Optimising the Relationship Between Finance and Procurement
7th July 2011
By David Morrison & Michael Seymour – Procurement & Supply Chain.
The relationship between the finance director and the procurement department is notoriously hard to navigate…
A combination of internal politics and a lack of understanding about what procurement involves means that many companies do not have a clearly defined procurement role. Often the finance director will think of procurement purely in terms of cost-reduction and cash-flow, whereas the procurement team will also be focusing on value improvement, relationships, innovation and risk mitigation.
A poor relationship between finance and procurement can lead to misalignment of financial and operational targets, as well as frustration and the creation of a ‘them’ and ‘us’ culture. Most importantly, the organisation misses out on many opportunities to add value.
So how can companies optimise the relationship between procurement and finance?
We would recommend using internal surveys and one-to-one interviews with key executives to understand how the organisation views procurement. Once this process is complete, the information can be used to draw up a map, showing who reports to who, and who is responsible for what. This is a crucial step in building bridges between finance and HR – reporting lines tend to be rather vague, often evolving over time rather than being developed along planned guidelines.
The key benefit of having a better relationship between these two functions is building a common understanding of the value that procurement can deliver. Finance can be a very powerful department in many companies, with control over things like business case approval and benefits tracking – making them a powerful potential ally.
Other benefits of a good relationship between finance and procurement include:
- Ensuring common alignment in targets
- Getting clarity over what value can and is actually being delivered from a financial perspective – both short and longer-term
- A mutual respect and understanding of the value each party can deliver
- Internal support for driving change within the organisation
- Internal efficiency, by avoiding internal process duplications and being clear on who should do what
David Morrison is Head of Procurement for ArcherMathieson and is working with Michael Seymour, MD of a supply chain consulting firm, Ad Alta Consulting. Together they are supporting an organisational transformational programme within the central supply chain function of one of the world’s leading IT distribution organisations
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