Finance and Procurement: Ideal Partners

As a former CPO with a finance background, I regularly advocate that finance and procurement work closely together. And, I believe that – conceptually – procurement and finance understand that they ought to work together and share information. But, that collaboration is still, in general, rather superficial and intermittent at most companies.

To maximize the total business impact that can be achieved with procurement and supply management, the supply management organization cannot work alone. Finance is often the most important internal “partner” with the procurement or supply management organization.

In our experience, that partnering should involve an active collaboration on such topics as: (1) managing commodity risks; (2) identifying, assessing and mitigating supply chain risks; (3) sponsoring and staffing strategic sourcing teams, often with embedded members from finance; (4) establishing a credible methodology for calculating and reporting benefits from sourcing initiatives; (5) implementing means to ensure compliance with new contracts (good for Sarbanes-Oxley, and good for eliminating inefficient and costly “maverick spend”); (6) devising ways to adjust budgets at the cost center level so that sourcing successes have a chance to make it to the bottom line (and are not automatically spent on other things); (7) pursuing working capital initiatives, such as improved payment terms, supplier inventory programs, and “asset recovery” programs; and (8) evaluating new supply management processes and technology, and building a credible business case to take supply management to the next level of performance.

World-class supply management organizations are typically measured against aggressive objectives that directly relate to substantially improving business performance, especially return on invested capital (ROIC) and Cash Flow. In that high-performance environment, the finance function is an ideal and valuable business partner.

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