Aligning Finance and Procurement Teams to Drive Better Vendor Rebate Deals

In enterprise, procurement and finance are two separate departments, working alongside each other inside the organisation. The procurement operate is about spending the cash nicely and driving extra for much less from suppliers, and the finance staff is all about retaining the steadiness sheet in examine and driving profitability. Whereas this relationship works for some corporations’ others not a lot, which isn’t probably the most environment friendly and efficient solution to deal with enterprise operations particularly when vendor rebates are concerned. In actual fact, based on a report ready by Harvard Business Review  roughly 60% of enterprise leaders say a scarcity of transparency between their finance and procurement capabilities and their suppliers represents a threat to their enterprise.

What does the finance division do?

The finance division has moved from a back-office operate to turn out to be a strategic associate of the enterprise. The finance departments position ranges from paying salaries, bringing in funds from shoppers, dealing with invoices from suppliers, settling payments for hire and utilities, and offering cash for funding. This includes managing money circulation and making certain there are sufficient funds accessible to fulfill the common funds. The CFOs position particularly has turn out to be extra strategic, they make investments time in creating a deep understanding of the enterprise, past the practical necessities of the finance position. Plus, they work carefully with the CEO on the course of the enterprise. General, the finance division cares most about processing prices and accuracy. They care much less in regards to the technique of when to pay or the worth of the products or providers than the worth.

What does the procurement operate do?

The procurement capabilities position is to amass the elements and supplies wanted, on time and within the appropriate amount. They are going to negotiate uncooked supplies, packaging, instruments, consumables, parts and different common purchases. They might evaluate a number of catalogues or tariffs from totally different suppliers to get the most effective pricing, verify availability, and plan out lead occasions. Plus keep minimal stock and attempt to maintain prices down. Procurement groups perceive the connection between price and provider high quality, reliability and efficiency, and consistently attempt for the right steadiness amongst these components. The procurement operate should work carefully with finance and accounting to make sure that the corporate’s money is used properly. To summarize, procurement groups’ cares in regards to the provider relationship and making certain the most effective pricing of products or providers contracted on behalf of the corporate.

Function of procurement in finance?

Procurement and finance sometimes function individually, which doesn’t assist the group meet all of its objectives. Finance ought to be setting spending limits for procurement, and procurement goals to save cash when and the place doable by way of each price financial savings and value avoidance measures. Contemplating that procurement is usually answerable for as much as 70% of corporations’ income, these small reductions in prices can have a big impact on income. Improper dealing with of funds by a procurement staff or officer can result in a ton of issues, not only for themselves however for his or her suppliers and the companies they procure for. But when finance and procurement turn out to be companions, they’ll work collectively to contribute to an organization’s objectives, together with operational and monetary efficiency targets.

What can we imply by “alignment” of procurement and finance departments?

By alignment, we imply the knowledge that vendor rebate offers negotiated by the procurement operate are being accurately exercised by finance. In our expertise, there are numerous corporations on the market the place the offers are so complicated that the present monetary techniques equivalent to spreadsheets or ERP techniques can not address them and the advantages which have been negotiated are merely missed. With out alignment, financial savings fail to materialize, provider efficiency can slip and threat slowly will increase.

What influence does the procurement operate have on vendor rebates?

We lately got here throughout this text “procurement enterprise influence — charting your monetary influence” which explored the influence that procurement could make on an organization’s sustainable shareholder worth — the core measure of any firm’s success. The article outlined 4 key shareholder worth drivers:
‍1. Accelerating free money circulation
2. Lowering prices
3. Lowering threat and the price of capital
4. Rising long-term enterprise worth
‍For companies which have substantial vendor rebate earnings, higher rebate accounting can enhance money circulation, cut back the price of capital and due to this fact enhance the long run enterprise worth. Subsequently, the influence that procurement groups can have on companies impacted by vendor rebate administration — like shopping for teams, constructing supplies and wholesale distribution — is important. Added to that, having a deal with in your vendor rebates clearly reduces errors which in flip reduces the potential for disagreements with suppliers. From there it follows that the procurement operate ought to be capable of foster higher relationships with key distributors which is at all times a great factor.

What influence does the finance staff have on vendor rebates?

Finance groups and particularly CFO’s are concerned with not simply the purchase facet of the home however the promote facet of the home too. They’re constantly evaluating enterprise circumstances for brand new investments or enterprise circumstances for buyer particular investments. So it’s vital that your CFO and finance staff perceive your vendor rebate panorama.
‍That is vital for 2 causes:
‍1. They’ll determine the place the identical firm is vendor and buyer too. This results in higher engagement and constructing a strategic relationship together with your prospects.
2. Your finance staff can control your massive distributors and enable you mitigate the provision chain threat. For instance, you won’t be monitoring all of the monetary details about your suppliers, however your finance staff may be nearer to this info.
In the long run, it’s helpful for the whole group to know who the important thing suppliers are and their criticality for the whole provide chain.

What causes some procurement and finance groups to be misaligned when managing vendor rebates?

• Unclear monetary measures — procurement groups tasked with placing the most effective vendor rebates are hampered by not having an understanding of the true influence that rebate fee phrases and volumes can have on the enterprise.  A single view by each finance and procurement of all rebate offers and communication of backside line influence will enable procurement to barter extra successfully.
• Poor rebate administration techniques — procurement groups nonetheless fairly often depend on spreadsheets or different remoted techniques to barter vendor rebates. These processes and the small print of rebate agreements are sometimes not clear to monetary groups and due to this fact it’s troublesome to evaluate the constructive (or detrimental) influence rebates are having on money circulation and the underside line.
• Complexity of rebate and B2B offers — a number of vendor rebates and sophisticated offers could be extraordinarily troublesome to handle with out a good supporting rebate administration system in place. Relying on the extent of vendor rebate exercise, the rebate accountant in some corporations can have a major influence on the corporate’s success.  Finance and procurement groups want a great supporting rebate system to make their offers simpler.
• Provider relations – having each procurement and finance handle suppliers independently can result in uncertainty and inconsistencies about your vendor rebates. Conflicting messages from each departments can negatively influence relationships with suppliers in addition to suppliers’ efficiency.
• Points with fee – to pay suppliers to their vendor rebate phrases, finance and procurement must align their PO and invoicing processes, plus communication usually with suppliers. Organizations typically pay late due to error-prone handbook processes which may create cash-flow strain for distributors and influence provider relations and future contract negotiations.

By turning into accurately aligned, with the best rebate administration techniques and processes in place, finance groups and procurement departments that cope with complicated vendor rebates can ship higher money circulation, lowered capital prices and long run enterprise worth.