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28 October 2010 | Paul Snell
Procurement departments need to improve their communication with finance teams because it remains unstructured and is not wholly trusted, delegates at a conference in London were told yesterday.
Speaking at the event, hosted by Sievo, Andrew Bartolini, managing partner at research analysts Ardent Partners, said even though purchasing reports directly to the finance function in more than a third of firms procurement leaders still had to fight for the attention of the CFO.
“Interaction between the CPO and the CFO is a very rare occurrence. The majority of conversations between finance and procurement that happen in a formal fashion, happen during the budgeting cycle,” he said. “And when the budgets are done, there is a separation and everybody goes back to their departments, never really to come back again except in an ad hoc way.”
He believes the poor communication is often the result of how the performance of purchasing is examined by the finance director. “Savings measurements are basically the only measure used by the CFO to gauge the performance of the CPO and procurement department today. In the majority of organisations, that’s the reality.”
Confusion and distrust then arises between the functions because a third of firms have no standard definition of a “saving”, and a quarter of companies decide these case-by-case.
He said it was up to procurement leaders to use the recovering economy show purchasing “pulls a lot of the levers the CFO focuses on”.
“I don’t think procurement needs to define all of what they do in the strictest financial terms,” he added. “If you can give a finance department an orientation as to what your goals and objectives are, and how they align with the broader strategic goals of the business, that will solve that problem.”
Finance, too, must contribute to enhance the relationship. Bartolini recommended CFOs assign dedicated resources from their team to support procurement’s work.