Procurement is quickly becoming one of the most technologically advanced back office activities. If you want to know the price of something, you can find it on the internet. Companies like Amazon provide a readily available catalog of products for customers to order in as little as one click. Similar platforms are also becoming available for businesses. Vendors now have catalogs that integrate with their customer’s ERP system, enabling the customer to choose what they want and order directly from the catalog. While the simplification of procurement is a great thing, Procurement and Finance should stay on the same page and integrate to achieve the following benefits:
Maintaining consistent data is key to ensuring Procurement and Finance are on the same page. As Procurement focuses on discounts and costs savings and Finance analyzes budgets and trends, consistent pricing definitions and data are critical. Housing a single location for master data allows both departments to pull the same supplier pricing information to analyze the metrics they focus on.
Part of Procurement’s role is to understand which materials and suppliers are available to the company and negotiate pricing as needed. Many materials and suppliers are driven by commodity markets. For example, in the automotive industry, steel prices are constantly rising and falling. Procurement watches these prices and suppliers to negotiate the best possible deals. At the same time, Finance must know what steel prices will be, because that impacts the company’s margins and what they predict to the shareholders and the market. Having a single process for forecasting and sharing the commodity and pricing information with Procurement increases the efficiency and accuracy of the company’s financial plan.
Communication is key in the relationship between Finance and Procurement. Suppose there’s a tax miscalculation on a purchase order. Finance and Procurement need to know before they pay the vendor and withhold sales tax. However, if Finance doesn't communicate the error to Procurement, Procurement won’t know how to get purchase orders right. Better collaboration between Finance and Procurement will improve the procure-to-pay process and benefit both departments.
When both departments collaborate, companies can reduce waste and become better stewards of the company's data and projections.
Trenegy assists companies as they integrate Finance and Procurement. Contact us for a free consultation at info@trenegy.com.
