Boost your business incomes with procurement and finance collaboration
When finance and procurement teams work in harmony, they make a far greater contribution to business goals than is possible when working in silos. Yet in many organizations, there’s still a disconnect between the two. Our report, How dysfunctional finance and procurement leads to bad business outcomes, explores this disconnect in detail and we strongly suggest you read it.
As a more general overview, this blog post provides nine ways in which finance and procurement collaboration can produce better business outcomes – as well as how technology can help. Remember, though, that technology alone is never the complete solution – success in collaboration demands strong working relationships, ongoing communication, and a cross-disciplinary mindset.
1. Connect finance and procurement processes to improve productivity
Finance and procurement tasks overlap in multiple areas. The more teams can do to share data and connect workflows, the more efficient they can become.
Automation provides the tools essential for connecting processes and sharing data across the organization, speeding up activities, and eliminating manual errors and omissions. The purchase to pay process is a prime example. With automation, you can streamline every step - from raising the requisition and managing approvals through - to no-touch POs and on to automatic invoice matching.
2. Optimize savings
Close finance and procurement collaboration allows you to both identify and explore the most appropriate savings opportunities and to better realize the savings that are negotiated. Integrated automated systems make it easy to share information such as supplier order history and category spend data, boosting procurement’s negotiating power.
Shared information can also help you make the most of agreed discounts and prevent unwanted and potentially costly contract rollovers. On top of this, closer collaboration over automation and systems integration brings greater control, so you can ensure people order the correct goods or services from the correct supplier.
3. Provide richer and more accurate data for budgeting and decision-making
For budgeting, finance typically looks at what’s been spent in the past to predict and plan future outgoings. Procurement, on the other hand, has a broader perspective and can shed light on trends and opportunities. For the most in-depth understanding, teams must work together.
If the procurement team is working on specific category management projects or looking to bring more spend under management in a category, they will be hoping to bring down costs. Setting a budget based on the previous year’s figures could prove over-generous and result in unnecessary spending.
For monthly and other scheduled reporting, finance reports are only as accurate and up-to-date as the data in the system. A collaborative approach to using tech to integrate and speed up processes is essential in making sure reports provide real time information people can act on with confidence.
4. Control cash flow more effectively and free up cash
With close collaboration, finance and procurement can free up cash by ensuring that optimum payment terms are both negotiated and taken advantage of and that the suppliers who provide the best terms are the default choice for orders.
The two teams can also work together to better understand what the optimum terms are in a particular scenario. For example, could what looks like an attractive bulk discount for stock in fact result in working capital being tied up to cover storage costs?
Integrated technology systems are key to speeding up processes and payments, and so enabling more accurate cash flow forecasts.
5. Reduce risk
While finance and procurement have different risk management priorities, both share an interest in activities such as due diligence for new suppliers, ongoing compliance updates, internal controls, and the business impact of a supply chain failure. Collaboration over requirements, systems and processes will help you broaden the understanding of risk and strengthen risk management approaches.
6. Stop operational issues from harming supplier relationships
A happy supplier is essential if procurement is to build a successful strategic relationship. But all too often, relationships get harmed by simple operational issues. The biggest of these is late payment.
If finance is following a deliberate policy to stretch payment times, then procurement can advise which suppliers are able to handle a delay. If the delay is down to administrative issues such as missing PO numbers or inaccurate master data, then teams should be looking to implement integrated finance/procurement tech solutions that will prevent such problems.
Other operational areas where closer collaboration helps keep suppliers happy include sourcing and onboarding, agreement on details, and using online questionnaires and self-serve supplier portals to collect correct information.
7. Deliver stakeholder goals more effectively
Modern strategic procurement is about spending money wisely and in line with budget holder and stakeholder requirements – including corporate social responsibility objectives. Finance is more often about simply spending less money. Communication and collaboration are essential if you are to reach a shared understanding of where true value to the organization lies and deliver what’s needed.
8. Create a single source of truth
Many organizations run multiple IT systems that haven’t been fully integrated, making it hard for people to find and access accurate information.
When finance and procurement collaborate to bring systems together, they can create a single source of truth for everything from supplier contract details to up-to-the-minute order data.
Data is entered only once and shared between systems, while cloud hosting options give access to authorized users wherever they may be.
9. Improve business case evaluations
Finance teams responsible for business case evaluations can benefit hugely from the input of procurement colleagues. By contributing insights into the vendor landscape plus their knowledge of CSR and other stakeholder drivers, procurement can help finance take account of a broader range of issues and so produce stronger evaluations.
Do you have a good example of what finance and procurement collaboration has achieved in your organization? Let us know on either our LinkedIn or Twitter account.