collaboration, procurement teams will struggle to gain credibility within an organization and will be less able to contribute to the overall success of the business. In order for procurement to truly be successful, it needs to align with finance. Here are some tips for helping achieve alignment between finance and procurement.
Develop a reporting structure that promotes collaboration
Reporting is essential for keeping different departments aligned. It’s only logical that the department in charge of managing money and the team that handles buying should coordinate. To really make the most of your collaborative efforts, try syncing on reporting structure to increase adoption. Ideally, procurement would actually fall under the purview of finance wherein the CPO reports directly to the CFO to increase that alignment. Benefits include:
- Inclusivity of both procurement and finance goals. In aligning with one another, both departments can work toward and achieve their goals.
- Validating procurement as a necessary business function. A partnership between procurement and finance ensures that procurement is given equal standing alongside accounting, FP&A, financial reporting, and other critical business functions.
- Enhanced visibility into financial processes. As purchasers, it’s essential that procurement understand budgeting and cash management to help meet the larger business goals.
- Improved sourcing strategies. Once procurement has a better understanding of what matters to finance, it’s easier to target sourcing strategies to align with those goals.
Align metrics to savings methodologies
Finance will always be concerned with savings and procurement certainly needs to keep it top of mind as well. With improved alignment, procurement teams and finance can agree on which methodologies they want to adopt and strive to execute those. These are the different metrics you should evaluate.
- How savings is calculated
- How you will monitor savings
- How you will track avoidance
- How you will identify other value adds
- Who signs off on savings
- How you will document savings
Address risk management and governance issues
Managing risk and ensuring appropriate governance is absolutely critical in today’s business environment. CPOs need to play an active role to help ensure governance standards are followed.
Procurement policies need to be part of the larger framework to keep risk under control. The following policies will need the direct input of procurement to ensure success
- Authorization and Approvals
- Travel and Entertainment
- Code of Conduct
- Legal Review
- Security (Infosec, Physical, GDPR, etc.)
Compliance and enforcement
Procurement also plays a significant role in the enforcement of these policies. Procurement is able to provide value through the Procure-to-Pay cycle, including (but not limited to):
- Selection and onboarding of suppliers
- Adherence to spend limitations and authorization levels
- Validation of purchase orders prior to payment
- Lifecycle vendor management and monitoring
- Supplier offboarding
A roadmap for aligning procurement and finance
Aligning procurement and finance takes a commitment to collaboration, which means undertaking tasks together. A Procurement Performance Management (PPM) approach can help significantly to identify how procurement is contributing to the organization. Use the following six steps to set you on the path to success.
- Identify: If you truly want to accelerate the alignment between procurement and finance, identify opportunities for savings where you can work together and optimize processes. This could include cost reduction, decreasing risks, or improving the quality of your supplier products.
- Prioritize: One identified, make sure you take the time to prioritize the next steps. Determine the risk and value associated with each step and attend to high-stakes tasks appropriately. Make sure it’s clear who will own each step and how you plan to measure progress.
- Forecast: A good collaborative effort involves setting a plan for the future. Discuss projected savings and how you plan to achieve those metrics.
- Collaborate: Aligning procurement and finance and is all about enhancing the ability to work more closely with each other. Identify how you will limit bottlenecks and ensure both teams are driving toward collective goals.
- Measure: You absolutely must know what is working and what isn’t. To that end, you need metrics. Measure your progress and document successes and failures to optimize your future processes.
- Communicate: A truly stable collaboration is most likely to succeed when there is accountability. Communicate your progress and expectations with the larger business and you can reap the benefits of your combined successes.
All of these strategies are essential to help procurement succeed in collaborating with finance, but you have a far greater likelihood of success if you select the right tools. Choose a digital solution that offers robust reporting, enhances visibility, and enables real-time engagement.
It’s time to work together to help deliver added value. Commit to a strong collaboration and you will see significant benefits for finance, procurement, and the larger business.
Procurement and Finance experts from Per Angusta and Keolis discussed the current landscape and how procurement can align Finance priorities and goals in a recent webinar. Register below for the on-demand recording.
Jason Treida is Head of Americas for Per Angusta responsible for sales and operations.
He brings unique expertise to the procurement world and is focused on the international expansion of Per Angusta, which he believes to be a remarkable and innovative platform. Jason joined Per Angusta because he wanted to be involved with a company that offered a different approach and a distinctive company culture.
Jason has more than 20 years of experience and launched his career as co-founder of IASTA (now Determine), an eSourcing solution.