Does the Future Depend on Digital Investment?

The lasting impact of Covid

The headline here is location independence. The way we work has changed forever. Huge ERP and spend management implementation projects are being completed entirely remotely, and people no longer need to meet, or spend time out of the office. If you go back three years, it’s difficult to envisage Procurement teams, Finance teams, AP teams across the world being able to work remotely so easily.

Companies are now coupling flexibility with the experience of “always being on”.  While access to emails on phones has been around for years, it’s even more prevalent now because there is the flexibility of being able to get up and work at six o’clock. The result is that you free up time to spend with your family, or take the children to school. This, aligned with flexible time in offices, impacts teams and how they work. Employees appreciate the work/life balance that this flexibility from technology provides. This has been a societal change as much as a business change.

Continuing political tension in different parts of the world has brought some interesting challenges, and will do so for some time. Companies are having to be so careful to mitigate risk all the way across the supply chain, and being able to diversify and respond quickly to change is key, both for organisations and their suppliers. The situation with PPE is a good example of this. PPE was being bought centrally, with a reduced number of suppliers. It was being bought on a tactical price-driven basis. So when demand increased to unprecedented levels, there was no understanding of the suppliers and supply chain. In some cases, purchases were made through agents and middle men, with no details about the factories where it was being made. With the ever-increasing emphasis on carbon footprint, this situation was sub-optimal.

There has been a challenge to the entire procurement orthodoxy of the last 30 years, with focus on aggregation, supplier reduction, global sourcing, low cost country sourcing and outsourcing generally. Covid has changed the whole risk environment. Supply chain risk and resilience is at the forefront of our minds, so there are organisations thinking about actually increasing the number of suppliers, insourcing, and removing the reliance on offshoring. The UK and US in particular rely on suppliers from countries such as China and Malaysia, and Covid has highlighted that this isn’t always suitable. Many organisations in the US, for example, are trying to bring this closer to home.
 

Areas where digital is being applied to drive profitability and efficiency

Cloud hosting of systems is a significant saving, sometimes up to 90% cost reduction  for basic provision. Cloud technology has been vitally important over the last couple of years, and eInvoicing has increased substantially as a result. The reasons for this are:

• more efficiencies,
• being able to gain control,
• deeper visibility into the supply chain,
• automation of manual tasks.

As a result of these efficiencies, CFOs have been more willing to invest in areas where they can actually see that they will have an impact on the growth of the organisation. Linked to this is the move to the “paperless” process.  During Covid, people couldn’t store the paper at home or rely on the postal service to deliver post to many different addresses around the country. In terms of duplicate invoice processing, electronic invoices and OCR’d invoices ensure that the warning of duplicates is far more reliable and actionable, compared to when an AP clerk would put an asterisk at the end of the invoice number!

Also as a result of being able to work remotely, through and following Covid, eSourcing has come to the forefront of people’s minds. In fact, anyone who didn’t have eSourcing during the pandemic, if they are still around, probably has it now or is looking to get it pretty quickly! Having eSourcing enables Procurement teams to respond more quickly and flexibly to changes, and able to identify risk at an earlier stage. There has been a growth in software that helps manage supplier risk, but if there is a problem in another country or a sudden change in requirements, Procurement can act faster.

And with risk, comes the possibility of fraud. The Purchase-to-Pay Network (PPN) found that over the last three year period nearly 50% of organisations spoken to reported some attempted fraudulent activity. No-one likes to think about having fraudulent activity within their own organisation, and we want to trust the people that we work with, but having technology and specifically that risk reporting technology reduces the possibility of fraud.

These are two areas where automation can improve processes, however, Proactis has seen that even when there is maturity of automation and control in one area, such as procurement, this isn’t always true across an organisation. For example, even though an eSourcing system is in place, often paper invoices are still arriving in the office for processing by the Finance function. This is where collaboration makes all the difference, looking at contract spend and transactional processes. Is the transactional process linking to the procurement process? Are people buying from the contract that Procurement are negotiating and want people to buy from? 

With analytics and reporting within your system, you can better manage your cash and you’re better able to pay suppliers promptly. This in turn helps bring customers and suppliers much closer together. The whole electronic nature of the business has meant that searching for potential suppliers of goods and services has become instantaneous on a global basis. There has also been a huge increase in collaboration across the entire end-to-end Procure-to-Pay chain. PPN asked its members about collaboration, with 29% of people disclosing that their aim is to become one Procure-to-Pay department, in order to really collaborate internally  as well as with suppliers.

Transactional procurement and the Accounts Payable department should work hand in hand as there are several key savings that can be made there, as well as visibility and help with supplier relationships.  If an organisation’s top supplier is not being paid, they are unlikely to give you a better service. Everybody needs to work together.
 

The effect on more localised supply chains in terms of international events and international trade

Some of the effects of the pandemic, in a business sense, are actually positive. This is certainly true from a purpose and ESG point of view. Having local suppliers, and a more diverse supply base, means that local suppliers, smaller firms, minority owned firms, social enterprises, or charities, are being used. This brings a social benefit into your supply chain.
 
Many organisations had previously taken an aggregation route, with many ending up with the same few big suppliers –for example, the UK Government became over-dependent on Carillion for huge PFI construction projects. The move towards supply chain visibility and looking for different types of suppliers, more local suppliers, more diverse suppliers, not only helps protect  supply, but also plays well into the ESG agenda. Where supply is very tight,  the priority for ESG may be lower, but companies are becoming smarter about understanding the ESG trade-offs.
 
There will inevitably be more diversification of supplier bases.  If you look back to when the pandemic first took hold, international trade was down by about 13%, so there has been major disruption to supply chains. This was noticeable in our shops, indicating that the supply chains were broken. Organisations, and individuals, needed to create different chains, and this diversification is a real step forward. A more localised approach can also have a positive impact on payment terms. During Covid it was clear that some big companies were accelerating payments, particularly to small suppliers. Functionality such as PO Flip, where a purchase order goes out and the supplier can then flip it back as an invoice, makes the whole process much quicker and the electronic processing allows improved payment.
 

The Proactis report identifies that 40% of organisations have faced supply chain issues and investment in software has predominantly been to tackle these issues

Software that helps identify new suppliers in times of shortages and risk has proven popular. Visibility of supply chains, especially for manufacturers, and managing inventories has been more important than ever. eSourcing and Contract Management tools can provide this, and there is no longer a need to spend millions of pounds. Many organisations fall into the trap of thinking that a “one size fits all” large implementation is the most appropriate action, going from a relatively manual process or outdated technology to a complex, end-to-end system. This can lead to confusion among employees and can prove very expensive. Make sure you research your processes and see what kind of technology you need, rather than find out the hard, expensive way, and get people on board beforehand – especially those that are going to be using it!

Gartner recently produced the concept of composable ERP, where software implementation doesn’t have to be one gargantuan system; it has to be one system but connected through a network of coherent system so there is one source of the truth. Many large global based legacy systems haven’t been implemented to be internally coherent. For example, different structures are used throughout the system in different areas. While the solution is capable of ERP they’re not actually performing ERP. Technology vendors such as Proactis have a very precise focus on processes and markets, and this is missed with multi-national global players because they can’t have that level of focus or perspective. With a highly integrated environment, companies can accelerate or leverage their ERP investment into various areas including spend management and subsequently procurement.

Another big mistake that organisations make is choosing a solution provider where once installed, they are no longer as interested, and often charge for training and support. The whole change management of that process doesn’t work. Getting the right people on board, including an IT person, is vital. There has been a huge increase in investment in technology, whether that’s mobile Apps for approvals, or supplier portals, matching reconciliation software, robotic processing, or eInvoicing in the cloud as highlighted earlier. 

This investment is only going to continue because we have new external pressures, that we know, such as the situation in Ukraine and Brexit, inflation, and inevitably there will be risk factors that we don’t yet know of, so it makes sense to control what we can.   On top of this, global einvoicing mandates are already in place in some countries, with France joining them in 2024. The more that we can control, automate and manage these pressures with technology, the more resilient  we will be. But while automation is essential, you need to ensure your processes are properly aligned to your outcomes first.
 

What are the barriers to ambitions?

Lack of talent is a big barrier. If you haven’t got the talent within your team then you are already at a huge disadvantage. While “eRecovery” is powered by technology, it has to be driven by people. If the right people aren’t there, you’re going to struggle. Many organisations are finding it very difficult to attract talent, due to a shortage of skilled people and wage inflation. A report by Hays states that finance salaries in London alone for 2022 have gone up by over 7 per cent. Making sure there are digitisation programmes and training in place can help attract and retain them. ,

Technology is a marvellous enabler but be realistic about what it takes to actually get the required output. Don’t expect the system to suddenly give you that insight if you haven’t got your own data, your own training, your own change management, your own organisation in shape.  When your organisation is in shape, combined with the technology, the achievements can be huge but don’t expect it to do everything for you. Input is a must, so bring in the right people for the right amount of time and you will achieve realistic objectives.