Procurement 101What’s Driving The Disconnect Between Procurement & Finance?
You’re about to drive to a doctor’s appointment but first you need to put gas in the car. Unfortunately, the only gas stations are located far outside the city. As a consequence of this, you barely manage to make it to the gas station. Later that evening you can’t figure out why the attendant at the gas station was trying to take your pulse and the woman who wrote your prescription asked if your car needed an oil change. Subsequently, neither you or the car got acceptable results and no one believes your intentions since you don’t have adequate proof of either activity.
Is there any logic to this scenario? If you answered ‘no’, consider the irrational processes that frequently occur in procurement and finance departments. Doing so may cause you to view the above example as sensible by comparison.
The four points below outline some of the most common problems (and solutions) associated with the disconnect between procurement and finance teams. This detachment also has implications for strategic sourcing, which we’ll address in another blog, so check in with us later.
Purchases take place outside the realm of finance and management. Maverick spending causes time to be wasted while the authorized deal is being traced through multiple transactions and departments.
Everyone involved in the procurement process should have a way to collaborate. Ideally, this might be achieved through the implementation of a system that enables all stakeholders within one company to communicate with ease.
Finance is unable to assist with establishing budgets for purchasing activities, even though this is their area of expertise. They cannot provide valuable data that might promote smarter buying decisions.
Day-to-day operational activities are made easier when employees can function without being limited by their role. For example, when procurement shares spend analysis reports with finance, budgets can be aligned with actual spending. Alternately, when finance is able to share GL budgets with procurement, both departments are able to benefit from this collaboration.
It’s extremely difficult to validate a supplier’s performance results without input from a financial team. On the flip side, procurement can contribute to areas such as revenue improvements and tax expense reduction.
This solution is more old-fashioned: finance and procurement professionals need to actually talk to each other on a regular basis! It sounds overly simple, but sharing information that is viable for both parties reduces errors and also improves business growth and stability.
Management cannot successfully monitor this disconnect between procurement and finance; therefore, management rarely has the opportunity to participate in the final decision-making process.
It’s management’s responsibility to take immediate corrective action. Recognize the value of purchasing as a strategic business function that demands the input of finance departments. Schedule regular meetings between the two groups.
As you can see, these four problems have solutions that are within reach. You may have also noticed that both the problems and solutions are interrelated, which only emphasizes the fact that procurement and finance belong together! So what can be done? Procurement software facilitates this collaboration between finance and purchasing departments. Now the only thing left to do is make a selection!
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