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There's a lot to be said for having everyone in an organization rowing in the same direction, especially in challenging business environments where uncertainty and unpredictability have become the norm. With procurement navigating these issues on the front lines and financial departments making the budgeting decisions, CPOs and CFOs need to be aligned and working from the same playbook.

Making that happen isn’t easy, and this isn’t a new problem. Procurement and finance have historically approached spending from different perspectives, with procurement focused on negotiating favorable supplier agreements and finance concerned with how those agreements affect budgets, cash flow and the bottom line. Those differences can become a source of conflict when the savings reported by procurement don’t match the financial results the company records.

A recent Procurement Pulse Report from Agiloft highlights a persistent gap between the savings companies negotiate and the financial benefits they ultimately receive. Based on a survey of 2,005 procurement executives, it identifies a weak connection between supplier contracts and the systems responsible for carrying out their terms. This gap is causing companies to lose negotiated savings through invoice discrepancies, missed contractual remedies and purchases made outside approved supplier agreements.

Collaborative Work, Separate Scorecards

The research also found that 61% of respondents described their relationship with finance as “collaborative” during budget cycles, with most departments operating with “separate scorecards” throughout the year. And just 29% share performance indicators and jointly report financial results.

“Once a contract is signed, it enters a world of processes and systems that are expected to act on contract data but were never designed to read it,” Agiloft says in the report. “ERP platforms process purchase orders, accounts payable teams approve invoices, and supplier relationships are managed through relationship owners who may never open the contract document.”

The good news is that CFOs and CPOs can solve these problems by looking closely at how their departments measure savings and account for the financial results. When that happens, the two departments get a common basis for evaluating purchasing decisions and identifying new savings opportunities.

Here are six steps companies can take to get these two teams working from the same playbook:

1. Agree on what counts as savings. Procurement may count avoided price increases as savings, while finance looks for reductions in actual spending. In “How to Improve Collaboration Between Procurement and Finance,” Ramp says both departments should establish a common reporting standard so they calculate savings the same way.
    
2. Spell out who's responsible for what. According to Deloitte’s Benefits of Integrating Procurement and Finance Operations, both departments should establish who handles each stage of the purchasing process, from contract negotiations through invoice approval, while maintaining appropriate financial controls. 
3. Bring procurement into budget planning. Ramp also advises companies to involve procurement in financial planning discussions. That way, finance can account for upcoming supplier price changes and purchasing commitments when developing forecasts. 
   
   
4. Connect contract and financial systems. Agiloft recommends integrating contract management, purchasing and accounts payable systems so employees can verify negotiated prices and payment terms before approving invoices. 
   
   
5. Share supplier information across departments. Finance can share supplier payment histories and credit information with procurement, giving buyers more information to draw on when negotiating contracts and assessing supplier performance, Deloitte adds.
    
6. Review financial results together. Get everyone in the same room to compare purchasing activity with financial results to identify discrepancies and confirm the recorded savings. “The collaborative-but-separate finance relationship described by 61% of respondents will remain a limitation until CPO and CFO teams adopt shared KPIs that bridge negotiated savings and realized outcomes,” Agiloft concludes.