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Align procurement and finance appropriately

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Finance and procurement staff finds themselves working closely in an attempt to manage business uncertainties.

Purchasing and Supply with Nyasha Chizu

Both functions challenge responsible personnel to be stewards for the mandate to contain costs, generate savings and improve compliance, all this is demanded in the quest to anticipate and support growth opportunities. Alignment of complementary activities is therefore critical to harmonise performance of finance and procurement.

Like with a misaligned vehicle that tends to be wasteful on fuel, wearing tyres faster and exerting unnecessary strain on the suspension increasing vehicle operation costs, misaligned organisations with respect to the procurement and finance function tend to be wasteful also.

The waste emanate from lack of prioritisation, procurement decisions based on price rather than costs or delayed procurement that affect business performance against competition. This is against the background that as the economy continues to stagger from bearish to bullish, controlling costs continues to be a corporate imperative.

The activities of the procurement and finance function are mainly at tangent although the corporate objective is the same.

While both are interested in controlling costs, the objectives sometimes do not flow in a smooth fashion because of the limited revenue growth rates and lower profit margins that are caused by higher interest rates; in such cases finance would desire minimising expenditure when procurement function has appetite to spend for the organisation to make money.

While both activities work hand in glove when managing budgets, procurement has additional duties to ensure compliance with procurement laws as with the public sector, environmental laws, legal laws such as imports and exports requirements like licenses, duties and taxes, evaluation of economic contribution of supplies, etc.

Several drivers are having a favourable impact on procurement performance such as regulatory awareness that has led to unprecedented levels of executive sponsorship and advocacy for procurement policies and governance review to ensure procurement achieves value for money in all respects.

For this to achieve full results, procurement structures would need realignment in organisation to executive levels so as to attract the right skills.

The credit to procurement is based on stronger procurement resources, that is, qualified and skilled cadres. As organisations mature, finance and procurement applications are providing better visibility into budgets and spend data, a win for both finance and procurement.

Procurement’s current skill-set strengths lie in its negotiation and contracting capabilities, company knowledge, and internal and supplier customer service levels. New dynamics stemming from modern business models are reflected in those areas in which procurement must have some role and activitely support the line of business managers. Such initiatives include evaluating outsourcing decisions and improving cash flows.

This therefore requires that procurement staff sharpen those skills in which they are generally ranked low such as costing capabilities, project management and process innovation. These weaknesses provide insight into the key weaknesses of the enterprise-wide procurement programme.

Procurement staff in most cases does not understand the business case to the extent that their contribution is likened to shooting in the dark.

Where procurement staff understand the business case and are appropriately aligned in the company structures, they are capable of influencing strategy, innovation and savings for their organisation.

To attract the right skills, the structure is important since it allocates responsibilities and is also a basis of remuneration package.

If you notice, finance jobs have been strategically positioned in organisation and pay well to the extent that even engineers have switched professions to be chartered accountants. The same can be achieved for procurement if a procurement function is appropriately aligned in organisations.

lNyasha Chizu is a Fellow of the Chartered Institute of Purchasing and Supply writing in his personal capacity. Feedback: chizunyasha@yahoo.com

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