Inclusion – the key to successful purchase to pay

Inclusion – the key to successful purchase to pay

Posted by Pete Loughlin in Purchase to Pay 28 Aug 2014

One of the issues that procurement professionals complain about is respect. Or status. “Procurement isn’t taken seriously”. “They only involve us when things get difficult”. It’s a very common issue for procurement in many organizations. I’ve seen it at it’s most extreme in financial services where procurement is so far removed from core business that it really is difficult, for what is considered by many as the the most boring of back office functions, to be taken seriously at a strategic level.

But is this really any different from any other part of business? Perhaps procurement people need to take a look in mirror and frankly, get over themselves.

Purchasing Insight logoProcurement as a profession struggles to make its claim as a legitimate strategic element in industry. I’ve witnessed it many times within business. Procurement departments feel undervalued. They’re only  asked to help out when things get tough. A marketing department commissions some work with a new supplier and it’s not until the legal negotiations get complex that they think to involve the professionals. They should have involved them at the outset but what do procurement know about marketing? Same in the construction industry – what do procurement people know about concrete? The engineers and the architects are the experts – they know the grade of concrete that is required to ensure that a bridge will stand the test of time. In what way does procurement add value to the procurement of concrete in these circumstances?

In an ideal world, procurement should lead any discussion with a new supplier – at least as far as the contractual terms are concerned. A procurement professional can ensure that the commercial risks are managed and that proper processes have been applied to ensure best value for money. That is what they are good at. They may also have expertise in the category – perhaps they are from an engineering or architectural background and can contribute some value through their domain knowledge – but that’s a nice-to-have. And if they are P2P savvy they can even ensure that payment terms are optimized so that prices can be fined tuned and early payment discounts agreed.Now that really is adding value.

But wait. Payment terms? Who agrees payment terms?

It is completely OK to include payment terms as part of a procurement discussion but any variance from standard terms is not a really a procurement issue. It’s a finance issue. How many times are the AP or treasury people invited to new supplier negotiations sessions? Really – think about it. How many times can you recall that accounts payable or treasury have been involved in a negotiation with a new supplier? I can count on the fingers of one finger with one finger spare how many times I’ve seen that. I have seen many times, special terms negotiated with suppliers that finance are simply in no position to deliver upon and yet they were never asked

Engineers and architects are right to own the selection of suppliers for concrete but procurement people are also right to insist on involvement at the outset in any contractual negotiation. Procurement people are going the extra mile to incorporate payment terms discussions in their dealings with suppliers but they should not think that they can exclude their finance colleagues without consequences.

Inclusion is the key and inclusion is one of the critical concepts that defines successful purchase to pay.

Summit Banner largePete Loughlin can be found on twitter @peteloughlin

Post a comment