Goodbye to the March End Blues
It is financial year end once again. Characters were well written; storytelling was immaculate. There is a certain amount of palpable tension heavy in the air. One cannot ascertain with conviction about how the ending will unfold. Will “Procurement” and “Finance” have a sardonic end to their relationship or will they walk amicably into the new fiscal year?
A procurement professional can either experience all the five stages of emotions like denial, anger, bargaining, depression, and acceptance or enjoy contentment. The finale to Procurement’s year long “courtship” with finance happens this March end. Whether they end up as squabbling partners where love labor is lost or act like matured partners depends completely how deeply finance was involved with procurement during the whole of accounting year gone by. So, whether they are in a difficult period right now, or simply one wants to make a good relationship with a better one the “TOUCH” never fails to deliver.
The procurement department needs to prepare consolidated year-end statements in consilience with the finance. All savings must be recorded when they are earned, and all expenses must be recorded when incurred. The invoices for the fiscal year being closed must be fully reflected in the accounts payables. This means that all match between the PO and the invoices must be done, budget exceptions must be cleared with necessary approvals in place, followed by the third level approval by the accounting services. All savings captured by the procurement must be recorded promptly so the books can be closed well in advance. This would help in leaving sufficient time to prepare financial statements and make management reporting within the defined parameters for regulatory compliance.
Procurement should have an objective and inclusive approach when it comes to collaborating with the finance function. Procurement must have objective to map its spend for all its categories. This spend mapping would help in identifying risks and savings opportunities. This can be used a foundation during the phases where there is difficulty in conciliation with finance function. For the spend to get appropriately mapped, it is essential to have all the costs to be classified in the relevant “category” buckets, along with having a repository where all information is stored for ready reference.
It is important for the procurement professionals to understand the company’s overall objectives. Procurement specialists are driven by the motivation to reduce cost and the purchasing price variance, amongst other parameters.
Suppliers, when pushed by the buyer (procurement specialists), might cut corners from quality to maintain their profit margins. Another scenario can happen, where too much focus is on cost reduction. This might drive procurement function to look for a discount for the bulk purchase from suppliers. Though this can result in reducing the supplier cost but might result in higher inventory and handling cost, with significant chances of loss and damage.
While at times, procurement can trade off lead time (shorter lead time thereby reducing inventory cost), for delivery reliability and other performance factors.
In such situations procurement, should consult with finance and accounting, to ensure that company objectives are duly complied with. By conferring with finance, does not necessarily mean agreeing with finance wherever discord occurs. It, however, helps in ensuring that the financial performance of the firm is given due consideration in making these trade-off decisions.
Collaboration with finance and accounting should be a part of a proactive approach for the procurement specialists. Finance specialists, should refrain from being a disciplinarian and instead try becoming a collaborative partner. It should work together with the procurement function to help in elevating company’s profitability. Procurement functions must be integrated with planning. Procurement on its part should track, measure and record its expenses and savings with relevant documentation. Finance is privy to much strategic information about the company. On sharing these with the procurement, it can align all the levers used by the procurement for driving “savings” initiatives, with the company’s financial management policies.
The forward-looking procurement function should be honest and responsive in collecting all the record of supplier quotes, requisitions & PO, invoices, the payment and acceptance statements under one single platform. Having a standardized system of source-to-pay procurement suite, the automated journal entry can be generated with each procurement activity. By integrating the traceable history of each such procurement activity, with multilevel approval workflow, compliance with the regulatory audit trail at the year-end becomes hassle-free.
To conclude, procurement and finance are two important business functions, which must work in tandem with each other to contribute significantly to the company’s operational and financial goals. To establish the infrastructure for such “soulful” alliance, it is important to have a source to pay procurement suite in integration with the finance and accounting, so that both functions can gainfully coexist without suffering any heartburn. Choosing an appropriate technology for having such a robust platform in sync with the business need, requires deep knowledge of the procurement industry. The ideal option is to go for best in breed solutions like Zycus S2P suite, which provides fast, accurate and “customer friendly” solutions by the seamless flow of data within the entire suite. So, keep calm and “procure performance” by Zycus.