Financial Services Procurement – Xchanging survey results to be presented at Procurecon

In this guest article Paul Johnson, Client Director at Xchanging Procurement Services, considers the challenges and trends for procurement across the financial sector. Paul will be presenting the findings of his latest research at the ProcureCon Financial Services conference on Tuesday 17th September.

 Recent years have been anything but easy for the financial services (FS) sector. Banks have been under especially intense pressure due to the persisting economic crisis. The complex array of influencing factors has meant that it has become increasingly hard to push top line revenue up.

 Despite this there are some promising signs, with positive interim results starting to emerge over 2013. However, since the economic crisis there have been increased pressures on banks, leading to tighter monitoring and regulations, which have brought new cost pressures.

With this backdrop, banks need to continue to improve their capital efficiency, revenues and profitability. The traditional solution to economic downturn was to cut staff and re-evaluate country presence. This may be unavoidable, but it should be balanced by a long term cost reduction strategy that promotes expansion and shifts returns. We believe that Procurement can be a key weapon in the strategic armoury.

We have recently conducted high level research into procurement outsourcing, drawing on the expertise of 450 sourcing and procurement decision makers from across major companies, including a significant representation from across the FS sector. From this we have identified three issues that affect financial services in particular.

Cost reduction focus

The main priority for procurement across the financial services sector is cost reduction; this was cited by two thirds of the companies that we spoke to. For this reason it is imperative that a clear baseline for any outsourcing service should be agreed at the start of any relationship. This in turn will increase accountability and buy-in from the boardroom. Advances in the sector have led to some excellent benefits tracking tools and technologies that can be used to ensure that value is delivered.

Partnerships and control

Financial services companies want to see a greater emphasis placed on partnerships and bespoke outsourcing solutions, rather than a ‘one size fits all’ approach. This desire for tailor-made solutions leads towards stronger supplier relationships, which in turn should lead to greater cost reduction and value. This needs to be partnered with a greater emphasis on openness, with 77% of procurement decision-makers wanting to achieve greater transparency over procurement spend.

International coordination

One issue facing the financial services sector is that companies are typically based across a number of different countries. This often means the creation of locally specific tail-end spend, with limited cross-site procurement visibility and massive duplication of effort across the organisation. This problem is compounded further in scenarios where there is very little co-ordination between teams. Therefore, solutions proposed require coordination and sensitivity if they are to work across borders.

Opportunities for procurement

Of the organisations we interviewed, almost one-third still have fully decentralized sourcing and procurement (S&P) operations across multiple locations and countries. This indicates a lower level of organisational maturity when compared to other back-office functions, such as HR or IT.

 We also found that nearly one in four respondents are dissatisfied with certain aspects of their S&P operations. The reasons for this include a lack of management of low-value/tail-end spend, poor supplier database and catalogue management and a lack of control over tactical and ‘maverick’ spend.

With this in mind it is important for procurement to look at new and creative ideas, and even success stories from other industries, to solve some of the challenges. Financial services needs to mature in its approach, and should consider some of the changes already seen in other industries, such as streamlined operating models, lean process optimisation and business simplification.

Procurement outsourcing in financial services still has scope for development beyond its current levels.  However, our research indicates a growing interest, albeit from a fairly low base, which is being pushed by increasing cost pressure and the need to gain greater control over spending.

As financial services companies move towards greater stability and continued recovery, they will want  to continue reducing their overheads and any unnecessary spend. This means procurement can shine by focusing on these priorities, working in partnership with both stakeholders and expert third parties, to develop stronger relationships and highlight the value procurement brings.

Paul Johnson’s presentation will be available on request following the ProcureCon Financial Services conference on 17th September.

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