Finance and procurement are typically the two functions within a business with the greatest interest in managing costs. But despite this common concern, it is often the case the two functions do not work together effectively.
Procurement often complains finance only integrates it into projects at the last minute. This means the function is unable to deliver early savings and, in some cases, is not able to contribute more strategic value. This lack of collaboration has existed for many years and needs to be addressed.
So how can a business get these two functions to work together? It is not always easy, particularly as many procurement departments continue to view finance as a “red tape” function. Finance on the other hand, sometimes sees procurement as pure cost cutters; a function whose only contribution is to find savings once all other specifications have been met.
The key to getting both functions to work together is making sure each has an understanding of what the other does. In the case of finance, this means understanding the value procurement can deliver beyond savings. One of the best ways to achieve this understanding is to recruit people who have experience working in the other function.
In fact, many procurement departments are increasingly looking for candidates with experience working across a range of functions. A varied background typically ensures an understanding of business strategy as a whole and consequently of how and why procurement should work with other functions.
Alternatively, a simpler way is to physically move someone from one function to another. Even if only for a week, this process often serves to illustrate the issues faced by the department, as well as its strengths and weaknesses. On a more personal level, this approach also helps create a stronger relationship between finance and procurement.
Getting both functions to work together from the onset of an initiative will ensure both are able to contribute from the start. This will in turn lead to mutually beneficial, shared objectives as well as a more optimised process.
There are of course other areas where procurement and finance can support each other. One example, which 4C Associates has seen carried out successfully, is procurement’s ability to work as an intermediary for finance. Procurement and finance speak much the same language and as such the former is able to speak to finance on behalf of other departments.
Say, for example, marketing has managed to deliver a certain percentage of savings and wants these reinvested in a new campaign. Procurement can help marketing evaluate the possible benefits of the proposed campaign and then put these to finance. This approach not only adds credibility to marketing’s request, but also ensures the application is formulated in line with finance’s objectives. This will save a significant amount of time for each function and ensures procurement’s involvement in the delivery of value. A win-win.
Procurement and finance share many objectives and it makes no sense for the functions not to work together. Years of working separately have made bringing the two together a challenge, but it is one that is well worth tackling.
At 4C Associates we have seen closer collaboration between the functions lead to faster delivery of savings, better risk management and the development of strategies which deliver value far beyond pure savings.
Each function has much to teach the other and as mentioned above, the key to optimising the relationship is communication. This entails more than simply having a monthly meeting, but actually understanding how each function operates and where their unique skills can add value. Once this understanding is in place, shared objectives and processes can be implemented to deliver mutual benefits.
☛ Milan Panchmatia is a director at 4C Associates