The Best Practice Category

There is no shortage of news about supply risk in today’s volatile operating market:

 

• The 12-month LIBOR rate has gone from 2% to over 3% in 2018, and suppliers are beginning to feel a capital squeeze as buyers further stretch their DPO to hoard cash (beyond stock buybacks of course).
• Brexit continues to loom as a bugbear regarding UK/EU trade. More broadly, geopolitical risk continues to escalate in the Middle East, Eastern Europe, Central America and the South China Sea.
• S. trade policy still swings wildly at the press of a POTUS tweet, and so do commodity prices and volatility in general. The VIX index has spiked up 65% in the last 60 days alone.
• Natural disasters driven by climate change are becoming commonplace and calamitous.
• Competitive risks are sprouting up as digital disruption is creeping into almost every industry sector — and as monopolies “becomes features rather than bugs” with ongoing market consolidation. In response, compliance regimes like GDPR continue to crop up although enforcement is highly variable by region and country.
• Cyber risk continues to be the most omnipresent risk that organizations are experiencing cross-industry while everyone is flocking to the cloud in record numbers.

So, enterprise risk management should be alive and well. And, logically, supply chain and procurement executives need to be increasingly prepared to work with their internal business partners to reduce this risk and defend the proverbial gates to keep the risks at bay.

Unfortunately, the castle walls are often not well-guarded because the sentries are not getting paid to do so. Procurement organizations in particular suffer from a misalignment between missing incentives for reducing supply risk and zealous Finance-driven incentives for increasing supply reward in the form of narrow purchase cost savings. Regarding the latter, nearly all groups get measured on purchase cost reductions, but only 41% get formal credit for saving money during the sourcing process when there is no initial cost baseline. However, only 8% of procurement organizations get such "hard credit" for reducing supply risk.

Part of the challenge here is that from an enterprise risk management (ERM) standpoint, there is a broader disconnect between evaluating enterprise risk overall versus extending those risk factors in a cohesive manner out to the supply chain and also out to the supply base (via spend categories and then to individual suppliers) where contracts are signed that hopefully help mitigate most supplier risks. There are four “translations” here where alignment gets lost, and to make matters worse, the risk types being managed are highly fragmented, if addressed at all — especially when various stakeholders are in the same boat as procurement regarding not getting credit (and commensurate resources/investment) regarding supply risk. Risk management gets viewed as a glorified insurance policy and set of “check the box” regulatory compliance mandates rather than a sound approach to bringing risk into the value equation (i.e., protecting the value streams of importance through the value chain).

So, the question becomes how can procurement help solve this when so much seems outside its control? And why even pursue it when there are other things to focus on like hitting savings targets?

The answer lies in deftly “connecting the dots” between enterprise risk and supply risk so that various stakeholders like GRC, internal audit, external auditors, divisional presidents, etc. can not only extend their reach into the extended supply chain, but can also be tapped to help bring some corporate power (and resources) to bear and help drive some changes internally and with your suppliers.

In this installment of Spend Matters PRO, we’ll dive into some best practices for gaining this multi-pronged alignment and also how to align supply risk management within various points of the source-to-pay (S2P) process itself. And, of course, if you want to see how various providers handle supply risk, whether S2P suite providers, or more specialized supplier management providers, then definitely check out our SolutionMaps in these respective areas here and here.

It’s the end of the year, time for New Year’s Resolutions, a little vacation time and Christmas Party hijinks. But the Hackett Group, a business consultant and digital transformation specialist, is cautioning against year-end fiscal shenanigans, where money is shuffled around to make it appear that the company has hit the finish line in full stride. A new paper from the group lamenting the yearly “dash for cash” argues that you can look for sustainable, healthy ways of freeing up cash at the end of the year without pulling any three-card-monty tricks. According to the paper on working capital, many companies think it’s too late at the end of a quarter or year to free up significant cash. But it suggests 7 steps you can still use.

Spend Matters welcomes this guest post from Graham Parker, CEO of Gravity Supply Chain Solutions.

Real-time data will provide visibility and inform decision-making that safeguards the supply chain from the unexpected.

Wildfires, tsunamis, earthquakes and hurricanes.

These are just a few examples of the types of natural disasters the world has experienced in the last 12 months. With California still reeling from the catastrophic impact of the recent wildfires, it is increasingly evident that natural disasters are becoming a regular occurrence.

Organizations are increasingly being driven by market and competitive demands, new technology and other environmental factors to become more responsive to rapidly changing opportunities, challenges and threats — to become, in effect, more agile. The question of specifically how an organization can become agile is still being answered by executives, management consulting firms, framework creators and academic researchers. But what we do know is that how human capabilities are engaged, organized and used is a big part of the answer to the question. In this brief, we explore how workforce agility is connected to organizational agility, where most organizations actually are on the road to organizational agility and why the drive to agility is both urgent and incremental.

As the potential for blockchain usage moves beyond its roots in digital currency, a new study sheds light on how blockchain can bolster “everything-as-a-service” (XaaS) business models, now pervasive in the e-procurement area. “For the emerging ‘everything-as-a-service’ delivery model, blockchain application code will be a key to enabling pay-by-the-use arrangements between service providers and consumers,” says the study by The Hackett Group.

As the 2018 Atlantic hurricane season draws to a close at the end of November, it’s a good time to reflect on how one of the most disruptive periods of the year is affecting supply chain risk planning. If there were one lesson for procurement to learn from the past season, it’d be this: Hurricanes are becoming more powerful and lasting longer. The last several years of intense storms (think Harvey, Irma, Maria, Florence and Michael) are not anomalies but what appears to be the new normal. Businesses must therefore take stock of the new standards for natural disasters and prepare accordingly — or risk being caught off-guard.

Positioning supplier relationship management (SRM) programs as a way to ensure broader supply risk management is an untapped opportunity for businesses looking to address sustainability challenges, according to a recent State of Flux report.

As we’ve reported on the “Sustainable SRM: Nurturing Growth in a New Climate” report from State of Flux, sustainability is becoming a greater consideration when it comes to supplier relationships, due to increasing demand from consumers for ethical products and pressure from governments and investors to consider environmental factors in production. The report highlights a number of challenges facing organizations as they integrate sustainability into their procurement goals, including buy-in up and down the organization, proper segmentation of suppliers and others.

While setting up a proper governance structure, getting buy-in throughout the entire organization and deepening relationships with suppliers takes time, companies can also assess their level of SRM, determine how they manage risk, evaluate their staff’s skills and resources, and ensure their technology is working for them.

The sequential source-to-contract cycle is an accurate representation of how most procurement organizations identify and select suppliers. But it’s not necessarily the best way to approach this process. The typical sourcing cycle begins by searching for and evaluating suppliers on two key criteria: capability and price. Yet evaluating suppliers on these criteria alone does not provide a complete picture of whether that company can and should win the business. For many reasons, contract management should not be considered a final step in the sourcing process. Instead, procurement should include contract compliance at the beginning of the cycle, defining it as an essential reason alongside capability and price.

As procurement professionals know, natural disasters are a question of not “if” but “when.” Hurricanes, earthquakes, wildfires or severe weather can quickly hobble even the best-laid supply chain plans, our sister site MetalMiner reports. Just look at the research. According to Resilinc’s Supply Chain Disruption Annual Report, disruptions roughly doubled in 2017, potentially impacting 32% of S&P 500 companies’ supply chains. The supply chain risk monitoring firm’s CEO Bindiya Vakil pointed at that data as an indication that procurement leaders can no longer stay complacent about planning for events like natural disasters.  “This should be a wake-up call for business leaders around the globe,” Vakil said in the report.

Many businesses have come around to the idea that sustainability is not just a hashtag or a marketing ploy but something that can help a company advance its business goals. But as organizations dive into all the ways they can save energy and use friendlier materials, they soon realize there are only so many they control. Truly leveraging sustainability requires close collaboration all the way down the supply chain to find mutual incentives for all, according to the latest report by State of Flux, a global procurement and supply chain consultancy.

You get procurement; we get procurement; your end users don’t get procurement — and that’s exactly how it should be. A perfect world in e-procurement is enabling end users to get exactly what they need quickly, easily and in compliance with procurement policy without having to understand the intricacies of that policy, while also empowering procurement teams with the right digital capabilities to support strategic initiatives behind the scenes. That’s why I’m particularly excited about a host of new advanced technology that is making this perfect e-procurement world a reality for many companies.

Spend Matters welcomes this guest post from Melissa Hendrick, VP of marketing at Yooz North America.

Today, automation technology is one of the inevitable trends for companies wanting to improve their efficiency and agility in a complex economic environment. The reasons are clear: cost reduction, process optimization, data security, regulatory compliance and many more.

If you are considering automating your invoice payment processing workflows in accounts payables, or are already investigating solution providers, your success will be based on following some basic guidelines and avoiding some common pitfalls.

With that in mind, here are some insights to help you identify the pitfalls on your journey to AP automation, combining practical information with a little tongue-in-cheek humor.