For Procurement, rationalization also delivers considerable benefits on the risk management front - an increasingly pressing consideration, particularly for public sector organizations that typically engage with many thousands of suppliers and don't have the time and resources to undertake a comprehensive, largely manual review.
A supplier might be apparently low-value and low-volume, and hardly an obvious choice for management. But if they are supplying seemingly mundane food products to a school, for example, the potential risk of e-coli contamination should demand close monitoring. The knowledge generated by an automated system would help to identify, accommodate and categorise such specific requirements.
Pre-event risk management costs are notoriously hard to quantify, but in these circumstance, supplier knowledge is probably the most powerful tool to guard against potentially costly or disastrous events. Similarly, a system would enable administrative staff to see at a glance that criminal record checks have been carried out on all the drivers at a taxi company employed to ferry special-needs children to school. Or it would allow an accountable public sector authority to easily report on its suppliers' carbon emissions.
Commercial organizations face different but equally challenging rationalization issues. They might typically have fewer suppliers but the logistics of running multiple sites, and growth often achieved by absorbing new businesses through merger and acquisition, raises the likelihood of supplier duplication on a potentially global scale - an issue that a best-in-class system could easily address.
Streamline supplier management
Then there are the rewards of streamlined supplier management. Automation means that the process of identification, adoption, approval, constant and consistent record updating, supported by a system that can manage supplier information regardless of the number of interfaces with the business's core financial systems, can be managed proactively.
Automation makes it much easier to request supplier information as an integral part of the relationship management, and for this information to be used internally to qualify and categorize the supplier. Questionaires can be designed for on-boarding different categories of supplier. The business can rank and score them according to their response to specific questions. If they are supplying hazardous products, do they have the necessary ISO accreditations, for example?
This might require a shift in your organization's approach to supplier management at every level, but unless somebody gets a handle on the records and establishes a policy for cleaning them up, the hidden costs of poor or non-management will continue to eat away at the business's profit margins. It makes sense for the CFO, in tandem with Procurement, to take the initiative.
And once the system is in place, it opens up the potential for a host of further benefits. Departments with specialist knowledge, such as IT, can engage directly with the supplier approval process through the system. It becomes a platform for switching on a range of shared services that enhance the procurement process: self-billing, for example, driving purchase order compliance throughout the organization, and gaining control of maverick spend.
Effective contract management
and best-value sourcing
- two goals at the heart of Finance and Procurement strategy - depend on good supplier relationships. Automation will eventually empower suppliers to manage their own profiles via exclusive portals, monitoring the progress of queries and invoice status. Smaller suppliers will benefit from being able to flip purchase orders back as invoices. And fat will be cut out of the process at every stage.
Gain full control of the supplier lifecycle.