Understanding the Impact of Good Financial Management for Procurement
- 22 January 2021
- Written by: Jennifer Viola
- Category: Procurement
The key to successful procurement operations is having superb financial management. Despite being overlooked by many organizations, making sure that these two areas work in harmony can help your business achieve success. Indeed, spending is the primary action in procurement, and a misalignment in your finances can easily impact your procurement plans and disrupt your access to the supply chain. In this post, we’ll discuss what you can achieve by aligning your financial management goals with your procurement plans — and how you can do it.
Avoid Common Problems
Good financial management can ensure that your procurement operations avoid running into common problems, such as failed partnerships and an inadequate supplier selection. For instance, procurement agents are restricted by the budget your finance team has set, and this can limit both the kind of vendors and quality that they can access. There usually isn’t a lot of legroom for your procurement operations to explore other options. As such, it might be preventing you from finding cost-effective solutions. By making sure that your finances are handled well, you might be able to find the extra budget for your procurement team to spend on better quality options.
Produce Useful Insights
To put it simply, having a good budget allows you to map out and control your procurement operations. Good financial management not only allows you to oversee how your budget will be used, but can also expose current spending habits. Spend analysis is an important part of finance management as it analyzes procurement details to find out how you can increase your efficiency, decrease procurement costs, and even build good supplier relationships. If your finance and procurement data are well documented, accurate, and organized, this can be put through dedicated software to produce useful insights. The data can then be used to facilitate day-to-day decision-making processes when it comes to procurement, as well as help you tweak your financial plans for maximum yield.
Positive Working Capital
Your organization can achieve positive working capital if you make sure to have a good financial manager. You need to ensure that your organization is getting all possible discounts and maximizing profits. So whether they make sure to access early vendor discounts or ensure dues are paid early, these actions can go a long way in moving your business forward in a positive direction.
During negotiations with a supply vendor, your finance manager can determine the best invoice processing time so that you can get better deals. After a discount has been negotiated, your procurement team then has to inform your accounts payable department of the agreed terms so nothing is amiss.
How Can Your Organization Achieve Good Financial Management?
One way to ensure that your organization achieves good financial management is by making sure that you have a good business plan and regularly monitoring your financial position. By doing this, it can give you an overview of how your money is spent and reveal any flaws that might be keeping your organization from attaining success.
Another way to guarantee the success of your financial management team is by outsourcing key financial tasks such as financial planning and strategizing in line with your business. Indeed, the demand for business management professionals continues to rise, with more than 591,800 business and financial operation jobs expected to open up between 2018 and 2028. Top universities are responding to this demand by offering online business degrees, which can be done at a students’ own pace and time. These programs equip students with a well-rounded skill set — touching on economics, finance, management, operations, and even marketing. It’s no surprise that many finance professionals have been upskilling themselves to remain competitive in a dynamic industry. Seek out these experts, and you’ll surely work with someone who is highly experienced and adept with trends.
If you truly want your procurement operations to be more streamlined, efficient, and successful, you should ensure that your organization’s finances are managed well. For more information on how to improve your procurement operations and business as a whole, be sure to check our other blog posts.