Your procurement team approves a purchase outside of the normal budget. The finance team disapproves of the purchase because it adds costs to the company and it reduces the profitability of an order from a high-paying client. Sound familiar?
Now the procurement team needs to come up with an alternative, which takes more time and could potentially delay a production run, and that may lead to a damaged customer relationship.
But the expense is necessary to help the company maintain a good supplier relationship. Plus, when (not if) prices go up at some point in the future, continuing to make purchases from existing suppliers can help keep costs low.
The finance team is usually solely focused on profits. The procurement team is trying to make sure the customer is happy.
Do you want to prevent this kind of mistrust or antagonism from happening between your procurement and finance teams in the future?
Procurement software might offer a viable solution to alleviate the concerns of the finance department. Control Hub spoke to PASA to explain the advantages of procurement software.
Where does the relationship between procurement and finance come into play?
It’s an often tenuous relationship between procurement and finance, we know that.
Perhaps your finance team oversees the procurement team within the company organization. Maybe there was a huge mistake made in the distant past from a wayward hardware purchase that went way over budget, before automated purchasing software, and the finance team leader has cast a wary eye on the procurement process ever since.
Whatever the reason, dedicated procurement software can lead to improved relationships between your company’s fiscal teams.
Isn’t accounting software good enough for procurement?
Not necessarily. While traditional accounting software does track money, it doesn’t necessarily offer the analytics tools you need to manage supplier relationships.
Procurement software has a robust analytics suite that points out purchasing patterns to determine how to lower costs over the long-term.
And a good purchasing software would be a relevant investment that the finance team can buy into. Not just because of the possibility to save money on purchases, but also because it saves on labor costs for mundane tasks during the procurement process.
How does procurement software ease any perceived tension with the finance team?
Procurement and finance are both complicated, relying on experts from each team to understand their functions and make sure the cash flow remains steady and positive.
Procurement is more than just purchasing. The team makes strategic decisions that impact the finance team for months and even years. Procurement experts decide on make-or-buy versus lease-or-buy for equipment, lean activities or just-in-time inventory, and consignment- and vendor-managed inventory programs that offer reduced costs from suppliers depending on the terms of the agreements.
Procurement software makes these decisions easier because it eases the decision-making burden due to the analytics inherent in the software. Analytics allows purchasers to approve or disapprove purchases based on the financial situation they foresee well into the future.
The procurement team benefits from expertise on the finance team because they also have software that manages finances, and it also allows the team to make financial decisions. The finance team understands the investment in purchasing software since they made that decision years ago, and it has made their department more efficient. They already recognize the benefits of saving labor costs in FinOps.
Does purchasing software makes communication easier?
Another consideration for an investment in purchasing software comes from enhanced communication. Your procurement team can communicate sourcing decisions and procurement objectives better to the finance team. Improved communication creates cross-functional understanding and learning, while building the foundation for more collaboration later.
Dedicated procurement software sees patterns and analyses data where even the best and brightest on your purchasing team couldn’t find relevant or meaningful trends in the raw numbers. In a procurement-heavy company, there are multiple purchases every week, often from multiple suppliers, and it’s hard to make sense of the big picture without the right platform to manage it.
Effects on finance and procurement beyond the numbers
Yes, numbers are ultimately important to both finance and procurement.
But understanding these numbers in both departments is just the first benefit.
Procurement software can help your teams:
- Build trust and confidence. Consider having someone from the finance team observe how the procurement software works after it’s installed. Make sure to show that person the analytics side and the labor-saving benefits.
- Get to know how the analytics work. Procurement software lets you find opportunities for savings through identifying variations in product life cycle costing, changing economic conditions (like rising overall costs and inflation) and overcoming supply chain risk that might not be apparent in traditional finance or accounting software.
- Create better connections with accounting staff through automated three-way matching. Procurement software provides easy three-way matching to make sure verified purchases come through accounts receivable properly when accountants get invoices from suppliers, making the overall purchase process more efficient.
Overall, your teams come to a better understanding of the procurement cycle with the right kind of purchasing software in place. When everyone is on the same page, your company wins with better financial decisions being made at all levels of the purchasing cycle.
Content provided by Control Hub.