Category Archives: Procurement Innovation

Your Best Secret Weapon Against Bankruptcy? e-Invoicing and Supply Chain Finance

Right now, you’re probably scratching your head and saying you’re biggest secret weapon is better marketing and advertising to get more people to buy your product and keep the cash coming in. However, the real problem, especially for any company in the supply chain that is not customer facing, is the inbound cash-flow. Every month employees have to be paid, overhead costs have to be paid (or the lights go off and the doors get locked), and (starving) suppliers have to be paid. This can only happen if the company is paid, or has access to cash until it gets paid.

Inbound cash-flow is a serious problem, especially as more and more companies extend DPO terms across the board. It’s so bad in the UK that the government established the Late Payments of Commercial Debts Regulations to protect small businesses struggling with cash flow due to late payment of invoices. Cash-flow problems, and chronically late payments in particular which are topping 120 days (or more) in some verticals (especially in the UK), and not lack of customers, are now causing more bankruptcies than business failures (as there is no lack of customers). As far back as 2008, 4,000 UK businesses, which represented at least 40% of bankruptcies in 2008 in the UK, failed as a direct consequence of late payment! And that percentage is increasing.

So how is e-Invoicing going to help? One of the many advantages of proper e-Invoicing is that a buyer gets an invoice almost as soon as you submit it (as transmission over the internet typically only takes a few seconds at most) and can send a receipt thereof to your system immediately. If it’s a customer you have a contract with, then you have options. If they are cash-rich, and amicable, you can offer them early payment discounts that will save you both (if the alternative for you is borrowing at 20%). If not, and the customer has a good credit rating, you can put the invoices out for factoring on a Supply Chain Financing hub and get them factored at a much better rate than your local bank (that might struggle with a simple international wire) will give you.

Done right, as long as you are selling enough to meet your operational costs, e-Invoicing and Supply Chain Financing could save your hide when your competitor goes out of business. They truly are the best secret weapons you might have against bankruptcy (especially given that over 80% of invoices are still paper in many countries).

The next evolutionary phase of e-invoicing

Today’s guest post, which originally aired on Purchasing Insight, is courtesy of Pete Loughlin, Managing Editor at Purchasing Insight and a global expert on purchase-to-pay who could once be found on Twitter at @peteloughlin.

When it comes to electronic trading, the Latin Americans, most notably Brazil, Mexico, Argentina and Chile, put the so-called developed countries to shame in terms of their ambition. While the Europeans continue to support business processes hardly changed since they were developed by the spice merchants of Venice during the Renaissance, South American governments are building business and tax collection infrastructures that many of us would never have dreamt possible.

It’s absolutely true. Many of the business conventions that are employed in the west today are based on the methods of trade developed by Italian bankers in the 16th century. The way we trade including systems of banking and credit were all fine-tuned to meet the needs of merchants trading in the far east. And while many aspect have been modernized some of the core principles remain the same. Old habits die hard and today, despite our delusion that we are part of a digital economy, about 80% of the B2B invoices in Europe are pieces of paper.

For over 20 years, the lawmakers in Europe have grappled with the growth of e-business and it’s is only recently that the European Union has developed something which comes close to a common understanding of what an electronic invoice is. You could sympathize. It’s not possible to simple throw away centuries of convention and legislation. Starting from scratch and reinventing trading rules from 1st principles to take into account modern technology is no easy task – impossible perhaps. But that’s what the Brazilians and the Mexicans have managed to achieve. The have reinvented the business of invoicing and tax collection.

Today in Brazil, the tax authorities know about every business transaction before it happens. They know about every delivery of goods and services and the tax due. Law enforcement agencies including customs officers and police have the power and the tools to check on goods in transit to make sure that all the documentation is in order and that tax is being collected properly. Whereas in Europe and North America, electronic invoicing is about efficiency, in Latin America it’s about maximizing tax revenue.

All a bit heavy handed some might think. A level of government interference in business that is going a step too far maybe. But to those – especially those in Europe – who think that there’s no need to further police tax collection, let me say one thing. Greece.

Whereas the taxman in Latin America is proactively monitoring trade in real-time, ensuring it is calculated correctly and ensuring it’s paid, the taxman in the UK is looking retrospectively at the accounts of the likes of Google and Starbucks, scratching his head and asking “Why don’t you pay tax?”

All respect to Latin America. This is the way we’d do it if we were starting with a blank sheet of paper. But let’s take a look into the future and to some of the fastest growing economies in the world. Because that’s exactly what they have got – a clean sheet. They have virtually no physical infrastructure and even less business infrastructure. No embedded rules or conventions to hold them back. Could they build something even more sophisticated and ambitious? They can and they will.

When it comes to looking for the next evolutionary phase in e-invoicing, don’t look to the United States or Europe. Don’t even look to Brazil or Mexico. Look to Africa.

Thanks for letting SI reprint this awesome post, Pete!

Where Do the Savings Lie?

Inflationary times are back, economic growth is slow, the job-situation hasn’t improved much, employers would rather keep a job vacant nine years waiting for the perfect candidate over spending even a single dollar on training, and CFOs are being told to put pressure on Procurement to cut costs to the bone. In other words, despite all the talk in recent years about training, innovation, and value-generation, it’s still business as usual at review time.

You’ve beat your suppliers senseless, kept overhead to a minimum (not by choice, you weren’t allowed to replace people lost to attrition), done some automation and strategic sourcing, and put as much effort as you could into high-cost categories. As far as you’re concerned, you’ve squeezed all the blood out of the stone and there’s nothing left. And if you are a sourcing leader, that might be true for the categories you’ve been focussing on for 6 to 9 years and that you’ve strategically sourced 3 times in a row.

But is this all the savings to be had? Not by a long shot.

The first thing to remember is that costs fall into two categories: recurring and one-time. Recurring costs include human resources (employees and mid to long term contractors); raw material, component, and production costs; overhead; COGS (cost of goods sold), transportation, and insurance. If your organization is a leader in Procurement and Supply Management and seen as a value generator, then, in addition to reducing raw-material, component, and production costs, it works with operations to keep overheads and insurance costs low, works with logistics to keep transportation costs low, works with Sales & Marketing to keep COGS low using its expertise, and even works with HR to get contractors at competitive rates. (In other words, it’s directly or indirectly reducing every cost except salary, which it has no control over.)

One-time costs include expedited shipping, temporary/contingent labour (to address seasonal spikes, such as the surge in demand many retailers get around Christmas time), switching costs (when switching suppliers or raw materials), and one-time costs associated with recalls, settlements, and stock-outs (on the shelves and in the factory). Most Supply Management departments work with logistics to optimize and keep transportation in check to minimize shipping costs, work with HR to make sure temporary/contingent labour is sourced appropriately, and take switching costs into account when evaluating sources of supply, and this is a good start, but these one-time costs pale in comparison to the cost of a recall, settlement, or stock-out. Recalling a contaminated or unsafe product that makes it to the shelves can easily cost in the tens of millions of dollars, a settlement that results from a class action lawsuit can cost in the hundreds of millions (especially when legal costs are factored in), and a supply chain disruption that results in the assembly line for the key, or only, product line being shut down for months can bankrupt a company (and a number of companies have gone bankrupt as a result of serious disruptions in production). How much is your Supply Management organization doing to prevent these very costly incidents, which can wipe out years of savings, from happening? Remember, Supply Management has, or should have, the supplier relationship and be doing its utmost to insure quality (preventing recalls or lawsuits), supply management has (or should have) the visibility to detect shortages or stock-outs well before they happen (and is the only organization in the position to take action and locate another source of supply in time), and only Supply Management has (or should have) the cross-functional capability to address these issues.

So, do you know where the savings lie?

PPM is important, but it should be done by a COE that functions as a PTO. Not a PMO.

Confused yet? Let me explain.

Late this spring, over on Spend Matters, Pierre Mitchell, noting that PMOs have failed in IT asked “Should We Really Use Them in Procurement”. This post, which followed Jason Busch’s post that asked” Does Procurement Need a PMO?” (Spend Matters Plus Content) offered may reasons why a PMO should be pursued in Procurement. However, in SI’s view, not one justifies the focus on a PMO.

A PMO, short for Project Mmanagement Office, is a group or department within a business, agency or enterprise that defines and maintains standards for project management within the organization. (Source: Wikipedia) This department, which strives to standardize and introduce economies of repetition in the execution of projects, sounds good in theory, but has often failed in practice, especially in IT. Why? Simply put, you can’t manage what you don’t understand — and IT projects, which are exceedingly complex in nature, can only be understood by the senior engineers, software architects, and developers capable of implementing them. They’re not going to be understood by a two-bit run-of-the-mill project manager whose background is a basic business degree and training on the PMBOK (Project Management Body of Knowledge). The few IT projects that succeed are those that are managed by former engineers, software architects, and/or developers that have been trained in basic project management (and not the other way around). It’s the same reason mathematicians (given enough Ritalin*) can make great (forensic) accountants, but accountants make bad mathematicians. (Who, when they see 2x + 2 will ask “two times what”.)

Similarly, there are some Procurement projects, especially in high-tech, medical, and automotive, that are too complex for an average project manager. These should not be managed by a project manager, but by a domain expert. However, they should be tracked and the appropriate resources made available by a Center of Excellence (COE) that functions as a Project Tracking Office (PTO). This COE would insure that the domain expert has the appropriate tools, methodologies, and processes at her disposal and the training to use them, as well as the necessary training in project management. In addition, it would focus on Procurement Performance Management (PPM) and, as Pierre Mitchell noted, act as a TMO — Transformation Management Office.

In other words, SI agrees with Pierre Mitchell in that there is a need for better Project Management, and in particular, Project Performance Management, in Procurement — but disagrees in the approach. We need to focus on the COE — not the PMO. It’s important that the focus is on excellence, not the mundane.

* Let’s face it, Accounting is pretty boring to a mathematician who might need a little help focussing on it for eight hours a day.

While You Were on Summer Vacation, Vendor Posts, Part III

While you were on summer vacation, SI was powering away with daily posts and continuing to cover some of the leading vendors in the space, presenting a number of deep dives on their technology platform. Here is a short recap of some of the coverage you might have missed!

Airclic

Designed to make 3PL deliveries click, Airclic’s Transport Perform solution, which is tightly integrated with their new Route Planning and Route Optimization solutions, incorporates support for simultaneous high-volume cross-docking and multi-driver cross-border routes in a new web portal that makes their platform as easy to use as a multi-tab spreadsheet. One of the highlights of their solution is a clear, easy to use, non-distracting, straight-to-the-point interface for dock workers and truck drivers, especially when all these people have is a small, primarily text based, mobile device. The application, which can be pre-configured with relevant supplier data, including whether the supplier is ASN-based or non-ASN-based (Advance Shipping Notice), allows the application to be customized to each supplier so that a dock worker or driver only has to enter the absolute minimal amount of information (which, for an ASN-based supplier, can be as little as scanning a barcode) and when additional data has to be collected, is presented with a minimal list of options to choose from.

PrimeRevenue

In our posts on how they are priming your financial supply chain for success (Part I and Part II), we introduced you to PrimeRevenue, a provider of Supply Chain Finance solutions that provides supply chain finance solutions to over 12,000 customers in 40 countries and that processes Billions of dollars of transactions each year. Like other providers of supply chain finance solutions, they provide a platform that helps suppliers access financing for their receivables when they need it from over 40 leading financial institutions. But that’s not the best part of their platform. The best part of the PrimeRevenue platform is a solution by the name of SciMap that provides a consolidated and classified analysis of your spend, enriched by insights from PrimeRevenue’s global database, based on detailed and updated market intelligence. This allows you to make better buying decisions as well as negotiate optimized payment terms, putting the power to improve your working capital in your hands.

iValua

In our four-part series on how they are proving their mettle with source to settle (Part I, Part II, Part III, and Part IV), we noted how iValua is one of the few providers tackling end-to-end sourcing and procurement in a single suite of integrated modules built on one common platform. With capabilities that, to some degree, address each of the core phases of the basic sourcing-and-procurement cycle except decision optimization and tax reclamation, the platform is one of the most extensive native source-to-settle platforms out there. Integration and implementation will take time, especially if your organization wants the full end-to-end capability, but could be worth it for a large organization that needs an extensive, integrated solution.