Procurement Goes Together with Finance
Point-of-View, Procurement Trends, Source-to-Pay
“There is no animosity – procurement goes together with finance!”
This is what Timo Leinonen, Chief Financial Officer of Lassila & Tikanoja, said to Pekka Heikkilä, Head of Purchasing at Outotec, as they were discussing the development of co-operation between finance and procurement at the Finance Forum event, organized by OpusCapita. Here's our summary of the conversation.
The two executives agreed that creating a culture of co-operation means attracting more people who understand the procurement to payment process and who are genuinely interested in steps that come after and before their own part in the process. Pekka Heikkilä stressed the importance of close co-operation already in the planning and specification stage of procurement and financial systems.
“In addition, it is necessary to have a profound understanding on both sides about business needs that procurement is there to serve at the end of the day. I speak from experience when I say that if these specifications are not right from the beginning, co-operation afterwards will not be of much help. This means that we are forced to make adjustments on the go.”
Timo Leinonen emphasized the fact that the finance department is the end of the line for many processes.
“The procurement to payment process is one of the more significant processes. If there are failings or mistakes at the top of the chain, whatever they may be, the organization responsible for purchase invoicing will suffer as a result. And if things get really messy and they need to be sorted out in the business units as well, the whole organization will be affected. Finance requires a good understanding of what is happening in procurement, in order to function effectively at the end of the chain.”
Procurement of services and projects a challenge
Outotec designs and delivers industrial plants, process equipment, and services for purposes such as enriching and refining minerals and metals.
“It is easy to control operative procurement with the right tools by, for example, accepting orders only for suppliers within the system. In our case, one of the major areas is project procurement, which is more complicated. The chain starts with product development and design. This is where we need to be, too, in order to include procurement needs – ultimately finance needs – in our business activities,” Pekka Heikkilä explains.
Timo Leinonen notes that, within the finance department of a conglomerate, the differences between procurement activities for different functions are clear. Lassila & Tikanoja is specialized in providing environmental maintenance and support services for properties and organizations.
“For instance, we have 800 heavy vehicles that we need to purchase over 3 million gallons of diesel for each year. This is relatively simple: the suppliers send itemized invoices electronically – these are easy to process. However, the more we start thinking about the procurement of services, the more challenging processing purchase invoices becomes, since the approaches are less structured,” Leinonen points out.
Automation creates space for innovation
Right now, many companies are aiming to reduce the number of suppliers and to allocate purchases to a select group of suppliers where possible. Chief Financial Officer Leinonen welcomes these developments.
“A situation where business units are purchasing freely from anywhere and the number of suppliers used only once is high, for example, is a nightmare for the finance department. Our request for procurement is that the suppliers not change constantly, to allow both systems and employees processing invoices to keep up,” Timo Leinonen says.
“It is clear that we need to exercise discipline here. If a company already has a good supplier for a specific product group, the employee responsible for planning purchases must be aware of this to avoid bringing in another similar supplier for no reason,” Pekka Heikkilä comments.
Both emphasize the fact that, in order to make the procurement to payment process more effective and functional, both departments need to work on their methods. In addition, Leinonen pointed out that purchasing should be made easy for company employees.
“If ordering something is too complicated and cumbersome, this can easily lead to difficulties in subsequent stages. For instance, as part of a project, there may be a need to purchase supplies that the client needs to be invoiced for later on. If the purchasing process is patchy, this already has a negative effect on the order to cash process.”
One of the main objectives of introducing systems and increasing automation both in procurement and in finance departments is spending less time on routine tasks.
“If we are able to release people from repetitive, manual routine tasks, they will have the opportunity to use their education, skills and expertise to develop innovations to improve their tasks and the activities of the whole organization,” Pekka Heikkilä says.
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