Category Archives: Best Practices

Are You Losing 2% of Your Revenue to Fraud? Are You Sure?

Between two thirds and three quarters of organizations experience fraud every year and the average organization affected by fraud loses 2.0% of revenue in the UK and EU and 1.7% in the US. This means that, even if your organization is not aware of fraud, there’s still a 66%, or more, chance that it is being defrauded. And it should know for sure, one way or the other. Because if fraud isn’t detected, dealt with, and discouraged quickly, you end up with headlines like this:

  • Alibaba.com CEO And COO out because of vendor fraud
    involving over 2,000 suppliers and 100 staff members
  • Former Vodafone employee facing fraud charges
    for the fraudulent requisition of €2.3 million of services
  • The great Sainsbury’s potato fraud:
    Jail for vegetable buyer who took £5 million in bribes

Which all have one thing in common — each of these frauds involved the payment of millions of dollars to fake suppliers. Not over billings, not duplicate billings, fake billings from fake suppliers. A situation that can easily be prevented with a good supplier information management or supplier visibility system that validated the accuracy of the supplier information and the legitimacy of the supplier. If the supplier information management and visibility system cannot validate the existence and legitimacy of the supplier, then AP knows that a detailed manual investigation should be undertaken before the supplier is authorized to submit invoices, and that such authorization should require at least two sign-offs by high-level personnel. This simple process, which is yet another example of the value of supply chain visibility, would prevent fraudulent invoices from non-legitimate suppliers from ever getting in the system and greatly decrease the organization’s exposure to fraud.

And this is only one example of the many types of savings opportunities that good Supply Chain Visibility can bring your organization. For a deeper insight into the other ways in which Supply Chain Visibility can bring your organization recurring year-over-year savings, download SI’s latest white-paper on The ROI of Supply Chain Resiliency: It’s More Than You Think, sponsored by Resilinc. You might be surprised at just how much hidden value you can extract from your Supply Management operations with good visibility and resiliency.

The Value of Visibility: It’s More Than You Think

When someone mentions supply chain visibility, the first thought that probably jumps into your head is a foundation for resiliency, which it is, as we discussed in our last post on the value of visibility in your supply chain. The potential to prevent a major supply chain disruption that could cost an organization an average of 10% against potential revenue on the affected product lines for two years running and reduce that loss to 2%, or less, is huge. But it’s not the only savings enabled by good supply chain visibility.

In addition to per-event savings associated with disruption avoidance and crisis containment, there are ongoing savings associated with spend under management. Even if your organization employs advanced sourcing methodologies that include spend analysis and decision optimization, the value of multi-tier visibility goes well beyond what traditional advanced sourcing models can deliver.

For example, a 2012 FERMA4 study found that the majority of firms with advanced risk management practices, built on good end-to-end supply chain visibility, had EBITDA growth over 10% and revenue growth over 10%. The EBITDA growth came from lower costs. The lower costs resulted from better sourcing decisions enabled by better multi-tier supply chain visibility and total cost-of-ownership models. That’s a double digit savings! Up until this point, only spend analysis and decision optimization could consistently deliver that level of savings.

The observant among you might be thinking that this study is just one data point and maybe these savings aren’t obtainable by everyone because it’s statistical, but the proof doesn’t end there. In 2011, Haitao Li and Mehdi Amini undertook a comprehensive computational study on a five-tier multi-echelon supply chain for PC assembly that analyzed over 2,000 scenario variations and found that multi-tier visibility drives cost savings of 15% on average. This study, which built in the impacts of potential, and likely, supply chain disruptions at various levels of the supply chain, demonstrated that most optimal awards that only consider the first tier are highly dependent on the input assumptions and extremely susceptible to disruptions, which can increase the cost by up to 60%! Even the tiniest of perturbations was found to increase the total cost by over 5%. But when multiple tiers were considered and awards were made that were disruption resistant, the average cost savings came out to 15%! This is huge! (Especially given that, according to research conducted by IBM referenced in our last post, emergency re-sourcing efforts often increase costs by up to 30% over the optimum solution.)

This means that, even if your organization is lucky enough to be among the 14% that don’t experience a major disruption within the next year, the ROI from better sourcing decisions alone will pay for a supply chain visibility solution many times over. How much will you save? Up to 1.7% of revenue every year. (An average manufacturer will spend 59% of revenue on direct materials and services and 89% of this spend under management. Assuming that at least 1/3rd is sourced annually, and that the savings are only 10%, as per the FERMA4 study, that’s savings opportunity of 0.10 * 0.33 * 0.89 * 0.59 = 0.017 = 1.7%) So, if your organization does 1 B in revenue, it can expect a savings opportunity of up to 17 M a year from disruption-resistant awards to the supply base (which will, by their very nature, minimize the number of small disruptions the organization experiences).

And this is only one aspect of the year-over-year recurring savings that Supply Chain Visibility can bring your organization! For a deeper insight into the other ways in which Supply Chain Visibility can bring your organization recurring year-over-year savings, download SI’s latest white-paper on The ROI of Supply Chain Resiliency: It’s More Than You Think (Registration Required), sponsored by Resilinc. You might be surprised at just how much hidden value you can extract from your Supply Management operations with good visibility and resiliency.

When Outsourcing for Onsite Service, It’s Very Important To Remember …

… to check Employment and Visa Status as well as Nationality of any worker who will be working on your site. The last thing you want is for the IT contractor in the middle of an upgrade to your Enterprise Resource Planning (ERP) System, or the highly trained system engineer with the rare skill required to fix your production line, to be deported in the middle of the project!

Due to the low limit on H-1B Visas from the American protectionists, it is a strong possibility that it could happen, as SI really doubts that Infosys was the only outsourcer to abuse the system and illegally bring workers in on B-1 visas to work on client IT projects. (On October 30, Indian tech giant Infosys agreed to a $34 Million civil settlement with US authorities to “resolve all allegations” and end visa-fraud investigations and have the serious criminal charges that could be brought against the company dropped after federal prosecutors in Texas found it had committed “systemic visa fraud and abuse”. As per this detailed article over on First Post, Infosys agreed to the settlement after prosecutors, as a result of a two-year investigation, unveiled its accusations that Infosys “knowingly and unlawfully” brought Engineers into the US on B-1 visitors for onsite client projects that actually required H-1B visas.)

So when you are outsourcing your projects, if you want to make sure this doesn’t happen to you, demand to know the following with respect to any contractor who will be working on site:

  • Full Legal Name
  • Nationalities
  • Unique Government Identifier for at least one Nationality
    such as Passport ID, Drivers License ID, etc.
  • Current Legal Status in the Country where the work will be performed
  • If the legal status is not citizen, proof of legal status (to work)

And if any of this information is not provider to you, with sufficient time for you to verify such, before the contractor is brought on site, deny the contractor access to your site. Maybe you’ll have to wait a few extra days, or pay a little more, but you won’t have to worry about being an accomplice to illegal activity or losing a critical resource at the worst possible time in the middle of a project.

What’s the Most Often Overlooked in e-Procurement Solution Selection?

This is a tough question, but SI knows one feature that’s almost always overlooked:

Order Automation Integration

A good e-Procurement Solution will contain, or integrate with, a good invoice automation solution because the average organization takes at least 16.3 days to process an invoice and spends somewhere between $30 and $40 on that invoice, if everything is A-OK with the invoice. If it’s not, the invoice could take months to get processed and the processing could well exceed $200. Furthermore, manual data entry of (e-) paper invoices can account for as much as 75% of overhead in an Accounts Payable department, and if the organization gets hundreds of thousands, or millions, of invoices a year, less than 10% will get any reasonable level of review or validation. (For a deeper insight into the value of invoice automation, download SI’s recent white paper, sponsored by Nipendo, on An End-to-End Invoice Automation Framework: Benefits & Best Practices, registration required.)

You’ve got your invoices under control, and this is good. But where are these invoices coming from? Your suppliers. And why are they coming from these suppliers? Because you’re issuing your suppliers hundreds of thousands, or millions, of purchase orders a year. Hundreds of thousands, or millions, of purchase orders that these suppliers have to get, process, and push into their fulfillment systems in order to fulfill the orders for you.

If you need these invoices received, acknowledged, processed, and fulfilled quickly, then the supplier has to be able to get these orders into their system quickly. And if you happen to be sending a supplier 20,000 purchase orders a day, because you’re a retail or restaurant chain with that many locations that needs product refilled on a daily basis due to space constraints and freshness requirements, you need to know that if an order is sent 30 minutes before the cut off, it’s going to be processed when it gets to the supplier.

The only way the supplier that is getting tens of thousands of purchase orders a day is going to be able to process and acknowledge the order as soon as it is received is if the order is in a file format compatible with their order automation system and is picked up by the order automation system as soon as the order is received.

This indicates that a key requirement of a good e-Procurement solution is support for the file formats used by the popular order automation systems and support for the protocols used by the popular order automation systems to transport the invoices and accept the acknowledgement, or error messages, that then need to be appropriately handled by the e-Procurement system.

Supplier Portal, Supplier Network, and e-mail delivery of orders only works if you are delivering a small number of orders to a set of suppliers without order automation who have a few days, or more, to process the orders — not a few hours.

Are Your Invoices Still out of Control? Ready to Do Something About it?


Paper, paper everywhere
all the desks do warp.
Paper, paper everywhere
enough to fill a thorp.

And it shouldn’t be that way. But, as per our previous post, despite the recent appearance on the market of some modern solutions that can revolutionize invoice management and automation at even the largest Fortune 500 and Global 3000 companies, the state of e-invoice and AP Automation today is dismal. The 2012 AP Automation Survey Report found that 9 in 10 organizations still deal with paper invoices and that 90% of invoices are paper-based in half of the organizations that responded!

Moreover, Aberdeen’s 2012 study of of 180 organizations, reported in AP Invoice Management in a Networked Economy, found that laggard organizations, which represent the bottom 30% of organizations, require an average of 16.3 days to process an invoice from receipt to approval. The good news: this is a significant improvement over their 2009 study on E-Payables: Invoice Receipt and Workflow that found laggard organizations required an average of 32.9 days to process an invoice. The bad news: it’s still a very large amount of time, especially if an organization wants the opportunity to take advantage of early payment or dynamic discounting.

As a result, the average organization spends somewhere between $30 and $40 just to process a single invoice! In other words, with the exception of best-in-class organizations that heavily employ modern invoice automation solutions and only spend an average of $3 to $4 to process a single invoice, invoices are out of control in 4 out of 5 organizations. But they don’t need to be!

There is an answer, and the answer is the end-to-end invoice automation, as detailed in SI’s new paper on An End-to-End Invoice Automation Framework Benefits & Best Practices, sponsored by Nipendo. (Registration required.) Download it today and find some of the answers you seek.