The financial impact of procurement goes well beyond cost reduction. It extends to such critical performance areas as business growth, profitability, cash flow, and asset utilization. Procurement professionals therefore need to be able to quantify this broader impact, and then communicate that message to senior management so that they understand how procurement can contribute to company success.
Increasingly, procurement professionals are required to do more than obtain lower prices from suppliers. They must become more accountable for bringing about a higher level of financial efficiency.
To meet this challenge they must begin to translate their traditional measures of operating efficiency into more strategic metrics that demonstrate their contribution to the success of the entire organization. To achieve this they must have a strong understanding of their organizations financial performance and how procurement impacts upon it.
Making the link between procurement performance and its broad financial impact will provide greater recognition for the function and assure that its managers are focusing on the areas in which they can have the greatest impact on the organizations performance.
This competency will help learners understand and analyze the financial statements of an organization. They will learn the basics of the three financial statements;
A balance sheet provides a snapshot summary of an organization’s assets and liabilities on a particular date.
A standard company balance sheet has three parts: assets, liabilities and ownership equity. The main categories of assets are usually listed first, and typically in order of liquidity. Assets are followed by the liabilities. The difference between the assets and the liabilities is known as equity or the net assets or the net worth or capital of the company and according to the accounting equation, net worth must equal assets minus liabilities.
Profit and loss (P&L) account
Used by the management and investors to measure the profitability of an organization. This statement tells them if an organization has made a profit or loss over a specified period. It displays the revenues recognized for a specific period, and the cost and expenses charged against these revenues, including write-offs (e.g., depreciation and amortization of various assets) and taxes.
Cash flow statement
A cash flow statement reports an organization’s inflows and outflows of cash and cash equivalents over a specific period of time. As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills.
The courses also cover the financial ratios to measure the performance of an organization:
- Performance ratios, used to measure your organization’s utilization of assets and its profitability.
- Liquidity ratios, used to measure an organization’s ability to meet its short-term liabilities.
The aim of this program is to provide buyers with the knowledge and skills to manage their purchasing and procurement activities more profitably and with a greater degree of financial understanding and confidence.
Some more reading:
Read more about the Competences:
|Strategy Development||Category Management||Finance Management|
|Cost Management||Sourcing Process||Negotiation|
|Legal||Performance & Contract Management||Operational Procurement|