Finance and procurement linkage is a topic that goes back to the original debate around procurement ownership/involvement in accounts payable (A/P) and related topics of timeless discussion. Yet how will procurement and finance linkage look in 2020? Deloitte suggests the following in Charting the course: Why procurement must transform itself by 2020:
As part of this linkage, procurement will need to work with finance more closely to truly become responsible for not just how spend is used, but how it impacts and meets the needs of the business. Such a transition will require a shift in mindset away from price (even on a total costs basis) to also consider consumption, delivery and quantity (i.e., questioning, measuring and suggesting “what is really needed” to achieve an outcome).
This alliance must build off of today’s leading strategies. For example, a category manager should be assigned a financial analyst to help track and agree to savings approaches and commodity-level bookings — a leading practice today. But this analyst, working in tandem with category leads, will also suggest ways of reducing volatility and risk through hedging, treasury and related strategies that go beyond the norms of today.
Such future activity might involve identifying counterparties for non-exchange traded hedging initiatives, leading the charge to identify longer-term off-take agreement opportunities with lower tier base/raw material suppliers and taking ownership of not just forecasting efforts, but being able to articulate when and how specific correlations may break down. In manufacturing, procurement teams may even seek to commoditize not just materials, but higher-tier labor and capacity as well, creating securitized (and even tradable agreements) for committed supplier activities (e.g., skilled labor hours or machine time).
Finance will also continue to play a key role, expanding the influence of sourcing and purchasing into areas where it is greatly needed such as professional services, capital equipment, facilities, healthcare, make/buy manufacturing decisions, etc. It will also go further in granting procurement new territory in 2020, for example, by involving sourcing in early-stage M&A due diligence and post-merger integration. Additionally, it will facilitate supplier financial and broader multi-tier risk management considerations such as capacity planning, commodity risk, geographic risk, geopolitical risk, environmental/labor risk, regulatory risk, and more.
No doubt these suggestions go many steps beyond the debate over who should manage A/P and payment terms! But you’ve got to start taking procurement and finance collaboration to the next level.
This post is based in part on content from Charting the course: Why procurement must transform itself by 2020. If you’re interested in learning more about how analysts see the future of procurement and supply chain, register for our upcoming conference, Commodity/PROcurement EDGE.