The Procurement FD Link – Weak or Strong?
Over the last 12 months businesses that have risen above the pack have been those with the best procurement teams. Contrary to popular belief, good procurement systems are not just about price, it’s about the balance between value and certainty. Furthermore, the relationship between procurement and finance is one of the most critical.
In many SMEs this relationship is very prickly, mainly due to payment terms being agreed by procurement and then ignored by finance who try to get away with the longest terms possible. This results in delays in deliveries and therefore production – inefficiencies abound. In larger businesses that are well funded, the benefits of procurement and finance working together are self-evident.
Paul Kilduff, former FD of MITIE Group plc and now a member of www.thefdcentre.co.uk explains, “Procurement needs to understand the business’s priorities otherwise they cannot, in turn, prioritise their requirements in negotiation. The overall risks in the business and the pressures on working capital are monitored and controlled by finance.
Finance can place a value on shorter lead times, penalties for late delivery, longer warranties, fitness for purpose, assistance in R&D, to name but a few. In the most professional companies, suppliers are considered long term partners for the business. We could reduce the supply chain costs much faster if we shared information and worked together to remove inefficiency and unnecessary working capital from the supply chain.”
Over the last 10 – 20 years outsourcing has been a major theme for many businesses as business value is driven by the focus on core competences. Outsourcing significantly reduces the amount of time spent by management in those areas but dramatically increases the demands on the procurement team.
Paul continues “At MITIE, we sat at the other end of negotiations as a principal outsourced partner. We could immediately tell which organisations had integrated their procurement approach. Where the finance functions were actively involved, the customer requirements were comprehensive and well thought through. It obviously meant that we needed to be similarly well prepared for negotiations.”
However, the result was not a long drawn out battle of wills, but a meeting of minds set on the end goal of delivering a good value for money service and a long term customer.”
Finance functions which operate in a silo and have weak links to other parts of a business are simply an administrative overhead. On the other hand, when a finance function is integrated the business’s operational departments generally work together more efficiently delivering greater value throughout the organisation and are much easier to run by the management team. A good Finance Director (full time or part time) is essential to delivering an integrated finance function.
As the largest provider of part-time Finance Directors in the UK, we can help businesses meet their strategic objectives. To find out more, visit www.thefdcentre.co.uk.