CAI article: Procurement and Finance partnership model – the template for a mature value relationship.

“People buy from People, People sell to People”

 

Relationship matters and, as one Forbes advisor states “People Do Business With People They Like”. Appreciation is key in any relationship and saying “Thank you” just does not happen enough.  This truth applies to personal and professional lives, we like working with people we like, in the same company, with people outside the company.

 

Trust is a key element in liking each other, and is paramount in doing business. It is a hard earned quality, it is not something that people give freely, it can not be bought, it needs to be earned. The Annual trust barometer of Edelman is a very valuable tool to understand the wider implications and trends around the “trust” challenge.

 

I was recently involved in a study with Altify, a smart sales transformation software company to examine the value alignment between buyers and sellers, the external stakeholders to any contract. The findings highlight just how much shared value and relationships matter. Working together sooner improves the shared decision intelligence. Buyers of all shades (business stakeholders, buyers and procurement departments) have a pivotal role to play in this value translation. By engaging early, there is great opportunity to add value while still improving the key metrics of Revenue, Gross Margin, and Profit.

 

Relationship matters  and the same goes applies for our key internal stakeholders, our internal customers. Shared values, early engagement and objectives alignment improves the impact of what we can achieve for the business. However, this is where it seems we have a challenge.

 

High-performing procurement professionals recognize they have a responsibility not just to save money but to maximize stakeholder value for their company, whether that be financial, societal, or environmental. To do this effectively, they need to redefine their relationship from one that is based on serving their business customer to one that collaborates with their business counterpart to contribute demonstrable stakeholder value, to achieve a position of mutual trust.

 

The majority of internal business customers we engage with, procurement still gets assigned a traditional role. We are known for and measured on how much savings we can extract out of suppliers, contracts, products, services, for the benefit of the business. There are KPI’s set and we report either into Finance, Legal, HR or operations for validation of our performance and there is nothing wrong with that picture. But that is not getting a good ROI on the procurement value, procurement can enhance the decision-making process when we  demonstrate our commercial expertise. procurement professionals are at their best when they can demonstrate their insights by applying their supply-focused, commercial expertise to solve business problems.

 

The main actions to implement for developing this Procurement Business Partner approach are: enable Procurement Departments to be a driving force by developing their market knowledge upstream from internal customer objectives and implement procurement performance indicators that are tailored to the strategy of each business unit in the company. Front-end expertise to drive commercial decisions for back-end measurable improvements.

Reality and perception on these actions are not aligned:

• Procurement professionals believe that they already contribute to a broader set of objectives of internal customers, however, the majority of the business customers have a different opinion. Ivalua recently examined the different views of the role of procurement and classified the gap in perceptions on a scale of importance.

This is a concern for our future delivery of value and procurement professionals have a lot of work to do to elevate their own value proposition to the internal customers and close the perception gap.

 

• Procurement believe they already are aligned as a business partner to the internal business customers. Our job as business partners is to do the analysis and provide the insights in a non-threatening manner to help our stakeholders challenge their long-held assumptions. As per the below visual, the business partner approach is not accepted by most of the internal customers.

When asked “Does developing a business partner relationship with procurement is a matter of importance to you”,.

The good news is, of all the internal customers, 62% of Finance believes our objectives are aligned. Finance with 79%, stated that they believe in the same future close relationship with Procurement. We look at the same data, the same numbers, we analyse with similar financial ratio’s at line level detail, we just ask different questions and add value to Finance by enriching the context with deeper content and insight.

 

These results show that Procurement Departments have made great progress in becoming more financially oriented by including financial goals in their strategy and operational approach. Reducing costs, identifying risks, optimizing working capital, and the tracking of Procurement gains and their impact on the Company’s  financial statement are some of the business partner benefits when mature Procurement business partners reconcile Procurement and Finance objectives.

 

Of the other company Departments surveyed, on average only 17% of respondents affirm that their department shares the same goals as Procurement. All the other business departments do not believe it is that important to align with Procurement.

 

3 challenges and conflicts with internal customers come to the fore when we dig deeper:

 

1. the purchasing process is some times perceived as an administrative constraint that restricts the freedom and prerogatives of internal customers.
2. Another delicate situation for Procurement Departments is

when Procurement redefines purchasing specifications to make them correspond to existing or less customised products  – it is a conflict zone between the users and the procurers.

3. Procurement communication of benefits is needs to align with the internal customers KPI performance measures. Our language needs to reflect and be mapped to the customers objectives.

 

Cost savings, when it is the sole indicator of Procurement performance, hinders the establishment of a dialog between Procurement and Business Units executives and prevents Procurement from accounting for the real goals of each business unit, thereby neutralizing a Procurement Business Partner culture.

But let’s focus on the positive: there is successful partnership template between Procurement and Finance. Finance stands out very clearly. Procurement has successfully teamed up with Finance and established a true Partnership model based on a mutual understanding of each other’s value, the establishment of shared goals and a sustained dialogue on the implementation of joint strategies and objectives measurement. This engagement template should be used to truly become a driving force for ROI procurement value.

 

So to all our partners in Finance, thank you, we appreciate your support, we value your engagement and we want to further explore how our aligned partnership model can drive further strategic benefits to the bottom line of the business. It does not matter who leads, it does not matter who follows, what matters is the outcome of the partnership approach.