Tuesday 26 August 2014

Collaboration between Finance and Procurement make the Best Strategy

Authored by Usama Shahid

I believe that procurement and finance should understand 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 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 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.
(8) evaluating new supply management processes and technology, and building a credible business case to take supply management to the next level of performance.

In most companies and situations, this approach and form of engagement do little to align finance and procurement as part of a sustainable collaboration between both but by collaborating in these two departments can save lots of efforts and can forecast future risks.