Trade tensions: Look at back office too
Trade tensions are an opportunity to look at all your operational costs, not just those affected by the threat of tariffs.
Many companies are reevaluating their long-term supply chain strategy in light of trade tensions with China.
Separate from the issue of whether companies should move all or a portion of manufacturing out of China — which some U.S. and European companies are doing, according to reports by CNBC and Forbes — it’s worth looking at global operations that aren’t necessarily affected by the trade war.
Take, for example, invoice processing to and from suppliers around the world.
Many companies use what’s known as a shared services center, in which processing of invoices from suppliers is centralized in one office.
A blunt-force approach to this job — that is, have a lot of people manually scan invoices, key in data and email documents for approvals — it might be time to rethink this approach. Again, nothing about today’s trade tension necessarily makes this a uniquely good time to rethink how you do this. But as long as you’re reevaluating your operations, it doesn’t hurt to see if there’s a more efficient way to handle this vital but labor intensive part of operations.
Matt Clark, president and chief operating officer of Corcentric, told CFO Dive today’s trade tensions are an opportunity to revisit the shared services center model that so many companies use. His company offers integrated solutions to how companies purchase and pay for their supplies, so he has seen a number of companies try to create efficiencies in what’s traditionally been a costly part of their operations.
In one recent case, his company worked with a U.S.-based global clothing manufacturer and retailer that was considering moving its invoice processing from a country in Latin America to the Philippines to reduce costs. When it originally located the operation in Latin America, it structured it as a blunt-force operation: it employed a lot of people to handle manual processing of invoices from its global suppliers, many of which were still creating and sending invoices the old-fashioned way — by email.
But instead of picking up the whole shared services center and moving it from one country to another, the company ended up handing over its invoice processing to an automated, third-party system (Clark’s company, Corcentric). By doing that, its big processing operation was no longer necessary, so it was a relatively straight-forward evolution to unbundle everything that the processing center was doing and return oversight of invoice processing to its U.S. headquarters.
“The invoice processing piece was the most significant portion, so once the need for that went away, it was easy to unbundle the rest of it,” Clark said. “There was nothing left to do on invoice processing since it was completely electronic.”
Clark said the company created additional savings by also moving the procurement piece to its operations in the U.S. “They found they could get better negotiated pricing by having people do that on shore,” he said. “That would offset the increase in labor costs.”
This is just one example of how a company was able to replace a costly, labor-intensive operation with an automated, third-party solution, return some back-office work to the U.S., and use its new efficiencies to create additional savings by negotiating better pricing on supplies.
Should trade uncertainty persist and you consider a big move in response to it, also look at areas of operations that aren’t necessarily directly impacted to see if there are more efficient ways to manage some of your operations.