Daily Archives: January 19, 2014

Supplier Innovation Can Bridge Finance and Suppliers, but Reverse Financing is Not Supplier Innovation!

Reverse factoring is definitely a finance innovation, especially when many finance departments still think squeezing the supplier on margin is a good thing, but it’s a buyer(-led) innovation (and one sophisticated buyers should be implementing). Needless to say I was hoping for more creative insights when I checked out this recent piece on Procurement Leaders that purported to be on Supplier Innovation – A Bridge Between Finance and Suppliers. Something on how the supplier’s involvement in NPD/NPI, process re-engineering, or product standardization efforts and its effect on finance would have definitely been preferred.

There are a large number of ways true supplier innovation can benefit finance which include, but are not limited to:

  • Production Process Redesign
    The supplier could utilize a solution such as aPriori‘s Enterprise Product Costing Platform with appropriately configured VPEs (Virtual Production Environments) to suggest alternate fabrication methods that could cut the cost of the part in half or more!
  • Material Substitution or Component Redesign
    Design locks in as much of 80% of the cost — maybe the supplier can identify alternate materials or design changes before the first part is produced that can deliver the same quality and reliability but yet reduce cost.
  • Deployment of Modern Punch-Out and Invoicing Solutions
    Nothing is more annoying then trying to integrate a supplier catalog that is still exported in an archaic FoxPro format on a weekly basis to an old-school FTP site into your modern e-Procurement platform or OCR and auto-correct invoices still delivered as fax into your modern invoice automation solution. A supplier that adopts state of the art CRM technology that plugs and plays with your system often does more for finance than anything you can do.
  • SaaS Information Management
    As per a recent Gartner study, a Billion Dollar company spends 1,000 hours every week managing suppliers and their information. This time is primarily spent on data entry and maintenance, contact requests for updated data, compliance monitoring, performance monitoring, accounts payable and invoice verification. At least one-quarter to one-half of this time is spent on supplier information management alone, which is the equivalent of 6 to 8 FTEs (Full Time Employees) for this one billion dollar company. A supplier that kept the information required by their buyers up-to-date in a central repository that could be easily accessed and read into standard Procurement SIM/SRM systems would be doing a big service to their customers and considerably decrease the buyer’s overhead costs, making the buyer’s finance department quite happy.
  • Fine-Grained Bid Information
    The buyer’s cost depends not only on what the supplier produces, but where it produces, what the inbound and outbound shipping costs are, and how much the supplier pays for raw materials. A supplier who provides fine-grained (should) cost data in detailed cost models helps the buyer decide what locations are most cost-effective for it, whether it should be buying raw materials on behalf of the supplier (and use its negotiating power), and who should be financing what for lowest overall supply chain cost.

These are just a few of the ways that suppliers can innovate a bridge between themselves and the buyer’s finance department. There are others. The point is, innovation is not limited to reverse factoring, which should not even be initiated by the supplier!