Most procurement teams are trying to “speak the language of business,” but many are struggling. They feel left out of the loop when it comes to corporate strategy. The problem is that procurement teams often feel like they manage everything, but own nothing.
The CFO and the CPO: Potential PartnersBefore we discuss ways finance and procurement can collaborate, we should explore why they do not work in tandem. There are a few primary reasons procurement and finance are not in harmony.
- There is a disconnect between procurement’s expected contribution to operational efficiency and the metrics used to measure procurement’s performance.
- Procurement organization objectives are not linked to business metrics.
Why the disconnect?Procurement and finance typically operate separately, which does not help the organization meet all of its goals. So, why don’t the two departments work more closely? The short answer is that both departments are evaluated using different criteria. For example, finance may be evaluated based on budgets and spending plans, while procurement may be evaluated on cost savings. When the two departments work together and begin focusing on the financial aspects of the supply chain, however, they are not only able work together to solve today’s business problems, but also generate value for the organization by thinking strategically and proactively, addressing future challenges.
5 Ways to Align Procurement With FinanceIf you want to make your procurement team stronger and more confident, use these five tactics.
- Evaluate your current state. According to procurement, sourcing, and supply chain expert, Mickey North Rizza, “businesses need a plan to align procurement with the rest of the business and improve relationships with stakeholders. That must begin with a data-based picture of the obstacles and internal conflicts that plague an organization.”
- Work from concrete data. Procurement and finance departments are both familiar with dealing with numbers. This gives both departments a common language to speak and a starting point for discussions. For example, in an effort to show a return on investment, it is important to focus on financial and business metrics to evaluate worker engagement from a performance perspective.
- Engage budget-owning stakeholders. According to research from Ardent Partners, “…lack of engagement with budget holders and line-of-business executives is another critical challenge.” One way to address procurement’s lack of formal authority over other functional areas of the organization is to improve relationships and foster communication.
- Improve contract management. When firms improve their contract management, they position themselves to reap many benefits. This includes reduced risk, increased compliance, improved productivity, better-aligned business divisions, and cost savings.
- Look at line items and the big picture. This is important. According to Stephen Day, Group Supply Chain Management Director of IT at Vodafone, it’s the finance colleagues that give us the insight into where the budget areas are, where the financial challenges are, and where the opportunities lie.”