When procurement thinks of their strongest ally in the business, finance isn’t always the first department that comes to mind. Many procurement teams still struggle with the notion that their value is measured solely by cost reduction and may see their counterparts in finance perpetuating this outdated assumption.
Bridging the Gap Between Procurement and Finance
Procurement and finance remain locked in an adversarial relationship in many organizations, but these tensions don’t benefit anyone, least of all the business.
In a recent episode of The Sourcing Hero podcast, Mark Gilham, Vice President and Head of the Enable Advisory Practice, spoke about bridging the gap between the two functions, creating a strong partnership that delivers exceptional value for the business.
Breaking Ties with Traditional Cost Metrics
While Mark’s background is in strategic finance and accounting, he understands the frustration procurement feels when their impact is measured in cost savings alone. Old habits die hard, and despite how far procurement has come in terms of performance measurement, they are sometimes still defined by old metrics.
“When I first started in finance, one of my tasks was to measure procurement gains,” said Mark. “And frustratingly, the measurements were largely driven by cost improvements. I think anybody can negotiate a reduction in cost if it comes with a reduction in service or quality… but in the early days of supporting procurement, what you would see is maybe the wrong behaviors.”
As the buy-sell sides of the business have grown closer, procurement has also evolved in the scope and breadth of the value they deliver. However, Mark says, procurement needs to understand what drives revenue so they can align their value creation and performance metrics with what the business needs.
Strengthening the Procurement-Finance Partnership
Tensions between procurement and finance can run high during the savings validation process, a dynamic unlikely to drive a collaborative, mutually-beneficial relationship.
Mark has seen firsthand how taking a more proactive approach can strengthen the bonds between finance and procurement. “I insisted that either I or somebody from my team was in the procurement office every week to foster and build that relationship and make it so that they [procurement] didn’t see us as somebody else, but very much as part of the team.”
Both sides have to recognize each other’s unique value. For example, finance offers analytical skills that can help evaluate complicated contracts, while procurement brings deep supplier and market insight. As Mark says, it comes down to combining the strengths of both teams and finding new, creative opportunities to join forces for the good of the business.
Letting Go of the Past
Finance and procurement are in the midst of profound transformations. Traditionally, both were focused on the past, looking in the rear-view mirror to measure what had already happened and then extrapolating insights and recommendations from that. Now, finance and procurement are evolving to create forward-looking value.
“More and more businesses are expecting finance professionals to influence the future, and that, for me, is where you get real value,” said Mark. “How do we influence the future? We work with teams like procurement to understand what they do and how they bring a different perspective, a different set of skills to the table.”
This shared journey has given the two functions the perfect opportunity to come together and find new sources of value for the business. “If your finance and procurement teams are not working together, you’re losing something as an organization, because they should work in harmony.”
How Can Procurement and Finance Come Together?
Once both departments decide to build a stronger partnership, how do they actually make it happen? In Mark’s view, the key is transparency. “The thing finance leaders do not like – ever – are surprises. We don’t even like good surprises! We just like no surprises,” said Mark.
When procurement understands what finance needs, they can make transparency and communication a key part of their relationship-building effort. This is especially important in times of uncertainty. When things don’t go as planned, finance values transparency more than ever, so procurement should adopt this priority and support, not fight against, finance’s efforts.
In the same way, finance should look beyond their spreadsheets and learn more about how procurement works and all of the ways they provide value. Procurement can facilitate this by clearly communicating that value and bringing their financial counterparts into their network of key internal stakeholders.
To procurement, Mark recommends: “Show finance how you work. Show them how they can add value. Because they do want to add value, but they probably just don’t know where to start.”
Heroes Together
The future will be defined by finance and procurement’s ability to create value for the business, both internally and externally. If they focus on value beyond savings, they can build a strong partnership that benefits the entire organization.
“A sourcing hero is somebody respected by everybody they work with internally and externally,” said Mark, regardless of whether they sit in finance or procurement. “It’s someone who adds value not only for the business but also for external partners. They create thriving, healthy supply chains.”
For more on how these two functions can work together, listen to Mark's full episode:
