Finance and procurement are two of the most vital functions of any organization. They have the potential to add enormous value to business operations if handled well. All too often, however, companies fail to understand how to integrate activity across these departments effectively and opportunities for great performance are lost.
Let’s take a closer look at some of the best practices in this area.
How the procurement and finance functions coexist
Most modern organizations have at least several different departments, usually with separate and discrete areas of focus and responsibility but with inevitable crossover. This is certainly the case with the finance and procurement functions in practice. Although both play a key role in the procure-to-pay process, they generally undertake their operational activities separately from each other. The result is often costly inefficiencies. As work is duplicated, inconsistencies occur and breakdowns in communication lead to delays and high error rates.
Is hybrid transformation the “new black?” And what benefits can it bring?
So, what opportunities exist to better align these two key business functions to achieve greater business efficiencies? Many forward-thinking organizations are turning to hybrid transformation, a concept that utilizes a combination of on-premise, private cloud and third-party, public cloud services with thorough integration and alignment between these platforms. In practice, this means that the functions of finance and procurement are much more closely aligned, with shared data across linked platforms.
There is a wealth of benefits that this improved alignment can bring. Here are the most value-adding benefits for your organization:
1. Improved spending control
It is incredibly difficult for a business to gauge a real picture of operating costs when finance and procurement are operating separately. This is due to different reporting processes, and often an element of duplication or inefficiency. If the two functions work more closely, sharing cost and vendor information across a single platform, cost visibility is dramatically improved and opportunities to reduce costs become more apparent.
2. More harmonious relationships with suppliers
It is important to maintain professional relationships with suppliers, always giving consistent and unambiguous messages. However, this is jeopardized when both finance and procurement teams communicate separately with suppliers regarding different parts of the process. Hybrid transformation allows greater clarity in terms of communication via one dedicated point of reference.
3. More effective compliance
Hybrid transformation minimizes the risk of uncoordinated purchasing actions by different teams. This is the case since all buying processes are handled within integrated and linked platforms and access is controlled. This helps to control costs and also maintain positive relationships with vendors.
How to unleash the power of hybrid transformation
We can see some of the benefits of hybrid transformation within the finance and procurement functions, but how does an organization begin the process of incorporating it into their business operations? There are a few important factors to consider in this regard:
1. Decide on your target operating model
This is potentially one of the most critical areas to consider when embarking on hybrid transformation. A hybrid model can join up procurement operations, payables, and master data management teams to integrate their processes and workflows so that they are working in tandem.
Benefits include more streamlined invoicing and helpdesk services, as well as the sharing of talent and resources across teams. The exact features and functionalities of your target operating model will vary depending on your business requirements. It should be designed with the objective of creating more streamlined and efficient processes across all procurement activities, as well as improving compliance and spending control.
2. Join up your governance and reporting processes
Without hybrid transformation, one of the main difficulties in reporting lies in the differing areas of focus of the procurement and finance teams and the often separate key performance indicators (KPIs) that they are responsible for meeting.
As an example, it is often the case that the finance team’s key objective is efficiency, whereas the procurement function is predominantly concerned with cost control. Working with hybrid transformation to create joint governance and reporting platform encourages working towards the same objectives, as well as clearer accountabilities and measurables for both teams.
4. Focus on data integrity
A unified platform across finance and procurement is a vital step in ensuring that standards in relation to data and statistics are consistent, accurate, and correctly observed by all parties.
How hybrid transformation can deliver real value to your organization
There are a number of challenges involved in moving to a hybrid model, such as designing scalable business processes across connected systems and reorganizing the administrative functions to support such a change. However, real and demonstrable benefits exist to better align two of the most operationally important functions of your business — finance and procurement.
Start by undertaking a comprehensive evaluation of the current state of operations within these departments to ascertain a clear picture of how hybrid transformation has the potential to benefit your organization.