The Financial Value Of The Purchasing Department

From a strategic point of view, the Purchasing Department is subject to different approaches depending on the structure of the company, but regardless of its relevance in the business by type or size, we must enhance the relationship between the Purchasing Department and the Finance Department for the benefit of the company, and in the current European context of high inflation, it becomes more important.

Many SME companies have this role as just another part of the CFO’s functions, but the specialization and relevance of having a CPO in companies with a significant volume of purchases is becoming more and more widespread.

What will improve if we work together? Undoubtedly, we can highlight three fundamental aspects that will benefit any company:

EBIT, will benefit simply because the Gross Margin is the subtraction between sales revenue and the costs of these, so the negotiation of these by Purchasing is already improving our profit. But this would only be the surface of what we can do together, in fact, the alignment of both departments looking at timings, market opportunities, activation of expenses, optimization of resources and a long etcetera can help the company to increase the efficiency of our income statement.

“Most Of The Processes And Departments In Companies Are All Interrelated, Tied By Small Imaginary Knots That Should Not Be Untied So As Not To Hinder The Company’s Progress”

Cash Flow, will benefit if the Purchasing Department negotiates rebates on purchases or if we manage to coordinate and/or improve payment terms that are more favorable to our cash flow in the company, so that our bank balance will benefit and we could allocate those resources to investments or other payments that the company considers strategically necessary. The company’s ability to obtain products and services efficiently is critical to the company’s profitability, competitiveness, and overall success.

Working Capital, because if we have achieved the desired efficiency and we can save the company certain expenses in each period, our Liabilities are lower and the Working Capital becomes more positive, in the same way it increases if we have more cash in our Banks, so the actions we take will be reflected in our Balance Sheet.

Risk Management plays a strategic role in this area. The Purchasing Department evaluates and selects suppliers based on quality and financial criteria. We can reduce exposure to risks such as lack of quality, delivery delays or supply chain disruptions, which will also benefit our Cash Flow continuity by not interrupting our sales processes. The ability to anticipate and mitigate these risks helps ensure business continuity and customer satisfaction by not disrupting the market for our products and/or services.

Most of the processes and departments in companies are all interrelated, tied by small imaginary knots that should not be untied to not hinder the company’s progress. Because of its idiosyncrasy and relevance, the Finance Department is usually at the center, since any company transaction has a financial component, but without a doubt, to improve the P&L of our company, we must work together with the Purchasing Department because of the value it offers us in all the above.