In a recent event, Basware’s Magic of Transparency, we held a session called, “Using Transparency to Illuminate Your Operations”, where we discussed how expanding your P2P solution to include procurement will give your company visibility and control of the full procure-to-pay process. In this blog, you’ll learn more about the importance and benefits of supplier management and how using supplier data can prepare your organization for the unexpected.
Over the past 18 months, we have clearly (and not surprisingly) seen how closely linked supply chains are to a healthy economy and normal operating conditions. Shortages of goods and raw materials, border closings slowing transportation and an unpreceded explosion of demand in areas that don’t normally see such surges – it’s been rough.
Delays, closures, consolidations
During the first wave of the pandemic many businesses were immediately impacted, causing overnight changes within organizations. Suppliers experienced delays, reduced staff, and even worse, closures. For example, the UK quickly experienced a shortage of ‘bottle closures’ . The pump dispensers on personal hygiene products such as body lotion, hand wash and household cleaning products, was quickly non-existent. But why? Yes, there was a natural surge in demand where governments across the world were encouraging people to frequently wash their hands, but more so because two main manufacturers of bottle closures that fulfil the majority of global demand (a manufacturing facility in China and a site in northern Italy) were closed down for an indefinite period during the first wave of the pandemic.
Companies were forced to innovate and the demand for online shopping (most notably PPE and hygiene products) and remote working required companies to quickly adapt their sourcing practices and supply chains, all while keeping their sustainability targets aligned.
But how can you plan for the unknown?
Just as companies were adjusting their sourcing processes and managing the supply chain pressures, unknowns like the Suez Canal blockage raised more uncertainty across the globe. Although it was resolved quite quickly, what has become clear over the last 18 months is that scenario planning and risk analysis is the only way to better combat unexpected changes.
Some industries were hit harder and consequently we’ve seen many organizations redefining their business models. Even if there seems to see light at the end of the tunnel, the importance of better cost control, stronger supplier relationships and practical, sustainable changes are not only recognized, but deemed essential to business success going forward.
Is technology the answer?
Carefully reducing operational expenditures (OPEX) by investing in technologies that ease pressure by digitizing manual operations could be a crucial factor when margins and resources are shrinking. However, managing the unknown and putting contingent plans in place can be tricky – especially if you don’t have the data and visibility you need in the first place. In order to know your supply chain inside and out, supplier and even sub-supplier data has to become essential input into any business risk assessment plan. Using technology to capture complete supplier base data, in one central location, allows companies to fully understand areas of risk and opportunity, and inevitably – control.
Procurement as part of the wider business planning
Procurement and/or sourcing functions have become more and more an inherent part of the business strategy as all these changes have shown how important it is to get control of suppliers, spend and every transaction, both in and out of the business. If your usual supplier is shutdown or experiencing major delays – how are you alerted of their closure and how do you quickly find a suitable alternative? This type of visibility can be achieved by integrating systems, digitizing your operations (if not already) and capturing the right data from your suppliers.
When visibility is fully achieved, organizations can proudly own their data and use it to make strategic decisions. Need a new supplier for plastic? No problem. If you have visibility of your supplier base you can diversify and add alternate options as back up. You can also use the data to understand who your top suppliers are, how much you spend with each, and decipher if you’re happy with the current contract terms. The use of this data empowers you to build better and stronger relationships with both new and key suppliers.
Another aspect is that 100% spend visibility is the start of a journey to get all spend under management - even at a granular level. Leverage this information to reduce maverick spend and fully understand long tail costs. Although these costs typically only represent around 20% of all business spend, even a 3% cost savings could dramatically impact bottom-line for large organisations. Those incremental gains – powered only by your data – will enable you to begin focusing on your procurement strategies and answer questions, such as, “are these the types of suppliers that we want to work with?”.
Embrace transformation to drive change
Now more than ever, it’s time to use this momentum to embrace procurement disruption and digitize processes. The importance of procurement and its focus on being both “customer-centric” and “supplier-centric” continues to rise, making the selection and partnership of the right suppliers crucial in times of economic or political change.
The most successful organizations will embrace a growth mindset, learn from the past and adapt procurement and sourcing strategies to meet a resilient business model. As the role of procurement continues to shift towards strategic value, the need for renewed focus and skills to analyze your data cannot be ignored.
10 business-critical procurement metrics
In this ebook, 10 Business-Critical Procurement Metrics for the Cost-Conscious CPO, we breakdown some of those procurement metrics and data that you need to analyze to understand overall transaction speed, standardize the purchasing experience, provide 100% spend visibility, and much more. Download it here.