Procurement professionals manage a world of complexity, which leads to occasional worries.
As oil and commodity prices rise, they fret that the increased cost of buying raw materials will wreak havoc with their employer’s bottom line. Tsunamis, earthquakes and political turmoil overseas—coupled with a devalued U.S. dollar, stressed euro and strengthening Chinese yuan—also could impact their global sourcing abilities and the price of products and services in their supply chain.
As defenders of their organization’s costing structure, procurement managers also find themselves with an entirely new set of challenges. Until recently, though, procurement was a necessary, but seldom celebrated, function of corporate life.
Through the 1970s and 1980s, the profession largely existed as a back-office function, where armies of junior clerks entered data from paper purchase requisitions into the company’s financial system. Procurement managers fought to be accepted by the C-suite as value-added business partners, not just as purchase order custodians.
It was during those decades that U.S. manufacturers began embracing the concept of business process management in efforts to transform their factories into models of quality and efficiency. Business process and quality manufacturing gurus such as W. Edwards Deming, statistical process controls and other techniques drove remarkable improvements in product quality.
By the 1990s, as quality strategies such as Six Sigma took hold, the relationship between buyers and sellers had evolved. Manufacturers across industry sectors and geographic boundaries who sought to deepen their understanding of the complex connection between high quality, ease of use and fair pricing developed close links with suppliers, turning what had been one-time purchases from vendors into longer-term business sales relationships. Significant investment in new procurement automation tools and supply-chain management systems were developed and deployed.
The next chapter
As companies continue their quest to lower costs and improve supply-chain visibility, the concepts that worked in the material supply chain are being applied to the financial supply chain. Firms are focused on just-in-time payments to suppliers and exert greater financial transparency and control. The emphasis is now on managing the interactions of their accounts payable (AP) with the supplier’s accounts receivable (AR) functions. Manual data entry, billing and processing of traditional AP and AR transactions are giving way to workflow automation, enabling the foot soldiers of procurement to cross-train in such key treasury functions as reconciliation of bank payments with corporate accounts.
Procurement personnel are also being tasked with linking supply chain spend to strategic organizational priorities, improving inventory management while streamlining internal operations, and collaborating with treasurers to optimize working capital. At the same time, they’re increasingly responsible for handling a number of cross-functional risks related to an organization’s sourcing, purchasing, payment, logistics and supplier requirements. New capabilities, such as the use of purchase cards (p-cards) to initiate supplier payments, or transitioning check payments via Automated Clearing House (ACH) are now part of the supplier-relationship discussion.
Any supply-chain executive who deploys and uses advanced electronic payment mechanisms must understand that this process requires putting the right tools, controls and people in place to measure, track and mitigate organizational exposure to a growing multitude of risks – including payment fraud.
As with all new capabilities come new challenges. For example, a supplier being asked to accept p-cards as a method of payment against invoices (an excellent mechanism for B2B companies) is now also exposed to new risks as well as fraud mitigation compliance requirements known as the Payment Card Industry Data Security Standards (PCI-DSS)