Reinventing Supply Chain Finance--Part 5: Operational and Strategic Benefits
on Nov 25, 2014
Implementing a holistic approach to supply chain finance, with a connected trading partner network, can yield operational improvements (beyond the financial benefits). These include reduction in errors, chargebacks, and non-value-add communications, simpler supplier connectivity, streamlined process efficiencies, and improvements in supplier performance.
( This final article in this series is excerpted from the report: “Reinventing Supply Chain Finance: Unlocking Strategic Value for Procurement, Supply Chain, and Finance Professionals” available for download here. )
In Part 4 of this series we took a look at the foundational capabilities required to implement a holistic approach to supply chain finance. Once those foundational capabilities for holistic supply chain finance have been put in place, they yield a variety of operational and strategic benefits, beyond the benefits discussed earlier.1 These additional operational benefits include reduction in errors and chargebacks, simplified supplier connectivity, streamlined process efficiencies, and improvements in supplier performance. We explore this in this final article of the series.
Reduction in Errors, Chargebacks, and Non-Value-Add Communications
Having a network platform with the foundational characteristics described above dramatically reduces data entry errors (people are not constantly re-keying the same data), improves supplier performance and compliance, and hence reduces chargebacks. Because everyone can view the same SVoT (Single Version of the Truth), there are fewer back and forth manual phone calls about status or resolving disputes caused by discrepancies between different trading partners’ systems having different data on what actually happened. Furthermore, there is a big increase in the percentage of invoices that match error-free the first time and are approved and processed straight through, without any human interaction. These reductions in errors and non-value-add dispute resolution activities (which can consume a lot of wasted time) further reduce operating costs (note: these savings are in addition to the cost reductions realized from suppliers’ lower cost of capital mentioned earlier).
Simpler Connectivity for Suppliers
Having the single network to connect to also lowers the burden for suppliers. In a world of one-to-one connections, suppliers have to deal with a different portal and/or integration effort for every customer. That adds up to a lot of unique integrations, user interfaces, and dealing with many different customer IT organizations. With the networked platform approach, the supplier integrates just once to the network, and has a consistent technology interface and user interface for all its transactions across all its customers that are on the network. This reduces training and errors, simplifies and reduces overall integration and infrastructure management costs, and provides a single place for the supplier to manage all customer transactions.2 Further, it reduces suppliers’ time-to-connect, go live, and start earning revenue with a new customer on the network.
Streamlining the Processes—Taking Delay and Sloppiness Out of the System
A key part of the foundational capabilities described is pervasive automation, from the moment a PO is created on the platform, through to financial settlement. Rules-based engines remove unnecessary human involvement at every step in the process. This has the effect of substantially reducing end-to-end cycle times. This is above and beyond the time-to-market compression described earlier, which was about giving suppliers access to capital much earlier, so they can order raw materials. Here we are taking time and errors out of every process step in the P2P lifecycle, on the buyer’s side, supplier’s side, and with the service providers (transportation carriers, financial institutions, inspectors, etc.) The beauty of the network platform is that it helps automate all participants, not just one company.
Further, this level of automation frees up human capital and expertise, including sourcing and procurement, supply chain, and financial professionals. Instead of spending their time chasing down information and non-value-add activities (like dispute resolution), they can manage by exception, be alerted when something needs attention and spend more time on high-value activities that actually leverage their expertise. This can lead to higher job satisfaction for those individuals as well.
In addition, the granular data about exactly what happened is now available for analysis to see patterns of recurring problems. This can be used to drive continuous improvement programs such as further reducing supplier errors and chargebacks, looking at dwell times and other cycle time compression opportunities, improving carrier performance, and more.
Progressive companies practice strategic sourcing, building long-term strategic relationships with a handful of key suppliers. This enables them to continually improve performance by working collaboratively with those suppliers. With traditional methods, they can only do this with a fairly small number of suppliers, because of all the effort required to monitor, integrate with, and do continuous improvement with the supplier. The networked platform capabilities make it much easier to integrate with suppliers (many suppliers are pre-integrated with the platform, and for those who are not they have a well-defined proven integration path). It also has inherent monitoring of supplier performance built in and immediate notification/feedback to all parties involved – i.e. inherently integrated supplier performance management. This all reduces the time and effort for buyers who thereby can engage more deeply and collaboratively with a larger number of their most important suppliers, thus broadening their strategic supplier base. This can have dramatic improvements to overall supplier performance and cost reduction.
Holistic supply chain finance holds the potential to help finance, supply chain, and procurement professionals to provide more strategic value. Finance professionals can use SCF to obtain much higher returns for cash and reduce COGS. Supply chain managers can compress cycle times and reduce costs. Procurement professionals can use the SCF network platform to improve supplier performance and assure continuity of supply. And all of them can take advantage of the automation to free up their time, relieving them of much of the non-value-add ‘grunt work’ so they can focus on the more creative parts of their job that require the expertise they have worked so hard for and spent so many years acquiring. In short, intelligent use of holistic supply chain finance capabilities can elevate the value and contributions of these important talented individuals, enabling the company to be more successful and competitive.
( This final article in this series is excerpted from the report: “Reinventing Supply Chain Finance: Unlocking Strategic
Value for Procurement, Supply Chain, and Finance Professionals” available for download here. )