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Treasury and Procurement – Closing the Gap
by Nick Blake, Corporate Sales Executive, European Corporates, J.P. Morgan Treasury Services, EMEA and Cara Hanrahan, Head of U.S. MNC European Subsidiary Sales, J.P. Morgan Treasury Services, EMEA
Treasury and procurement departments of large multinational corporations have been quite distinct parts of the business until relatively recently and in many cases, each department would have been largely unfamiliar with each other’s objectives and metrics. In recent years, this has gradually changed as physical and financial supply chain integration at a global level become increasingly important to meet corporations’ strategic and competitive objectives. For example, while procurement professionals have a vital role to play in optimising the physical supply chain, they are also instrumental in the financial side, such as negotiating payment terms and discounts, which has a direct impact on treasury’s working capital and liquidity management objectives.
Prompted by the global financial crisis, procurement professionals are increasingly motivated to manage risk and increase the resilience of the supply chain.
Prompted by the global financial crisis, procurement professionals are increasingly motivated to manage risk and increase the resilience of the supply chain. These factors, amongst others, are heralding a closer relationship in which both departments can support the objectives of the other. This Guide looks at some of the opportunities for greater collaboration between the two business functions, but also explores some of the potential friction, particularly in that procurement and treasury typically have performance metrics that at times may be contradictory.
There are a variety of ways in which procurement and treasury can provide mutual support in the overall interests of the company. For example, treasury can help procurement to manage supply chain risk, such as by supporting suppliers’ liquidity position through supplier financing. Conversely, procurement can assist treasury significantly in achieving their liquidity and working capital goals by working together to determine appropriate payment terms and early payment discounts that support the company’s and its suppliers’ working capital needs.
As yet, not all companies have embraced the need for co-operation and alignment between procurement and treasury, depending on their business organisation, culture and the geographic location of each function. Furthermore, the way in which they collaborate will differ according to the specific business need. In some companies, closer dialogue may be sufficient, while in others, there may need to be more structured interaction of systems and information flows. In others too, there may be a greater role for multi-disciplinary teams involving treasury, procurement, tax and legal etc. in order to ensure that business behaviour globally is consistent with stakeholder objectives. However, irrespective of the degree of collaboration that takes place, it is essential that both understand and respect the performance metrics on which the other is measured, and that these metrics are complementary rather than contradictory.
J.P. Morgan has been taking a proactive approach to facilitating closer dialogue between these two business functions and aligning their objectives. Integrating our trade, cash and card services over a decade ago enabled us to discuss with our clients how their procurement and treasury departments could work with each other on certain initiatives both were participating in. Today, we continue to match our clients’ geographic footprint and provide the expertise and solutions that they require. We work with both business teams to understand their common and at times disparate goals, and devise and deliver solutions that align their objectives more closely in the wider interests of the company. Key to the success of this relationship is timely, accurate and complete information, communicated effectively. At J.P. Morgan, facilitating these information flows is a pivotal element of our strategy to allow both procurement and treasury to have complete visibility over the flows that form the lifeblood of the organisation.