Procurement in Financial Services – priorities and the ProcureCon event

We mentioned in part 1 of this series the forthcoming ProcureCon Financial services conference in London, September 26th / 27th.  Let’s return to the sector and look at some of the key issues.

Whilst we tend to generalise, Financial Services actually contains some very  different sub-sectors, which have different needs and require different procurement approaches. Retail banking is strongly cost-focused and IT driven now. Investment banking has the cultural issues we’ve all heard about recently, and historically it was hard for procurement to get traction because of the huge profits that could be made – “why should I spend 10 minutes filling in a stupid requisition when I can make another million in that time”?!

Insurance has been an area of real supply chain innovation, in terms of how firms have looked at the claims side of the business – working more closely with the merchants who provide services to insurance claimants for instance. Wealth management has a different “feel” again – buying customer freebies for Coutts to give away to clients is not like buying stationery for your branches of NatWest!

So all sectors have their own processes, issues and culture, and therefore procurement has to respond in different ways to be effective. And if you’re a CPO or senior exec for a organisation that combines most or all of these different areas, you have to be able to apply quite different styles and approaches simultaneously across various parts of the business  (which we tried to do at NatWest, but not always with total success)!

What other key issues face procurement in the sector? Well, the usual indirect / direct categorisation of spend doesn’t really work in Financial Services. Arguably, some of the most vital procurement categories are those that some other businesses would consider quite low priority. A survey run by ProcureCon suggests that, after IT, professional services is the next most critical category. That doesn’t surprise me – the contribution made by consultants, including in the IT area, legal service providers, external auditors and other professional advisers is considerable in the sector.

Again, that provides a challenge for procurement. Working out how we can play a value-adding role, when internal stakeholders and budget holders may have the option whether or not they even involve the function, means that procurement people need to be both professionally skilled and have very strong inter-personal skills.

Perhaps the biggest change though since I was in the sector is the strengthened  regulatory environment. We were just getting into having to report our key outsourcing arrangements when I left NatWest; the governance is now much tighter. So managing key suppliers, particularly those who handle money or sensitive customer data, is critically important for these organisations.  Again, there is a challenge for procurement to make sure they’re involved in major outsourcing contracts; it doesn’t always happen automatically. Then once the contract is in place, procurement needs to define the role should procurement play in that ongoing contract and supplier management.

Here is Alan McQuade, SVP at Bank of America Merrill Lynch, talking about his challenge, and neatly summing up the combination of the cost pressures and regulatory issues:

“The lack of growth in the Eurozone, and the reducing revenues across wholesale and investment banking has created a more visible and significant pressure on expenses, across the Bank. This, combined with the increasing Regulatory focus around 3rd party activity is leading to an environment whereby the group have to come up with new and innovative ways to reduce our 3rd party cost base, whilst also ensuring a stronger control environment across all Regions”.

McQuade is one of the speakers at ProcureCon – it promises to be a good and useful event for the sector by the look of it.  More details here.

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