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Home > Blogs > Leslie Kossoff > Finance and procurement – a critical value-add relationship

Finance and procurement – a critical value-add relationship

Procurement | Finance and Procurement – A Critical Value-Add Relationship Leslie Kossoff

It’s time for the Finance and Accounting functions to change their roles - particularly when it comes to procurement.

Too often, Finance only sees the front end of procurement decision-making in the context of budget. Finance gets to say how much money is available for the purchases, but rarely is asked to weigh in on the selection or treatment of the suppliers, themselves.

Then, of course, on the back-end, Accounting pays the bills. Eventually.

Yet rarely does the organization’s executive team recognize or understand the critical added value that Finance can and should contribute in making procurement decisions – as well as setting procurement policy.

A Sad Short Story

A large manufacturing company’s Finance and Accounting Department kept track of the small businesses they put out of business. They even had a big display on their wall.

Sometimes the closure occurred because the negotiated price was so low that the supplier couldn’t remain viable. Or it was the mandatory 90 day payment schedule that did them in.

Yet, because Finance and Accounting was fulfilling its expected goals – keeping the budget down and managing the cash flow – the folks in the department were consistently receiving bonuses.

Right up until the moment that, because of the additional costs of having to consistently find new suppliers, bring them up to speed and the resultant decrease in quality controls the company needed, the manufacturer went out of business.

This was no surprise. Long before that happened, the folks in Accounting were trying to tell anyone who would listen that actual supplier costs were going up substantially. That the company wouldn’t be able to afford to operate if it continued with these policies. That something had to change.

Nothing did. Until everything did.

You Don’t Have to Go That Route

This story is a perfect, if tragic, example of why it’s so important that finance and accounting change their roles when it comes to procurement.

You may be the money folks, but in this case your greatest value is that you have data – and access to more data – that you, better than anyone else, can compile, analyze and assess from any number of perspectives.

Which needs to start by looking at your own policies and procedures. That way you can determine whether they really serve your organization.

Policies – particularly in back office functions – tend to grow over time with layer upon layer of decisions until you can’t quite figure out what the original (and understandable) reason was for their establishment in the first place.

Add that to the ways that reward, recognition, compensation and bonuses are decided and the two combined can – and do – create a real and credible threat to the success of the enterprise.

So, what do you do?

Move to the Front

The biggest single change that the Finance and Accounting functions need to make is to move themselves from being perceived as a back office support function directly into the front lines.

Everything you do impacts everything that everyone else is able to do.

You – as a result of policies like your payment timeframes to suppliers – determine, in great part, the relationship between your organization and the suppliers that keep it going.

That means that you need to become more involved in the front end of the procurement process – both from the perspective of your own policies as well as weighing in on how the supplier selection, procurement decisions and even inventory management systems are approached.

You may not be able to make all the decisions you’d like (who is?) but the more that you bring your smarts and perspective to the process, the greater the likelihood that the organization you support will be successful.

Taking It Live

Here are a few steps you can take – now – to get this process going:

  1. Review. Within your own function, review the policies and procedures by which you work and manage. Where did they come from? How long have they been in place? When was the last time you pursued a substantive analysis of how you do business – on and off paper? Do they work?
  2. Compile. With everyone in the function involved, put together the formal and informal feedback you have – both yours and coming into the function – from and about your suppliers. What are you hearing? What are the complaints? Which are the ones with whom it’s best to work? Why?
  3. Outreach. Once you have your own information, it’s time to start an outreach program within your organization. Without providing any of the information you have gathered, hold team meetings with the users of the critical supplies coming into the enterprise. It doesn’t matter whether you’re a manufacturer or service provider. You’ve got big and smaller suppliers. You need to know the quality and immediate usability of the products and services being provided. Also, if there’s any hands-on support they provide, you need to know whether they’re responsive, the quality of their work, etc. You’re fact finding in aid of everyone your function supports.
  4. Analyze. Put all the information together and do what you do best: Analyze. Be objective – both about how you’ve been doing business for all these years as well as how the suppliers have been doing in supporting the organization.
  5. Recommend, Act, Repeat. Change what you can internally. Now. Then, make recommendations for your function and others – in priority order. Help your colleagues in and out of your department implement by coordinating as much as you can. Be willing to be the bad guy with suppliers, if necessary. Then repeat the process – because the better you get at it, the better your suppliers will get at working with your organization. That will lower costs, increase productivity and improve profits.

The biggest win for you and your function is that you’ll finally take the seat at the procurement table you need to be taking – for everyone’s success.

Leslie L. Kossoff, a confidential advisor to executives and entrepreneurs worldwide, is the editor and publisher of Leadership Quantified, targeted e-publications helping you do well and do good – simultaneously (www.leadershipquantified.com)

Tags: Accounting , financing , procurement , supply chain , supply finance
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