The writer’s experience
The ‘cold war’ may now be over, but relations between procurement and finance within many organisations remain frosty. This can have many undesirable consequences for not only service providers and suppliers but on the credibility of mostly procuring entities.
Service providers often find themselves unwittingly caught up in a power-struggle between the two functions; consequently delay for the procuring entity to honour its contractual obligations to its suppliers. As the adage goes, justice delayed is justice denied.
From experience point of view, the relationship between procurement and finance in many organisations is far from perfect with some existing tensions ranging form overriding the payment terms negotiated with suppliers to discounting the results achieved by procurement.
Procurement in most organizations is, in effect, the ‘new kid on the block’. That’s not to say that it has not been around for many years– it has, but only really in a back-office administrative capacity.
This is the golden age of procurement, as a new breed of procurement professionals flex their muscles and transform the function into a vital strategic player.
In most organizations, procurement’s increasingly confident swagger is clear for all to see…and inline with its newly-emerging role, procurement is seeking increasing resources as well as ever greater control.
In most organisations, procurement can increasingly be heard bragging about its results and talking up its role. Its increasingly confident swagger is clear for all to see, with procurement heads in many organizations looking for a seat at the board table, or at least laying claim to key aspects of the strategic agenda.
Finance struggles to retain control
As one finance manager I spoke to put it: “It used to be finance that got to say ‘no’ to a major purchase…now that ‘pleasure’ goes to procurement.” Was he right to call it pleasure any way?
Another manager explained: “We run the numbers; when somebody else (in this case, procurement) presents their own set of numbers (detailing savings etc.), we can obviously be slow to accept them.
In the world of organisational politics and functional silos, the emergence of procurement can result in certain tensions. Perhaps inevitably, some financial managers may feel as if they are losing control over areas they previously controlled.
The relationship between the functions is a two-way street; so it is that tensions are the result of finance failing to see procurement as an ally and procurement failing to see finance as a client.
Service providers and suppliers can get caught in the middle
So, what are the implications for suppliers of this turf war between procurement and finance?
According to one business man, while procurement in most organisations is not exactly known for being flexible, finance is even less so. That means that going after special payment terms, for instance, can be tantamount to hoping beyond hope.
However, suppliers are increasingly discovering that the deal they struck on terms of contract fails to be delivered upon because it has not been endorsed by finance. Would there be no conflict of interest in case finance endorsed terms of contract?
If there is going to be a power-struggle between finance and procurement, you want to ensure that you are on the winning side.
Nine times out of ten it is finance that has the last say – after all, they sign the cheques. In this respect, the advice of one of my CIPS lecturers is important to remember.
“Don’t try to play procurement and finance against one another – you will only come out the worse for it.”
The author is Procurement Specialist