How to fix the finance and procurement relationship
By Paul Ellis, Managing Director, Wax Digital
Procurement and finance teams have a lot in common. In fact, procurement can trace its origins in finance. However, as the process for buying goods and services has matured, the relationship between these two functions can often become strained, and this is something with the potential to affect businesses across the world.
A popular theory about the tension between the two functions stems from finance’s continued insistence that procurement should be under its control. Indeed, as procurement is there to ensure money is spent well, surely that must be finance’s jurisdiction?
In this article, we’ll be looking at ways to stop any bad blood between the two departments, using data from a recent Wax Digital survey to support our findings.
Finance and procurement spending in summary
Finance has an important role to play when considering its relationship with procurement and a healthy business. They set spending limits for departments, business units and so on, and then, procurement finds ways of saving money through cost savings and cost avoidance measures.
Procurement typically manages this by leveraging purchase-to-pay systems, to link together ERP and purchasing systems – from purchase requisition, all the way through to invoice processing. This helps to centralise and automate many elements of purchasing, delivering the spend visibility needed to spot potential efficiencies (to the adage of you can’t control what you can’t see).
Once purchasing is complete, finance pays for the contracts that procurement has negotiated using a process called three-way matching. This is used to make sure the items ordered are what they received, and what the company needs to pay for.
What do finance and procurement think of one another?
In our recent CPO Viewpoint study, we surveyed finance, procurement and marketing professionals in over 200 companies about their relationships with one another.
The survey found that 66% of finance professionals believe that procurement teams are a hindrance to the overall objectives of their business. In fact, further data from the study showed that only a third of finance respondents feel that procurement actually helps with cost-saving – the vast majority seeing it as a support function to finance-led initiatives.
Conversely, procurement thought better of finance. 46% of procurement respondents said they had a ‘very close’ relationship with finance, compared to 22% of finance personnel saying the same about procurement.
How to fix the relationship between finance and procurement
Improving the relationship between the two departments is not a quick fix, and requires time, effort and a commitment from both parties. Here, we list some of our top relationship building tips that can bring finance and procurement teams together:
#1 – Use better awareness tactics
Adopting a proactive approach to sharing the positive impact procurement is having on the business is something purchasing departments should do. Not only will this approach get procurement in the minds of employees from elsewhere in the business, but it will also help demonstrate to finance the impact procurement is having on the bottom line.
You should take advantage of the wealth of data eProcurement tools available by leveraging the wealth of metrics they provide. Tools such as e-sourcing, analytics, SRM and savings trackers can be priceless in helping to automate, illustrate and ratify achievements for comparatively small investments.
#2 – Make sure you know who owns what
To prevent procurement and finance clashing over certain matters, it’s important to set out clear guidelines on who is responsible for what. That way you will avoid employees stepping on one another’s toes and duplicating efforts.
Furthermore, greater clarity regarding the two departments’ responsibilities ensures there is less chance that something will be missed – an unfortunate by-product of poor inter-departmental communication.
#3 – Improve communications
Establishing clear lines of communication between procurement and finance is a sure-fire way to prevent any tense situations between both teams. You should arrange regular meetings between departments to ensure that any concerns are voiced, and that resolutions are discussed. It’s easy to ignore alternate viewpoints and arguments if both teams remain in their separate echo chambers, but opening both departments up to each other’s philosophies and strategies could challenge the status quo and improve performance.
In addition, getting senior stakeholders to work collaboratively and to emphasise the need for cooperation is a great strategy, ensuring that key interdepartmental changes cascade down the business.
#4 – Collaborate on tech measures
Procurement and finance teams often have a silo mentality towards technology, failing to see the bigger picture or neglecting to share the benefits of new tools and services with other departments. By ensuring finance is involved in implementing new tools alongside procurement, both teams will realise their benefits and are more likely to use them collaboratively.
Utilising the same technology will also improve the chance that results and reporting are consistent and cohesive. Not only will this make the lives of senior management and stakeholders easier, it will reduce the possibility of conflict between finance and procurement if any discrepancies occur.
Choosing and implementing technology is also an opportunity to better integrate the two departments. By electing members of the finance and procurement teams as part of a committee to select and launch new technologies for the business, this will promote greater collaboration.
#5 – Review regularly
Implementing deep-rooted change in business is one thing, but maintaining it is another thing entirely. Regular reviews of the relationship between the two departments is key to ensuring that harmony becomes a core cultural trait within the business.
Conducting training days in which departments gather together to discuss their responsibilities and processes will give them a platform from which to demonstrate their importance and relevance within the wider business, so teams like finance and procurement can recognise one another’s value.
Finally, the actual members of the two departments should be asked about their views of their own practices and performance, and that of the other departments. By understanding the actual feelings of employees at all levels of the business, senior management will be better placed to make the improvements required to ensure a stronger relationship between finance and procurement.
With greater interdepartmental cohesion, both finance and procurement will be better placed to truly benefit the business.
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