Procurement and Finance: Investigating a Simple Recipe for True Alignment


Despite all of the talk of alignment in trade publications or solution provider marketing content, procurement and finance are rarely on the same page. The reason is simple: Procurement sees its job as acquiring goods — and increasingly services, too. Accounts payable (A/P) sees its job as processing invoices in-line with finance's guidelines in the most efficient way possible. (Let’s not even talk about treasury yet, as that is focused on different metrics entirely.)

The fundamental challenge arises with managing external resources, and capital dedicated to external resources. Too often, purchasing and A/P alignment doesn’t happen, though the savings realization would improve it if did.

Below is a loosely coupled Venn diagram showing limited, overlapping incentives and goals rather than circles with layered, aligned goals and motivations.

Procurement-Finance alignment

And here’s the rub: Without alignment, savings fail to materialize, supplier performance can slip and risk slowly increases. With alignment, however, more savings appear than the organization expects, supplier performance begins to build in proactive checks and balances and supply chain risk can be carefully managed and even mitigated if certain indicators are discovered in time.

Consider the case of Pacific Gas and Electric Co. (PG&E), which used SAP and Taulia systems at the core to bring finance and procurement processes together to drive savings realization. (You can find a case study with some great metrics here through ASUG.) The result? A 94% discount efficiency increase, a move to truly electronic connectivity and invoicing with suppliers (2,500 invoices each day) versus fake e-invoicing — scan capture, optical character recognition (OCR), etc. — 82% portal adoption by suppliers driving self-service, versus calls to A/P, and $40 million in annual discount capture.

Numbers speak. But how can an organization drive similar returns? Understanding where savings comes from is key in this regard as we build our recipe for finance and procurement alignment. We’ll tackle this topic in the next post in this series, over on Trade Financing Matters.

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