Bridging The Gap Between Procurement and Finance
On Thursday 20 November, we hosted a discussion and networking event for procurement directors and managers.
With 15% of company’s revenues not going into the end product, the main topic of the evening was how purchasing and supply teams can reduce savings losses and optimise the procurement process by working closer with their finance departments.
Steve Johnson, who is a previous board member of CIPS, joined us to chair the evening and deliver an insightful presentation to foster the discussion.
The Cost of Low Level Purchase Orders
The industry average cost to raising a purchase order (PO) is approximately £60. To process over 3,500 POs, this equates to a cost of over £200,000. This led to the question; do POs need to be raised for low value transactions? Some people voiced that if procurement is doing their job correctly and have a good quality PSL, some bureaucracy could be removed to provide cost savings. Others felt that the procurement sector is regulated and required diligence and removing low level POs depends on the relationship with the supplier.
Procurement and Finance Collaboration
There is a clear lack of understanding between procurement and finance, with stereotypes prevailing. Procurement and finance are teams typically viewed as a bottleneck, from the wider business. How can we develop this understanding, as to how much value each department can add to the business process?
Finance sees procurement teams as a cost saving department, however to bridge the gap they need to understand the value of having a preferred vendor and supply list as well as the commercial value procurement can add to the decision making process and contract negotiations.
Procurement usually acts on the behalf of finance. For example, the business will turn to procurement when the quality of a supplier is being questioned. This is usually down to budget constraints implemented by the finance team, and in order to communicate the decision procurement teams should be fully briefed on the budget and the reasoning for them.
All in all, the participants in the discussion agreed that to bridge the gap between procurement and finance, channels of communication need to be opened.
Another topic that emerged from the discussion was procurement teams working with SME suppliers. This was particularly poignant for public sector procurement teams, who are required to appoint SME suppliers to their supply lists.
The risk of appointing an SME to a large project is whether they have the infrastructure and capability to deliver. Once an SME makes it onto the supply list, procurement teams should support them to deliver the project rather than putting pressure onto them.
This can be achieved through secondments, in which a member of the procurement team works with the SME provider to support them during the delivery process. So here lies the question, how can we support our SME’s?
I would personally like to thank Steve Johnson for joining us and for his excellent presentation. To view and download this, please click here. Furthermore it was a pleasure to welcome everyone who joined us for the evening; I hope you enjoyed the evening and networking with industry peers.
For more information about our procurement and supply chain recruitment team, please click here.