Should procurement report to finance?

In this article we unpack some of the comments posted during a recent poll on this topic.

Smart Procurement World (SPW) recently ran a straw poll on LinkedIn. The question that was asked was simply “Should procurement report to finance?”. The poll garnered an impressive 669 votes with 66% saying ‘No’ and 34% saying ‘Yes’.

Although the outcome of this survey is heavily weighted in favour of the ‘No’ vote, the results are far from conclusive, says Gordon Reid, Lead of the Transparent Procurement Advisory Programme. He unpacks the survey responses in this month’s SmartProcurement.

Considering that SPW is, after all, a platform promoting procurement it is not surprising that the results are favour of ‘No’.

Interestingly, when reviewing all the posted comments, the ‘Yes’ voters were conspicuous in their absence on the comments board. I could only find two comments supporting a “Yes” vote, both from Marinda Grobler.

1. “Entirely depends on the type of company Finance releases/signs the cheque at the end of the day.”

2. To all the comments as per my below comment… Finance should know or have at least a basic understanding of the industry they’re working in. Procurement manager should report to finance. Is this not why we have management meetings? This means added pressure on procurement manager to make sure they get the best cost…” (1 Like) Marinda Grobler (Africa Specialist – Logistics/Supply Chain/Clearing and Forwarding/Aviation/Projects)

On the other hand, comments for the “No” vote were plentiful, with Hedley Jantjies’s post attracting the most likes.

“I am very much amazed by the comments that suggest that procurement should report to finance, let alone by some who are operating in the procurement space. It is sad that even CFO’s are not able to realize the strategic importance of value creation by procurement department. Like all other departments, procurement work hand in hand with other departments to realize the competitive advantage of an organization. Procurement & Finance must hence be business partners to support the wider organisation realize its strategic objectives.” (24 Likes) Hedley Jantjies’s, (MDP | BCom (Acc))

The survey question required a simple “Yes/No” answer with an option to comment. There was no “Maybe” or “Sometimes” option to select. This was recognized by some of the participants who included caveats in their comments as can be seen in the following two posts:

1. Functions within organizations should evolve. It should no longer be about functional delineations i.e. finance, supply chain etc. But how these units collaborate and deliver value”. It’s the “natural teams” mindset. How each unit/function come together to generate value, and are part of a larger ecosystem, with one sole objective – create value. Really irrelevant who reports to who in my opinion, what’s more important is we all i.e. finance, procurement harness our distinct skill set and create value. onyekachi obienuout of network 3rd+FICO/MIS Advisor at Shell

2. “My answer is NO, but that may not represent the overall context. There are multiple determinants which comes into play in determining right reporting structure of an organization, BUT an “able” Supply Chain function should be able to contribute towards financial excellence of an organization, say for example by practicing following: – Developing Free Cash Flow of the Company; – Reducing Cash Conversion Cycle; – Implementing best practices in Activity Based Costing aspect of Inventory Management etc. There is a strong case being made in progressive organizations these days that above-mentioned practices should fall under CPO’s instead of CFO’s; which I personally tend to agree… Rishi Malhotraout of network Director, Procurement & Material Management

For an independent and unbiased opinion, I reached out to a distinguished procurement professional with many years of experience, Derek Kinnear, the former CEO of Bidvest Procurement. He provided a more pragmatic approach.

• If the primary strategic objectives of an organization are driven by financial indicators and pure savings (transactional), then the alignment should be with the Chief Financial Officer
• If the mandate of Supply Chain and Procurement is to focus on sustainable value adds that go beyond savings and is aligned directly with the organization’s strategic objectives, then the role is better positioned when reporting into the Chief Procurement Officer.

Opinions aside, a more scientific answer could be derived through analysis of available facts. In the world of digitization and artificial intelligence, perhaps a computer model could suggest a preferred structure for a particular organization or industry. After all, we all know that in procurement, data is key. (Any data scientists up for the challenge? ????)

As pointed out by Rishi Malhotraout, there are ‘multiple determinants’ to determine the structure of an organization. Analysing exactly what these are, would make for an interesting discussion. One that I hope which we can save for another day.

Some Parameters/Variables for possible inclusion in an “Optimal structures for procurement in any organization” computer model could include the following. (Please note that this is an example only. This is an idea that would obviously require a lot more research and a broad stakeholder engagement.)

• Public or private sector
• Outsourced/Insourced
• Financially or strategically aligned
• Centralized or Decentralized
• Profit center or a cost center
• Size of the company
• Type of industry
• Level of procurement maturity
• Direct and indirect % of total measured procurement spend (TMPS)
• Local and imported % of TMPS
• Are procurement functions split within an organization? e.g. Marketing, Merchandise, Non-Merchandise, Development, Operations, Finance, etc.
• Title of most senior Supply Chain/Procurement position? e.g., Supply Chain Director, Procurement Director, Chief Procurement Officer, Head of Procurement, Procurement Manager, Procurement Officer, Strategic Sourcing manager, Commodity Manager, Materials manager

During my career in procurement, I have reported into Executive Committees (Exco’s), Finance, Operations, Development and Project Managers. There were many times when I would have liked to have bypassed certain levels of authority but, in almost all situations, the systems that we operated under still functioned. What was more important at the time was not so much who I was reporting into but my level of authority and if my voice was being heard by the top structures. The proverbial ‘seat at the table’ so to speak. When your message is being conveyed second hand up the hierarchy, that is when the challenges start to manifest themselves.

Procurement is coming of age; it is no longer the ‘teenager’ as referred to by Johnrick Saulsout in his post. When reflecting on Derek’s observation above, I believe that there is an overall shift, from seeing procurement as a purely financially driven function (Backoffice) to recognizing it in a far more holistic and inclusive strategic role.

You can view the discussion on LinkedIn

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