Crisis or No Crisis, You Have to Fix those Weak Links in Your Supply Chain
Disruptions seem to be coming at us at an ever-faster pace, from pandemics to natural disasters to regulatory changes to technological advances and more. Some, such as earthquakes and hurricanes, are regional in nature; others, like COVID-19, are global and affect literally every nation and every business. How businesses respond to these challenges; how they prepare before a crisis hits can make the difference between success and failure. For many, finding ways to resolve these challenges is a matter of survival itself.
Back in April, I presented a CFO – Argyle webinar, sponsored by Corcentric that addressed how finance leaders should find and then fix weak links in their supply chain. As it occurred during the worst of the coronavirus crisis, I did discuss how this specific challenge makes accomplishing these fixes more important than ever. The fact is, however, that sometimes challenges become the impetus for organizations to make changes that are essential in both good times and bad.
Risks in the supply chain
Certainly, the coronavirus has increased certain risks in the supply chain, from shortages to delivery issues to compliance problems. However, there are risks in the supply chain that preceded the crisis and will exist after it passes. These risks include:
Undervaluation – Organizations often have a tendency to undervalue some of their administrative functions, considering them to be necessary but non-revenue generating entities. That is the case with procurement. In successful companies, procurement plays an integral strategic role in the abilities for organization to reach their goals. Yet The Hackett Group notes that “only about one-third of procurement functions leverage finance for third party validation of their organization value contributions such as cost savings.” In the webinar, I stress how important it is for operational areas to validate their processes through a third party…yet too few do that.
Siloed systems – Business functions do not exist in a vacuum; what each function does impacts the company as a whole. However, too many companies still rely on legacy systems that hamper collaborative efforts. Two functions that must work together are procurement and finance; yet disparate platforms and lack of integration across finance and accounting systems makes collaboration difficult, thus not capturing the full value of procurement’s capabilities.
Lack of visibility – How do you measure your procurement team’s performance if you can’t rely on the metrics? And how can you trust your metrics if you have limited or no visibility into your spend and your processes. One of the major concerns for finance leaders is that lack of visibility. Companies that still rely on legacy manual and paper-based processes have little to no insight into the performance of both their procurement and finance (specifically payables) performance. But it’s not just performance evaluation that’s impacted; there is also the matter of spend management. Knowing not just where and when spend occurs, but also how to effectively spend smarter, is vital to enabling an organization to meet its goals. Visibility into data to drive better decisions leads to better business outcomes and a better experience for partners and stakeholders.
Turning to digital transformation
Digital transformation is not a matter of “if” but “when.” Unfortunately, procurement lags behind some other business functions when it comes to transitioning to a digital ecosystem. That is not to say that there is no digitization in procurement. Some processes are now fully automated; however, if the source-to-pay (S2P) continuum is only partially digitized, then procurement’s processes and potential are not being optimized.
The coronavirus has certainly made working in the digital world a necessity. According to a survey from The Hackett Group, before the crisis, approximately 13 percent of employees worked remotely; a number that has increased to 33 percent. Increasingly, companies are realizing how this necessity has provided numerous benefits including:
The virtual office – Companies that may have been skeptical about the ability of people to perform their work remotely have been pleasantly surprised at the result. The Hackett Group survey noted above that when it comes to productivity, safety, and cost, a remote workforce makes a great deal of sense. But the ability to do so successfully also demands that the procurement and finance teams have access to all the information necessary to perform their tasks. They need to be able to process invoices, PO’s, payments, and contracts from their remote location. Procurement also need to be able to manage spend analytics, supplier tracking and performance, and third-party risks.
Tactical vs. strategic – When procurement is mired in paper and manual processes, when access to data is limited, then procurement is relegated to playing a tactical role in the company. That is, as I’ve noted above, an undervaluation, keeping procurement as essentially an administrative function. Once they are freed from these time-consuming tasks, employees can play a more strategic role by focusing on higher-value initiatives that can improve collaboration between finance and procurement and lead to better decision-making.
Better supplier relationships – One of the underappreciated benefits digital transformation affords to procurement is a better and more productive relationship with suppliers. Faster and more accurate processing means suppliers are paid faster and disputes are reduced. Better relationships also gives procurement a competitive advantage when it comes to pricing and positioning; a very important point when inventories are in short supply (as in the current crisis).
The one warning I give companies when it comes to digital transformation is to not try to do everything at once. There are a number of steps that must be taken in order to make this transformation a success.