Why Procurement & Treasury should be working together

In many companies’ procurement and treasury as well as many other parts of finance, operate in silos. Whether this makes sense or not remains a subject for detailed discussion on another platform.

Whether you are a large corporate that spends billions on purchasing raw materials to as input into manufacturing finished goods or an airline that has to purchase aviation fuel in bulk and in advance or smaller companies involved in services and whose spend budget may be lower, there is no denying the importance of procurement. That importance is not just limited to helping weaker suppliers but extends to how to “oil the wheel of the entire supply chain”

When I first became a Treasurer for a blue-chip organisation many years ago, I noticed that when procurement was discussing large contracts, treasury was only informed after the agreement was signed. I argued successfully that given the value that Treasury can bring to the table, we should be involved in the discussion and negotiation.

So, what are the key skills that each area brings to the table?

Procurement have a reputation as tough negotiators. They don’t just spend their organisation’s funds, they work with suppliers on pricing, have to go through rigorous contract negotiations and also sweep the horizon for new technologies that may influence procurement or buying in future.

On the other hand, Treasurers are known for having a tight hold on cash and being able to manage this scarce resource is vitally important. Embedded in this responsibility is that Treasury prefer certainty in terms of how much, when to pay and currency of payment. Simply put Treasury manages risks related to liquidity and those related to foreign exchange etc.

Treasurers also manage relationship with banking service providers and other financial institutions. In many organisations Treasury usually holds the knowledge and experience in trade finance. In addition, there is need to understand banking regulations that affect dross border trade These institutions usually have standard supply chain products or possess the expertise to create bespoke solutions for their clients. 

When held side by side its easier to see and appreciate the areas where there are benefits and synergy between both teams. Procurement want to buy as cheap as possible without compromising quality and timing. Treasury wants to stretch payment for as long as possible without exposing the organisation to unacceptable risk.

There is also the growth in many smaller organisations who are developing and bringing to market alternative funding opportunities into the supply chain landscape and supplier finance ecosystem. These e-platforms and/or products focus on various aspects from compliance to risk management and from funding to how documentation is processed and exchanged.

As the landscape is transformed it makes absolute sense for procurement and treasury to become an interdependent team working towards the same goals for the organisation.

The best place to start is by answering the question, when discussing your procurement policy or large contracts do you have procurement and treasury represented at the table?

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