In part 8 of 17 in this series on procurement/finance collaboration, Chief Procurement Officer continues its countdown, from least to most important, of the top ways finance can help procurement improve spend and supply management. The rankings come from a joint Spend Matters and Institute for Supply Management research study, which is open to practitioners until Friday June 26. (Participants can win an Apple Watch or 1 of 10 Spend Matters PRO memberships.)
Coming in at No. 10 is procurement’s desire to use finance controllers and internal auditors as change agents. Let’s face it – finance can wield a mandate much more easily than procurement. Mandates only go so far, but since external spend management is by definition part of total spend management, then procurement clearly needs some help from finance controllers, who not only report spending through the lens of the financial statements but also lead the process for spend planning.
Getting aligned with financial controllers is absolutely critical during a procurement transformation. Consider the following objectives for a financial controller and then how you can use them to enable procurement:
- Report timely and accurate financial data. Procurement can help by establishing P2P systems that help failsafe proper general ledger coding and commodity coding.
- Improving the robustness of financial plans and business plans based on supply market conditions. For manufacturers specifically, especially those dealing with commodity markets, understanding supply price and availability risks that can adversely affect such plans are critical, as discussed in a prior Spend Matters case study on Borg Warner. Sales and operations planning processes are great for trying to get a consensus view on demand, but they’re pretty poor at factoring in the supply side. This whole area is as much risk management as it is supply management.
- Develop more effective budgets. Financial planning and analysis efficiency is great, but spending better is where progressive finance groups focus. So, since an increasing amount of that spending is external, this is where procurement can use good spend and contract data to get involved with stakeholders in the planning and budgeting process. This could lessen unneeded consumption and better align future spending with budget owners’ objectives.
- Validating the financial impact of various internal initiatives. Procurement must work with the controllers to define and validate the financial impact of improved spend and supply management led by procurement. If you don’t have joint ownership and trust in both the spend and savings numbers and the closed loop process to manage them, you won’t get very far in your procurement transformation.
- Developing policies and workflows for procurement involvement. Controllers should be responsible for defining financial delegation of authority in the form of budget approvals and purchase approvals. Obviously, procurement and finance need to work together to develop a workflow and approval hierarchy that makes sense. This can be a devilishly complex area – please feel free to contact Spend Matters if you are having troubles with it.
Finally, consider forget internal audits. These are typically not to the most beloved staff in a large firm, but they can be the most useful. External auditors can also fulfill the same function, but internal folks, if used judiciously, can be powerful allies in helping you define a few key procurement policies and controls as material. For example, set up contracts or suppliers in the supplier master, above a certain dollar amount, without procurement. In other words, violating an arcane procurement policy might not be a big deal to a stakeholder, but violating a material financial control under the auspices of internal audit has a bit more teeth.
The point is that procurement leadership and the financial controllers, as well as internal auditors, need to be best buddies. Okay, maybe they don’t have to be buddies, but they should at least be getting some fundamental alignment on how procurement can help finance in a way that in turn helps procurement – and the business – right back.
In the next edition of this series, I’ll focus on how finance can help procurement by broadening the latter’s value measurement.