August 22, 2017

The Dangerous Disconnect between Finance and Procurement

I hate to break it to you, but there is trouble in paradise. You know the feeling, the one you’ve had for a while, the sneaking suspicion that your love is unrequited.

So grab a stiff drink, find a comfortable seat and prepare to come to terms with this sad news.

Fear not though, once we have tackled this earth shattering truth, we shall examine the reasons for such horrors and counter them with some much needed therapy. Yes, you can move from the chair to the sofa for that.

Here it is: The reality is, finance don’t believe your numbers. Outrageous, but true.

OK, good, that’s out of the way now.

Take a deep breath and relax. Count to ten. Then when you have, consider that actually, they may well have a point.

When a numbers person is asked to report on something, they can only report on the numbers, it’s not their fault if procurement over the years has not lent itself to accurate reporting. From the days of squeezing suppliers to the haphazard onboarding processes of past years, it’s hard to get any high quality data.

It only gets worse when you realise that generally speaking, you are relying on finance to input supplier data – and they will only be putting in what they need. It makes for worrying times.

If you have gone to your CFO with £1,000,000 of savings and he only accepts £200,000 given the lack of proof. Surely there is an argument to be made for investing in centralisation and a focus on data. In short, rebuilding the system and processes from scratch.

Protiviti recently published the results of a survey. ‘The survey of 440 enterprise finance and procurement executives found nearly half of the finance leaders claim that 20% or less of claimed procurement savings are reflected in the company’s bottom line.’

The obvious issue is clear, but as with anything, perspective plays a part and understandably when this level of trust is the norm there is a spill over. For example, procurement may think that they are doing well in making savings, after all 56% of them believe that they have good mechanisms in place to control contract leakage. The reality though is that their partners in Finance believe that figure to be around 39%.

Time to move to the sofa.

It’s actually not all bad. Yes, it’s a little worrying at this stage but as with most issues, you can flip it on its head, take the positives and find the opportunity hiding in the fabric of the bad news.

Nobody in the company will want to be in a position where they can’t look at Procurement’s figures and be able to back them up with hard data. Least of all, anyone in Finance. According to the report, both departments agreed that better data is vital in the pursuit of better collaboration, analytics and tracking.

Importantly the discussion went on to praise the concept of shared services. In essence centralising both purchasing and finance and as such enjoying a far closer working relationship. Not only this but the importance of analytics.

Software wise, this means that procurement departments need to be looking at prioritising data, good quality data at source.

A period of opportunity is upon us. Building from the ground up is logical.

 

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