Procurement's role: maximizing in corporate budgets.

Author:Payne, Joe
Position:Budgeting & Planning
 
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With back-to-back meetings scheduled to evaluate budget performance and hours of working in Excel to forecast 2013 departmental budgets, preparing for the next fiscal year is daunting. To complicate matters, the American economy is recovering, but budgets remain lean and resources are limited. In such an environment, an underutilized tool in the chief financial officer's arsenal is the internal procurement department.

This often untapped resource comprises a goldmine of budget-saving opportunities that, if tapped, could contribute to an organization's much needed strategic advantage.

Most companies recognize their internal procurement departments as transactional tools whose purpose is buying the products and services they need to continue operating or expanding operations. This traditional view is reflective of the history of the "buyer" job functions and does not recognize the evolution the profession has undergone over the past few decades. This limited view of procurement vastly underestimates its potential to provide strategic guidance and add value to a company performance.

Procurement should be using a process called "strategic sourcing" to help shift buying from a tactical to a more strategic function. The main goal of this process is to ensure that the best products and services are procured from the right suppliers, for the lowest possible price.

Gathering Intelligence

The first step to maximizing the potential of a procurement department is to get procurement personnel completely involved in budgeting activities. Typically, historical purchasing and spending information is reviewed during budget planning activities conducted by corporate finance departments. This should not be done blindly; invite procurement teams to the review process so that they have a solid understanding of the total financial landscape of the business.

Finance may be surprised to learn that procurement doesn't have nearly as much involvement with the ongoing spending within the organization as one might think. Historical reports, while extremely valuable, only provide the quantitative information for past financial performance. The purpose of engaging the procurement staff is to gather more insightful information into opportunities for future cost reduction or consolidation.

Ask those in procurement what information they would need to properly assist in budget planning. Likely, they will want to run reports by supplier and spend category and look to...

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