Communication mismatch between procurement and finance

The realisation of business benefits will significantly increase if the communication gap between procurement and finance can be closed.

A failure to communicate effectively and understand how simultaneously to address procurement and finance concerns is the primary cause of this gap.

According to an Aberdeen Group study, less than 20 percent of CFOs believe CPOs and their staff have a positive impact on competitiveness. This highlights the tension between the two as well as the need to establish a common language which is mutually understood.

The cause of this communication flaw may manifest itself in a variety of ways, including:

• Finance uses accrual accounting to match expenses with revenues, while procurement professionals most easily measure their impact on cash flows
• Finance relies on a general ledger chart of accounts to categorise spend, while procurement professionals require a more detailed spend classification hierarchy to classify spend based on how to best source the good or service in the supply market

Whilst differences between the two perspectives does not have to be fully reconciled to establish a functional relationship, the following steps may help to at least bridge parts of this gap and in turn, lead to potential business benefits.

1. Establish savings framework and definitions
2. Establish common organisation and spend classification hierarchies in spend analytic and value-tracking  pipeline tools
3. Define and implement a disciplined procurement-finance engagement model
4. Produce timely, consistent and accurate reporting
5. Capture opportunities created for profit improvement

A united front is necessary between the two to promote approved spending in the business and ensure that the proper channels are being utilised for purchases as needs arise. If even parts of this gap can start to be bridged, businesses will start to reap the benefits.

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