Uncertainty caused by the Coronavirus disease (COVID-19) has increased pressure on organizations to reduce costs and improve spend management. And, most of the time, they have to do so while protecting their supply chains and minimizing disruptions. Plus, they are still being pushed to grow.
If your organization falls into this category, finding a balance between these different priorities requires a new way of thinking and a need for complete visibility of organizational spend across the supply chain. The balance between cost control and minimizing disruptions is a delicate one and it can’t successfully be managed by hunches or in silos. Finance and procurement, especially, need to collaborate and evaluate how to protect the supply chain for not just the short-term, but also the long-term.
Automation -- the first step to seeing the full story
Organizations with decentralized operations, disparate financial systems and manual processes often find they lack easy access to their financial data, or the available information is in bits and pieces. However, for strategic decision making, especially during these turbulent times, it is critical to see the full “data story” across the entire supply chain covering all an organization’s processes, suppliers and spend.
If you are relying on paper-based, manual processes and your finance staff is spread across different locations, it is difficult to get a single, consolidated view of all your transactions and spend. The manual effort involved in collecting and compiling data affects the ability to audit and analyze data. This also makes it more challenging to identify recurring patterns and address bottlenecks.
So, the first step toward seeing the full story is automation. Once your supply chain processes are automated and electronic, you have all the data easily accessible in a centralized location.
Gain meaning from the story and take action
Now it’s time to start using the available data more strategically. Start with these questions. What is the total organizational spend? Has it been increasing or decreasing over time? Who are the top strategic suppliers? What is the total spend from these suppliers? What percentage of spend is contractual or pre-approved? Is there a high percentage of maverick spending?
The analytics capabilities available as part of automation solutions enable you to easily answer these questions and further drill down into transactions and gain actionable insights that help you identify and resolve bottlenecks. Modern analytics capabilities go above and beyond the basic functionality available as part of Excel reports and deliver real-time full visibility across the entire supply chain.
And, it’s not surprising that analytical capabilities have become even more critical in helping finance leaders navigate the turbulent times resulting from the pandemic. According to McKinsey, “What is surprising is how quickly organizations—even those with limited analytics experience—have stood up analytics solutions. Analytics capabilities that once might have taken these organizations months or years to build came to life in a matter of weeks. Leaders who apply the learnings from these rapid analytics builds in order to embed AI and analytics enterprise-wide will be in a stronger position to tap deeper into the value waiting to be unlocked.”
As most organizations are quickly realizing, once the data story is harnessed, the insight potential is tremendous.
Match critical supply chain aspects with corresponding spend
First, imagine being able to track spend by different criteria like category, segment, department, cost center, etc. This comprehensive view allows you to match critical aspects of your supply chain with spend. For example, if you work in the consumer packaged goods industry, you know that packaging, product inputs and shipping/logistics are mission-critical. How does the annualized spend look for those categories? Is your supplier base for these categories optimized or not? Are you paying those strategic suppliers on time to ensure that the relationship is solid? Is one department or cost center spending way more than projected for the year? Is most of your spend pre-approved and contractual or are you struggling with a high occurrence of maverick spending?
You can answer all those questions only when you have complete visibility into your processes and spend. With your full spend story in front of you, you’re able to be flexible, agile and more strategic as you make data-backed decisions to optimize and improve your supply chain.
Achieve cost containment objectives and increase spend under management
Organizations continue to struggle with non-pre-approved or unauthorized spend. Whether it’s because an organization’s process and system are archaic or cumbersome or because a time constraint on a purchase doesn’t align with that of the organization’s process, maverick spending happens.
Lack of visibility into the supply chain of course makes spend management difficult. As such, uncontrolled spending typically makes up a large portion of the opportunity for spend optimization.
With the full data story – across purchase order/non-purchase order spend and direct/indirect spend – you can make decisions about your total spend, take actions to increase the percentage of spend under management and identify areas (which cost center, department, etc.) are the biggest culprits of unauthorized spend. You can then put processes in place to minimize that rogue spending (e.g., through more controls or training).
Truly know your suppliers
If your company is global, you’re most likely using suppliers in different countries. Connecting with suppliers across the globe opens the door to finding the perfect supplier for your needs. But, it also opens the door to something not quite as pleasant — supply chain risk. Failing to get a handle on managing supplier risk could lead to:
· Over-reliance on certain suppliers
· Supply interruptions or discontinuities
· Critical technology failures
· Cyber-attacks and vendor fraud
· Environmental incidents
Supplier management is no longer about negotiating the cheapest possible price with suppliers; there’s too much risk associated with thinking solely in these terms. Your suppliers are an extension of your brand. So, what they do reflects back on you. Do you truly know these suppliers? If you do, you mitigate an unnecessary risk of working with suppliers with bad practices. And, remember, the reputation risk is for all your suppliers, not just key ones.
Also, some of your suppliers are currently dealing with increased cash flow pressures and other related challenges. Complete visibility into your supply chain will help you identify supplier vulnerabilities so you can take actions to strengthen your supply chain (e.g., accelerating payments to strategic or smaller suppliers).
Again, with this full data story at your fingertips, you’re able to strategically zig and zag to protect your supply chain.
In closing, without every page and chapter to a book, you’ll lose the details, miss the plot and even misinterpret the story. If you have a book in front of you – cover to cover – and don’t read it, you’ll have learned nothing, right? The same goes here. To protect your supply chain and shape it for ultimate growth, you need the entire data story and you need an (automated) way to analyze it from cover to cover.