How Procurement Has Bridged The Gap With Finance

Procurement and Finance

Let's start with a bit of a history lesson. Have you heard of Robert Rudzki?

As the co-author of the 2005 book Straight to the Bottom Line®: An Executive's Roadmap to World Class Supply Management, Rudzki knows a thing or two about the subject matter about which he confidently writes. Between 1977 and 2005 – 28 years, he was SVP and CPO for notable brands Bayer Corp. and Bethlehem Steel Corp. Be sure to note his dual finance and procurement role.

Based on his expertise – which includes an MBA in Finance from the world’s oldest and most prestigious business school, Rudzki identified the five critical finance terms every purchaser should know. In short, his bridge between finance and procurement was to have the latter refocus on areas such as ROIC, Cost of Capital, and P/E Ratio.

His reasoning was supported by a 2006 article that asserted, “Too often, finance executives in Corporate America simply don’t believe that purchasing departments are really bringing in the savings they claim" because “financing and purchasing don’t speak the same language.”

This linguistic disconnect was further emphasized in a 2007 news report indicating the following:

  • Less than 20% of CFOs consider the work of CPOs and their staffs as having a very positive impact on competitiveness.

Additional insights from an excerpt of the research paper referenced in the same news report also indicate that:

  • On average, only 46% of CFOs feel that the procurement team has contributed to enterprise growth.
  • Only 57% of CFOs feel that procurement contributes to enterprise profitability.

Fast Forward To 2020

Now that we have a historical context of bridge-building between finance and procurement, a “singular” one-way communication channel between finance and purchasing is no longer enough.

While there is no argument that resolving the dissonance between procurement and finance is still a priority, the scope of the task is expanding to include multiple stakeholders.

The above reflects the findings from a recent Ardent Partners paper, which suggests that today's efficient world-class supply management practice should involve "multiple internal and external stakeholders."

The paper then goes on to say that “the teams that should collaborate most directly are those focused on strategic sourcing and procure-to-pay.” The author then adds that "a successful source-to-settle workflow must look at the entire ecosystem that connects sourcing and procurement to accounts payable and treasury."

Orchestrating Success

Of course, recognizing the need to collaborate is not enough.

Organizations must proactively and creatively orchestrate their efforts, including leveraging emerging technologies to establish a seamless and scalable source-to-settle process. Through this synchronization, companies will be able to “retain value efficiently and effectively in a repeatable and scalable way.”

Emphasizing that a source-to-settle process “must do more than simply manage supplier relationships,” the Ardent paper does a deep dive into the specific areas in which technologies will deliver the greatest efficiency and sustaining value.

For example, an automated spend analysis capability will create real value in several key areas. These areas include prioritizing sourcing pipelines, structuring sourcing events, identifying suppliers, and negotiating contracts. And these capabilities are just the beginning.

Building On Rudzki

Going back to our history lesson, Rudzki got it right when he said that procurement and finance must speak the same language. It was a great starting point.

Today's world is a much more demanding and complex place where procurement is no longer "confined" to a transactional role. Instead, we must now synchronize our efforts to achieve needed outcomes through a relational approach that links people and technology effectively.

Use the following link to download your copy of the Ardent Partners paper Bridging the Gap Between Procurement and Finance.

Mary Zampino, Vice President – Content, Research & Analytics

Mary Zampino is the Vice President – Content, Research & Analytics at SIG and has over 20 years of experience in information technology and over 15 years of experience in sourcing. Prior to joining SIG, Mary worked at Enporion, where she was responsible for the analysis, configuration, execution and award evaluation for over one thousand sourcing events, across a diverse range of direct and indirect categories. Mary is committed to customer service and considers information sharing and usability the top priorities for any project or organization. Mary holds a Bachelor's Degree in Information Science from the Florida State University and has completed certifications in Health Information Technology and Requirements Gathering.