What Came First: The Controller or the Buyer? How Finance Influences Procurement

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What came first? The controller or the buyer? It’s really a type of chicken and egg question. Without those engaged in procurement (or materials, labor, finished goods, etc.) there would be nothing to sell – for the vast majority of companies – and no books to close. But, of course, without a controller – or a CFO – setting controls and defining budgeting, it would be all but impossible to buy anything, lest the spending be truly off the reservation to start with.

Perhaps the more pragmatic and less philosophical question to ask is: What is finance’s role related to influencing procurement? The provisional results of a Spend Matters/Institute for Supply Management snap poll based on a qualified sample size of 98 participants suggest that the top role is “validating/auditing performance results against financials (e.g., cost savings)” with 57% of respondents ticking the box on this point. The second most frequently responded to role was “working with procurement as a partner to help the spend owners,” with 53% of respondents citing this. Policy setting (i.e., input to policy around supply/spend) came in next at 48%.

And the numbers drop off from there. Granted, while the results are provisional – we’ll be sharing the final analysis with our PRO subscribers in more detail in the coming months – here are a few things to point out:

  • Procurement would appear more of a “nanny” than brother/sister (or parent) from a role perspective; greater oversight and true collaboration is needed!
  • There’s a disconnect between actual cost and expenditure that is lost between procurement activity and finance oversight
  • Finance has tremendous potential to be a true ally to procurement (as shown by the second and third highest responses), but only serves in this capacity around 50% of the time – even in part.

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What am I missing here? Chime in!

Voices (2)

  1. Pierre Mitchell:

    Thanks Sean,
    You should check out our series on the CPO section of our site. I’m methodically going through the 17 areas where Procurement leaders are asking for Finance to help them (and not hinder them). We will hit all your points except for the last one you raise which is a great one. The number one area actually surrounded Finance’s lack of demonstrated leadership in cost management (i.e., beyond basic managerial accounting), but your point in needing similar leadership in financial analysis in the context of supplier qualification, risk management, negotiations, and M&A support is a very good one. I’ll try to weave it in somewhere!
    Can you also describe a little more on the first point? I can interpret it a few ways and want to make sure I’m understanding you (and that our readers understand).

  2. Sean:

    Good article on useful research.
    In addition, there may be a role for finance to assist procurement with
    • the application of investment ratios to both capital and operational spend considerations
    • currency management (treasury) aspects of procurement
    • agreeing and endorsing a companywide definition of ‘value for money’
    • working as equal partners in relation to the potential impact of P2P on SRM
    • particularly in the public sector, there is a role to support the financial aspect of pre-qualification evaluation processes.

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