Overcoming the challenges of the Procurement-Finance relationship

It’s a cliché, but like most clichés, there is an element of truth to the fact that being visible to the Finance department is crucial to your team’s overall success. 

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Wednesday, June 5, 2019

It’s a cliché, but like most clichés, there is an element of truth to the fact that being visible to the Finance department is crucial to your team’s overall success. 

As they are a particularly metric-driven function and without a doubt the driving force in any business, the Procurement team needs to make sure they are aligned with the priorities and measures used in Finance. After all, Finance are responsible for providing information to the C-Suite and Board of Directors when painting a picture of the overall performance of the organization. 

It’s easy to understand why, for example, Marketing and Procurement struggle to work together. In many organizations Marketing is concerned with the future, the brand, and interaction with prospects who show up on neither the income statement nor balance sheet, whereas Procurement is often focused on today (and yesterday), operations, and activities that can be traced to hard numbers.

But you would think that Procurement and Finance would be well-suited to collaboration since they are both groups focused on savings, managing risk, and compliance improvement. Sadly, this is seldom the case. In some surveys, Procurement is seen by Finance as (at best) not aligned and (at worst) a hindrance to company performance. 

In certain organizations Finance can have a somewhat dim view of Procurement, that combined with the fact that Finance is likely constructing the “story” of your team’s performance for the CEO and Board, it’s imperative that you do everything you can to make sure Finance sees your performance and help them tell the story you want (and need) told. 

Top 5 Ways to “get seen” by Finance:

  1. Make their priorities your priorities
  2. Speak the same language
  3. Ask for help
  4. Tell your story
  5. Build and share a plan

Make their priorities your priorities – As noted earlier, Procurement and Finance should share many goals, be it savings, risk management, compliance, etc.  But not all priorities are created equal and the emphasis changes from year to year. One sure way to know where your focus should be is to listen to the CFO. If you work for a publicly-traded company, make sure you listen to the earnings calls and read the CFO’s comments to the press and analyst community before you write your plan. If risk management is a key issue for the CFO, make sure it’s a key issue for you. Additionally, you are in a position to help Finance with something that matters to them: cash flow. By taking advantage of new technology-enable approaches such as dynamic discounting, you can make a positive impact on something that really matters to Finance. 

Speak the same language – The most important piece here is, not surprisingly, savings. Too often, Procurement and Finance use different ways to calculate and record savings leading to endless debates about the correct figures rather than discussions on how to improve results. Remember, if there is a difference between the definition of savings in Procurement and in Finance, it’s not hard to figure out which one is going to win. Speaking the same language extends to IT as well. Integrate your systems wherever possible so that you and Finance are dealing with the same data sets. Make sure both parties define how savings are measured in the same way i.e. Saving vs. Budget, Savings vs. Last Price Paid etc. Spending time and resources disputing data serves neither group.

Ask for help – Don’t be tempted into considering Finance to only be a gatekeeper or judge. Use them for the specialized capabilities they have that can help you. For example, when building your savings targets, ask Finance for assistance in developing category-specific approaches that factor in market and supply volatility.  Chances are Finance can provide valuable input in modeling and projections. Similarly, Finance can be your ally when building business cases for investments in technology such as a new eSourcing platform. 

Tell your story – Despite having similar goals with Finance, keep in mind that Finance has their attention spread across a wide swath. They need to deal with Marketing, Sales, IT and all the other functions so you need to put your story in front of them.  On top of the reporting that Finance requires from you, provide them with “your version” of the story, be it with custom reports, newsletters, or case studies that showcase how Procurement is delivering real value to the broader organization.

Build and share a plan – Your annual plan (and its associated quarterly updates) is not just a series of targets and metrics, it’s your chance to frame the story for the year. Take the time necessary to build this story, include your initiatives, how Procurement plans to help the overall organization, and how your efforts will align to the priorities of the CFO noted above. Also keep in mind that Finance is receiving annual plans from every department so KEEP IT SIMPLE. You want the Finance department to walk away from your plan remembering no more than three things about your plans for the year. If possible, set up regular meetings where you can share updates, this will help ensure that you work towards the same clearly defined goals, it will ensure that all expectations are met, and it might also strengthen your relationship, which never hurts.

If you follow five these simple steps, you’ll make sure that Finance is your ally when telling your story to the rest of the world.