When talking about procurement and finance collaboration, purchase-to-pay (P2P) technology always seems to come up. Budgeting, planning and savings implementations are shared across procurement and finance, but the connection between these two organizations also involve activities such as sourcing, purchasing, contracting, approvals, capital management, payments and more.
In addition, more and more often the CPO reports to the CFO — another reason finance and procurement should aim to work seamlessly together. Although these departments have been historically siloed, they actually have more in common than not. And forming stronger alliances between them provides benefits across the enterprise.
One shared concern is management of costs. Hidden costs can often get lost between identified and implemented savings. These types of costs are typically tracked by department, which makes it difficult to view widespread organizational impact. By building cost models with finance and procurement’s involvement, organizations can capture data from across the source-to-pay process, track e-sourcing and spend analysis metrics to ensure costs are accounted for and contracts are well managed and monitored.
Collaboration between procurement and finance can start with budgeting. In fact, budgeting is an area where a strong alliance between procurement and finance can thrive. Budgets are a compilation of fixed line items across many categories. Procurement can help to ensure the business is spending based on consumption at efficient rates and optimal costs. Managing and refining a budget over a period of time is more of a science than an art. Which may be new to finance, but is something the two departments can collaborate on for the benefit of the organization.
At the end of the day, finance is not just about budgeting, and procurement isn’t solely focused on savings and price. Spending the right amount of money for the right product with visibility into contracts, compliance, governance and control at every step is crucial to both departments and the wider organization. That’s why positioning savings, budgeting and expenses in the context of demand management and efficiency supports collaboration. Issues such as supplier relationship management and supplier performance management (SPM) also connect to bigger-picture concerns, reinforcing strategic sourcing activities as supporting revenue growth.
Net-net, collaboration is a good business practice and can really make a positive impact to the bottom line. These are just some of the ways procurement and finance can work together. To learn more about budgeting and the P2P process, download this paper.