Sourcing and finance

From the October 2016 print edition
When it comes to the relationship between strategic sourcing and finance, it often amounts to compliance and reporting. As a publicly traded company, 3M Canada needs accurate accounting of our finances and must adhere to GAAP (generally accepted accounting principles) and SOX (the Sarbanes-Oxley Act). Strategic sourcing often participates in very thorough internal and external audits to ensure compliance with our documented processes through ISO for our source-to-pay value stream map.
Generally, our clients are at the start of the sourcing process with a need for a good or service. Strategic sourcing facilitates the selection, setup, procurement and payment for those goods and services and then finance accounts for and reconciles payments, liabilities and accruals as needed. Finance and strategic sourcing must both protect the corporation and reflect our financial position.
Years ago, I had a situation whereby a buyer made a typo on a PO and instead of the PO extending to $100,000 it was valued at $10 million. Through our controls, finance was able to alert the buyer to the error and prevent a large dollar-value error. Protecting the corporation by strategic sourcing buyers and agents is done through adherence to our contractual obligations or purchase order terms and conditions. Buyers can also protect the corporation by paying attention to match exceptions with supplier invoicing, goods receipts and ensuring prices equal what’s been agreed to and what’s actually been received or invoiced.
Finance and strategic sourcing often work closely together during the forecasting process for the upcoming year’s operating plans and budgets. In my role, this process goes through several iterations each year, which begin in the summer. Commodity markets and feedstocks are reviewed regularly on a global basis and projections are made. In addition, we hold hopper sessions for the next year’s projects and prioritize those projects. These projects, hoppers and strategies are then quantified and shared with finance to be worked into the operating plan.
Strategic sourcing and finance play key roles during our monthly reviews of our manufacturing operations results. These reviews are a combination of the inputs from many areas such as strategic sourcing, plant managers and facilities. Financial counsel review all items, having already analyzed our raw material pricing, production, downtime and throughput in the plant, sales, inventory, waste, safety and then our results according to our operating plans. As a subsidiary of a large multi-national company based in the US, we often post our results in US dollars. This adds complexity through exchange rates, as we buy many of our raw materials in US dollars.
As part of the larger supply chain organization, strategic sourcing also reports on accounts payable (AP) balances, terms and future-looking obligations and price locks. AP is part of net working capital and free cash flow. Depending on the needs of the corporation, payment terms can be adjusted when mutually agreed upon with suppliers as well as choosing to take early payment discounts or let the invoices age to agreed upon net terms. We often think of customer service and sales as the corporation’s face, but strategic sourcing also represents the entire buy side of supply chain for most corporations and can commit to financial liabilities.
I coach my team on the premise that we don’t want any supplier that’s been unsuccessful at winning an RFP to avoid dealing with us or buying our products again. We maintain an ethical and level playing field and all are welcome to participate. I always say: “quotes are free.”
When we enter a relationship with a supplier and begin working on a transition plan for a piece of business, we must be sure that both of the parties involved are in agreement, thereby resulting in a win/win. However, as the customer, we typically want the best deal for our side. But our suppliers must also be profitable in order to exist and continue to service our account. All departments need to create value and be as efficient as possible.
Strategic sourcing works with finance to ensure proper accruals, payables, progress payments, hedges, rebates and forward purchases or liabilities. The two areas collaborating to provide accurate reporting and proper processing at the lowest cost both in terms of purchase price but also in staffing costs ensures the best return on investment for the corporation.