Closing the gap between Finace and Procurement

gapToday at Spend Matters, Jason Busch posted the first in a series of articles about the gap between finance, and procurement in today’s business; “When Will finance Take Procurement Seriously?”  Jason quotes from a Basware study and professor Mark Frohlich, one if its authors, and makes some hard hitting and insightful points;

  • 27% of companies surveyed have CFO’s holding a positive view of procurement’s impact on the bottom line.
  • Finance does not believe that Procurement knows how to reduce costs.

As someone from the Procurement side, I have to wonder where these CFO’s have been hiding.  One of the biggest and boldest efforts in supply chain integration during my career have all been aimed at bringing bottom line benefits to the company, and reducing barriers and costs by replacing error ridden, slow, manual processes with accurate, fast, automated ones.  I like to say that Integration Engineers are like Borg, we bring order to chaos.

Bottom Line Impact

It is hard for me to understand how Procurement could not be affecting the bottom line.  Spending on materials and supplies, especially consumables, is always viewed, reviewed and tweaked when budgets are discussed.  So my conclusion is that of the 73% that don’t hold the view that Procurement has a positive impact, hold a view that Procurement has a negative impact.

Ouch.  That is a pretty painful view.  Jason does take a moment to say that this may reflect some what the down turn in the economy of recent months.  But it still hurts.  And as someone who likes to solve problems, I start casting about for a cause.  Why would Finance, and CFO’ think that Procurement was a drain on the bottom line?

Reducing the Cost of Procurement

Things cost money.  So other than buying cheaper things, reducing the cost of items purchased is a difficult to achieve task for procurement to undertake.  So that makes me start to list the areas that cost money in the supply chain, and think about how it can be expressed to reflect savings in the procurement process.

  • Systems (the MMIS has a maintenance cost)
  • Storage of items received but not in use (like paper for the printer, you have to buy it before you are going to use it)
  • Shipping costs (Ordering in advance of need allows for cheaper shipping, as well as ordering from locations closer to the point of delivery)
  • Not promoting the cheapest alternative.  (Suppliers may hate to be commoditized, but consumers need to, Procurement is the place for this to happen.)
  • Lack of forecasting (if the supply chain is in constant reaction to order requests, and never anticipates needs, trends, etc. then there is waist)

Getting Data in front of the CFO

It is possible that Integration Engineers and other in Procurement are just not letting the CFO in on what they are doing for the company.  There may be institutional barriers, but really the only way to convince CFO’s and people in Finance that Procurement is saving money is to put data in front of them.  This means that it is not enough to implement a system that accurately forecasts material needs, or promotes the least expensive items in supplier catalogues.  Yes we have to do these things, but we need to take the next step and capture the costs saved when this action happens.

How much did we save the company, by replacing the pens ordered with the same pen but at a cheaper price from another vendor?  How much did we save by anticipating an upsurge in printing before the end of the fiscal year, stocking up on paper, thus saving shipping costs?  How much did we save the company by ordering from local supplier locations that both reduce the shipping cost, and reduce the lead time needed to order at a good shipping rate?  We need to be answering these questions, and then repeatedly placing that information in the hands of the CFO.

Are there still Gaps?

Does your organization have sycronization between those in Finance and Procurement?  Does your CFO know how much money the supply chain is saving?  If not, what can you do about it?

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