Why Procurement, Treasury, and Finance Need to Be a Team (Especially Today)

The old way of doing things, with procurement, treasury, and finance acting in silos, no longer makes sense. This post gives some of the basics of why procurement needs to start paying attention to supply chain finance, but if you want deep analysis, join me tomorrow from 12-1 pm Central on a webinar called Supply Chain Finance: Where Are Leading Corporates Going?

Finance and procurement linkage has generated a lot of interest, especially since the Great Recession of 2008, when a slew of larger, more stable companies have been asked to help suppliers with early payment.

But this linkage goes well beyond helping weaker suppliers. When you look at overall procurement “spend,” whether you are a giant like Nestlé that spends tens of billions or a middle market company that spends hundreds of millions to make your products and bring them to market, that spend must be managed like a financial portfolio, complete with risk and reward techniques.

And in the act of buying and paying suppliers, many CEOs are not telling procurement departments what decisions to make, how to price the business, or what payment terms to use to pay suppliers. The manifestation of that is by policy. A key governance area is a corporation’s policy on payment terms and use of cash.

So how does all of this tie back to supply chain finance, and especially, why procurement should care?

We are in the throes of unprecedented structural changes in credit and capital markets. In addition, new technologies enable large and middle market companies to provide a menu of options to their supplier ecosystem. Corporations continue to invest in technologies to enable more efficient data and document exchange with their suppliers. These collaboration tools, or B2B and supplier networks, open up an opportunity for funding providers to inject liquidity into the supply chain. So far, we are still in the early stages, but the combination of buyer-supplier data, algorithms, regulation, zero short-term interest rates, and other factors is creating opportunities for new underwriting models.

This is now forcing procurement, treasury, and finance to act like a team. The old KPIs of measuring these departments in silos no longer make sense. Acting as an interdependent team to understand trade-offs in buy decisions against a backdrop of increased risk (supplier, commodity, compliance, geographic, regulatory, etc.) is critical. Summoning the old saying “you have to start somewhere,” supply chain finance is an enabler in bringing together procurement, treasury, and finance to work out solutions that are best for the overall company.

Want more details? As I mentioned at the beginning of this post, I’ll be discussing this topic in depth on a webinar tomorrow from 12-1pm Central. So register for Supply Chain Finance: Where Are Leading Corporates Going? and bring your questions.

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