The Importance of Empowering Procurement with Supply Chain Finance
By 5 minute read• Published December 7, 2023 •
Over the last several years, those of us in the trade finance industry have witnessed a shift in how procurement teams perceive working capital initiatives and supply chain finance programs. Traditionally, initiatives to generate cash have been viewed as a mechanism primarily focused on serving the interests of treasury and finance departments. Procurement’s involvement in implementing these changes in the supply chain, however, has often been an afterthought.
That’s a serious problem. Not only because procurement teams are the actual quarterbacks of most of these initiatives but because:
- Success of these critical cash flow driving initiatives live or die within procurement
- Most procurement teams are over-burdened and under-staffed despite the crucial nature of their work
- This is a volatile time for supply chains and every organization is seeking to strengthen their ability to source supply
- Tactical execution of strategic initiatives requires alignment and buy-in from all stakeholders
It’s time to reframe how procurement teams perceive these working capital initiatives and supply chain finance. A shift is already happening within many companies, and it’s having a measurable impact on program success. Here are four tips to get started:
Harmonize Procurement and Business Leaders on “The Why” Behind the Initiative
Procurement teams often feel working capital initiatives and programs are imposed on them rather than developed in collaboration – and that needs to change. Supply chain finance is a tool to help organizations achieve critical business objectives and strengthen supply chains. There needs to be alignment between business strategy and procurement on how the company will use the working capital improvements delivered. The more specific, the better. Examples include funding a strategic acquisition, paying down debt to improve credit rating, investing in new AI technology that will improve productivity and competitive advantage. These are all initiatives that procurement can rally around and drive success.
Reduce the Burden of Supply Chain Finance Program Execution
Extending supplier payment terms. Implementing new standards and practices. Adopting new tools for negotiation. Balancing supplier relationships and business needs. These are just a few mammoth tasks procurement teams are expected to take on when embarking on a working capital initiative and adopting supply chain finance – in addition to their existing workloads.
It’s important for treasury and finance leaders to take steps to reduce the weight on procurement’s shoulders. At PrimeRevenue, we recognize this obligation. Our supply chain finance solution is aimed squarely at alleviating procurement’s burden. We train procurement on how to message term changes that fit their unique supply chain while taking on sharing the benefits of supply chain finance to suppliers directly.
Our account executives work one on one with suppliers, start to finish, to think through those benefits and the impact early payment can have on their business. Then we take it a step further by helping them define how they’re going to use early payment and access to our platform to improve their own business. Supplier onboarding is quick, easy, and painless – often in 24 hours – and our dedicated program specialists are on call 24/5 to answer any buyer or supplier questions.
Align Goals with Compensation
Compensation for procurement teams often includes performance-based incentives with the most popular being related to cost savings or better COGS margin. While this is an established measure of procurement effectiveness, it’s not the only indicator.
An innovative practice our most successful buyer clients have adopted is compensating procurement teams based on working capital goals, in addition to traditional cost savings metrics. This alignment ensures procurement’s objectives are aligned with the company’s broader strategic goals and financial strategies, fostering a more integrated approach to supply chain management.
Find the Right Partner and Supply Chain Finance Provider
It has never been more important to find a partner to support procurement as they facilitate new working capital initiatives – particularly when it comes to supply chain finance. Finding the right provider, who is invested in your organization’s successful outcomes and goals, is a must. This resource can take on critical (and often time-intensive) tasks, advise on how to best message and target suppliers for program participation, and streamline onboarding and training processes.
The result is a supply chain finance program that is easy to facilitate, strengthens supplier partnerships, and delivers material improvements to cash flow – all of which adds up to a win-win-win for the organization’s financial objectives, its procurement team, and its suppliers.
Procurement is Key to Unlocking the Full Potential of Working Capital Initiatives
It’s crucial for procurement teams to understand the multifaceted benefits of supply chain finance – and that their role is strategic and valued. It’s also important for business leaders to take steps to make execution of working capital initiatives easier for procurement. By shifting the perception from an imposed obligation to a strategic tool for resilience and stability, procurement can unlock the full potential of supply chain finance.