How to align procurement and finance on cost savings for long-term value
Explore strategies for making sure procurement and finance teams are aligned
Communication is hard. Think of all the run-of-the-mill confusion over something as simple as rock-paper-scissors: “One, two, three, then go, or go on three?”
But what if you have to communicate something with much higher stakes? The specific language procurement and finance departments use can spell the difference between incredible savings and significant added expense. Because both teams work so closely with each other, they’re understandably using a lot of similar—but not identical—terminology.
And it’s those little differences that add up. On their own, they’re easy to navigate, but the sum total of those differences can create serious misalignments between these two departments.
This blog will shed some much-needed light on why procurement and finance teams are often misaligned—and give you actionable steps for fixing it.
Read on to learn more about:
- Why misalignment happens between procurement and finance teams
- How you can build a common language of value
- Using tools to report on total savings
- How to foster a collaborative culture of value across your organization
Why are procurement and finance teams misaligned?
Let’s cut to the chase: what’s the root cause behind this misalignment, and why is it a problem?
It boils down to the fact that finance and procurement teams are separated by a common language—and all the resulting differences in perspective that can cause. While both teams want to save money, they go about it in different ways and define savings a bit differently.
For example, financial reporting can be dry, but it’s easy to understand. Comparing revenues and expenses to budget projections is a proven set of metrics that nearly everyone in a business can grasp at a glance. If you’re able to show cost reductions, great! You’re doing a good job.
By comparison, procurement teams are constantly asked to demonstrate their true value—and that value is almost always measured in cost savings, which aren’t always going to be immediately apparent.
As an example, procurement teams work to build strong relationships with suppliers. These relationships can help businesses access better rates, rescope work, and resolve disputes effectively. Each of these helps save money in the long run, but because it’s not a cost reduction, it’s harder to quantify its value.
That’s not the only source of friction, though. Finance departments have to handle every single invoice from vendors and contractors, and that sheer volume can cause delays—meanwhile, procurement professionals report those delays damage existing contractor relationships. The end result is businesses are forced to work with other contractors at higher rates, not to mention any costs incurred from delays or downtime.
Building a common language of value
Establishing a shared language around value is not just about defining terms—it’s about aligning teams on those priorities and metrics that resonate most across the organization.
Even if your finance team is focused on managing budget line items and tracking overall costs, ensuring they understand that procurement is working to help them avoid future costs can improve the relationship and drive greater collaboration.
Simultaneously, it’s worth remembering that procurement’s role in value-add activities—like improved ESG performance, revenue increases from strategic partnerships, and increased supply chain resilience due to stronger vendor relationships—are all critical to every business. In some cases, the value these functions add is trickier to quantify, but no less important.
In more concrete terms, if finance understands that procurement is following up on a vendor invoice to help prevent additional expenses, then they’ll be more likely to try and expedite a delayed payment if it means reducing spend later on. Remember, these teams are working together towards a common goal!
Beyond the shared goals and responsibilities you’ve established, you can also leverage shared dashboards to give both teams immediate access to relevant, real-time data on the metrics that matter most to your business.
What’s more, setting up regular check-ins to share information, successes, and collaborate on emerging challenges is a great way to foster continued communication.
Using tools to track and report on savings
New tools and technology are some of the best ways for finance and procurement to align, giving them a unified way of tracking and reporting on savings. By centralizing this information and making it available in real-time to those who need it, solutions like PayShepherd enable improved contract compliance, spend control, and greater risk reduction—all with incredibly powerful automation.
These technologies increase visibility and make it easier to track and report on savings. Finance teams can ensure they’re tracking all incoming and outgoing payments, in turn letting them improve cash flow management and increase working capital. Meanwhile, procurement teams are better equipped to identify preferred partners and suppliers that can help them access better discounts and rates.
Fostering a collaborative culture
When finance and procurement teams work together, the sky’s the limit. By understanding the needs, priorities, and responsibilities of the other team, these functions can work towards a partnership that benefits the entire organization.
It all starts with better communication.
Removing confusion by breaking down the silos that create misalignment is key to fostering successful collaboration. By working towards these common goals, these teams can better position their business for continued success.
And best of all, this contributes to an organization-wide culture of collaboration. By encouraging greater partnership and making critical information more readily available, you’re putting every employee in a better position to support business growth.