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Home » Blog » Financial Savings Management » Walking the Extra Mile: Procurement Greets Finance – Part 1

Walking the Extra Mile: Procurement Greets Finance – Part 1

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They both work for the same organization, and their strategies are aligned along the same goal: they both are always finding ways to cut costs and increase savings. Yet, they both walk alone when they should be partners. Can you guess who are we talking about? Yes, you got it right, we’re talking about ‘Procurement’ and ‘Finance’.

In this three-part blog series we will talk about how procurement and finance can collaborate better with support from technology.

McKinsey, in its new book “Procurement 20/20”, pointed out that lack of CFO focus on procurement excellence has a negative impact on the level of savings and organizational improvement that procurement leadership can bring.

Collaboration between procurement and finance is necessary to mitigate risks, increase cash flow, manage working capital, cut costs and above all, bring more savings to the bottom line. In fact, in many organizations, procurement reports to the finance department, at least on the indirect front Nonetheless, the differences in opinion prevail.

According to a Gartner report (Establish a Savings Management Process to Drive Procurement’s Financial Performance 2013), the key challenges marring procurement-finance collaboration are:

  • There is no universally accepted definition of savings.
  • The responsibility of ensuring that savings reach the bottom line, after the negotiation is concluded, is often unclear or even nonexistent.
  • Many different factors, such as order scope changes, volume changes, currency exchange rate fluctuations, contract compliance levels and changes in market  conditions, can impact savings before they reach the bottom line.

Apart from creating a process for savings management and obtaining agreement between the two departments, the Gartner report also suggested investing in a tool that is flexible, and has workflow and data integration capabilities, to support savings management. This would, in turn, facilitate better representation of savings generated by procurement on the organization’s balance sheet.

So how can technology help bridge the gap between procurement and finance?

Stay with us as we answer this question in our next blog.

 

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