June 13, 2024
The Evolving Role of Finance in Procurement
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Today, we’re not just talking about numbers. Finance is now the catalyst of change, influencing business strategy and informing key decision-making every step of the way. A crucial aspect that’s driving this evolution is the automation of procurement.
By 2028, the procurement software market size will be valued at $9.5 billion. The development of this market will increase the flow of global business transactions, especially procurement activities.
The evolving role of finance in procurement reflects the broader changes happening in our legacy business environments. Driven by globalization and technological advancements, the need for strategic management is greater than ever.
Here, we take a deeper dive into the evolving role of finance in procurement, looking into how finance is playing a more integrated role in strategic purchasing.
Collaboration and Strategic Alignment
Traditionally, procurement and finance have operated in separate silos. However, the integration of both teams is becoming increasingly critical for achieving operational efficiency and shared goals. What does this mean? Everyone must strive to work together.
More often than not, finance is forced to say “NO.” Instead of being the eternal gatekeeper, finance should look to creating a structure that empowers employees to help themselves.
Integrated Planning
A typical organization spends about 10% more time and resources on financial planning and analysis (FP&A) activities than it did a decade ago. Putting the infrastructure in place, where everybody can communicate and understand the organizational process, is crucial to procurement success. This requires surfacing the right data to the right people.
Closer alignment between departments ensures all procurement tasks support financial objectives such as cost control, profitability, and risk management.
Cross-Functional Teams
There is also the growing trend of creating hybrid teams that are cross-functional; including both finance and procurement professionals. This fosters better communication, mutual understanding, and joint decision-making. Decentralizing the process also spurs growth and empowers those that need to spend money to expand.
In this case, it's crucial to design a culture of trust. This means involving employees directly in procurement decisions to enhance organizational commitment.
Risk Assessment and Management
Procurement needs guidance when choosing reliable suppliers, and finance can help. The department brings in expertise when assessing financial risks related to suppliers. This can include looking at things like:
- Credit risk
- Market risk
- Operational risk
When it comes to procurement and finance, 40% of executives wish to improve their skills in scenario planning and analysis. Making these closer assessments helps in choosing reliable suppliers and negotiating better terms.
By working together, procurement and finance teams can develop strategies that ensure greater supply chain resilience. This includes tasks like diversifying supplier pools and securing critical inventories.
Enhanced Analytics and Decision-Making
The use of advanced data analytics tools gives finance and procurement teams the ability to analyze supplier performance, spend patterns, and market trends. This type of data-driven approach helps a business make more informed decisions that will optimize costs and enhance value.
Additionally, leveraging predictive analytics means teams can better forecast future spending and financial needs. These predictions enable procurement to plan more effectively and closely mitigate risks.
Cost Management and Optimization
Finance teams help procurement move beyond simple cost-cutting by focusing on metrics like the total cost of ownership (TCO). This one figure includes all the costs associated with acquiring, managing, and maintaining goods and services.
Finance also provides procurement teams with accurate budgeting and forecasting tools, ensuring procurement activities are closely aligned with financial targets and constraints.
Solutions like PayEm offer built-in budget control features that empower users with real-time spend data, so they’re never in the dark about what money is actually there. Better yet, it supports global payments in multiple currencies, to over 180 different countries. Accurately planning with granular budget data enables businesses to better plan and pay vendors at scale.
Compliance and Governance
59% of security and IT leaders indicate their organization has multiple systems that must adhere to compliance requirements. Finance teams work seamlessly with procurement to ensure all practices comply with regulatory standards and controls. This is crucial if you don’t want to get legal involved and seek to maintain a positive brand reputation.
Implementing stronger internal controls helps finance prevent fraud, ensuring procurement processes are more transparent and accountable. The solution here is to establish and enforce company policies that include the optimal times to involve key stakeholders, like IT and legal.
You need to think about this holistically. Where are the risks and who are the different departments within the company that are going to help vet out those risks? Rather than the shortsighted “I need to buy this and get it approved,” consider the purchase from a risk management and regulatory compliance perspective.
Integrated Technologies
45% of respondents to Amazon’s 2024 “State of Procurement Report” are willing to incorporate AI into their procurement efforts immediately or within the next year. 80% said they would be willing to do so in the next two years.
ERP systems that integrate procurement and finance processes work to reduce manual error and provide real-time data. Emerging technologies will enhance transparency, efficiency, and traceability in procurement transactions.
Automation is the answer. It gives teams the space for more strategic thinking and enables them to place manual tasks on “autopilot.” Just a little investment in time and resources motivates everyone to think outside of the box and collaborate on a more value-added level.
Supplier Relationship Management
Supplier relationship management has grown a lot more complex over the years.
In today’s world, vendors can be divided and consumed by different departments. Big vendors might have one large bill, but it’s shared across multiple departments and cost centers.
Technology like PayEm helps finance teams segregate costs and show the budget owner what is truly there. An interactive dashboard gives quick access to budget details, where teams can closely track performance and facilitate proactive decision making. It makes handling large suppliers, with complex systems and pages of invoices, super simple.
Summing it Up
The evolving role of finance in procurement is reshaping the way companies operate. By integrating finance into procurement processes, businesses achieve greater efficiency, strategic alignment, and risk management.
The shift towards automation and advanced analytics is driving this digital transformation, enabling teams to optimize costs, make better data-driven decisions, and enhance value. Collaborative efforts between finance and procurement are absolutely critical for fostering a culture of trust and ensuring compliance with regulatory standards.
As finance and procurement technology continues to advance, the partnership between these two departments will be pivotal in navigating the complexities of today’s business environments. A harmonious union between the two will ultimately support organizational growth, promote resilience, and lead to happier employees all around.
