Overcoming Differing Objectives and Stakeholders
If we were to try to identify the greatest obstacle to a harmonious procurement and finance relationship, what would it be? Most of what these two teams care about is actually very well aligned. They are both good stewards of enterprise resources, working capital and the bottom line. Both care about managing risk and facilitating internal processes that provide other internal groups with the resources to do their jobs effectively.
To the rest of the organization, both procurement and finance are focused on the dollars and cents, but this is a gross oversimplification (perhaps the one thing the two teams can wholeheartedly agree on). The disharmony even extends to the disconnect between procurement and accounts payable. As Constantine Limberakis pointed out in a recent blog post, procurement and AP are motivated by different requirements: “Procurement’s is identifying savings; AP’s is identifying accuracy in payment.” This likely holds a clue to the real procurement-finance alignment barrier.
Value creation: The common goal of procurement and finance.
The problem with procurement finance alignment is not what these teams do, but why they do it. Their approach to value creation is largely driven by who they are working for to create value.
Finance’s primary objective is to increase the value of the firm for shareholders through the management of debt, investments and working capital. For that reason, the executive team and board are also their stakeholders.
Procurement, on the other hand, works to increase the value of purchased products and services for internal teams and the company’s customers. In order to increase this value, procurement has multiple stakeholders as well: the executive team, other company employees, customers and suppliers. And not necessarily in that order.
Unlike finance’s stakeholders, procurement’s stakeholders all want different things – things that are sometimes at odds with each other.
- The executive team wants a healthy bottom line with as little risk as is cost-effective to secure, whether that risk comes from supply chain disruptions, potential for reputational damage or third-party quality issues.
- Other company employees want to be able to buy the goods and services required to perform their jobs with as little friction as possible. They care (sort of) about price efficiency, but mostly don’t want to have to think about how procurement works.
- Customers want an exceptional product at a competitive price. Depending on the product/service in question, they may want additional focus placed on supply chain ethics, lifestyle experience or extremely high-tech tracking.
- Suppliers want the company to commit to paying a fair price for a high and predictable volume – without asking for too much support or complaining too loudly when things don’t go as planned.
Seeing beyond savings and spend management.
In too many organizations, finance only interacts with procurement during the budgetary cycle or when savings figures have to be validated. This places numbers at the heart of their relationship, often turning amounts in and out, up and down, into a minefield of subjective interpretation. While spend and saving dollars are central to both procurement and finance, they need to bring their intent and the strategies behind their efforts to the forefront. Only then will they have a meaningful and productive relationship.
Taking alignment from doable to done.
To get an immersive look at this critical topic, align your schedule and watch the Determine-sponsored webinar with Spend Matters on April 26:
- Solving the Procurement-Finance Alignment Problem – It’s Doable! Pierre Mitchell, Spend Matters Chief Research Officer, will share the results of a research study focused on optimizing the procurement-finance relationship, including identifying the biggest barriers that finance places on procurement
- Assessing and quantifying the organizational and financial impact of such barriers
- Optimizing your approaches to knocking down these barriers
If you’re ready to see firsthand how Determine Cloud Platform-based source-to-pay solutions can align your people, data and processes across departments and the enterprise, schedule a demonstration.