Agile Procure to Pay at the heart of Cost management

Highlight – ‘O2C Excellence for Business’ celebrates 2 Years!!!

When LinkedIn granted me creator mode back in early 2022, I decided to leverage the Newsletter feature and launch a monthly one. And so, believe it or not, my first edition got published on 15 March 2022 and was titled ‘Ukraine crisis - What Credit / O2C teams can do!’. Sadly, it would still be as relevant today…

Since then, the journey has been extremely rewarding. Truth is I love to learn, listen, think, look at the bigger picture and share knowledge, thoughts, perspective & advice to help my professional audience remain on top of fundamental shifts & trends.

I also love to write as it brings me a sense of purpose & personal growth, and our fast-evolving world keeps filling me with constantly renewed sources of inspiration…

So, here you go, enjoy today’s 23rd edition! And don’t hesitate to peel this Newsletter back to its early days, as LinkedIn have so far kept all preceding 22 editions accessible.

A big thank you to all my subscribers, readers & followers, your support means everything to me and I would love to hear back for you!

------------------------------------------------------------

Article – Agile Procure to Pay at the heart of Cost management

This month’s article puts the spotlight on the sensitive area of cost management on the backdrop of ever-challenged business operating models & strategies, and ventures on the other side of the fence to look at the critical role of indirect Procurement & the Procure to Pay (P2P) cycle.

With inflationary pressures & rising interest rates gradually getting back under control and a new recession averted in most developed countries, 2024 is starting on a somewhat better footing than last year for corporates. This being said, the unknown outcomes of looming elections in large swaths of the world, ongoing military conflicts and the need to re-design business operating models & supply chains, mean that operating margins remain in the spotlight.

Corporate executive leaders & boards must therefore continue to prioritize cost management across all areas of the business - starting with operations & overheads - as a key performance driver.

The question here is: how?

Experience teaches us that one off or random cost-cutting measures don’t stick, and may even fireback several folds… So, what does a sustainable approach to cost management that doesn’t risk compromising equally strategic business growth or expansion targets, really look like?

Similarly to the area of Working Capital management, business leaders must adopt a holistic approach that encompasses three dimensions:

1. a cross-functional culture of continuous improvement that also enables growth as opposed to hindering it,

2. operational execution excellence & process optimization through the leveraging of new technology,

3. a governance & communication strategy that fosters people to embrace the vision, commit to supporting it and feel empowered to bringing it to life.

The same way creating a Cash culture throughout the business organization is paramount to optimizing the Cash Conversion Cycle, leaders must create a Cost culture across the board.

Irrespective of the industry sector or business size, after the purchase of direct materials - that make the cost of goods sold - and employees payroll, the biggest source of cost for any business is the area of indirect Procurement, that is the purchase by all departments of a variety of items & services that they need to simply be able to operate.

Indirect Procurement can represent a substantial amount of expenditures, and significantly impact operating margins & bottom line, let alone Working Capital & Cash Flow. It is therefore essential for any business to ensure that their end-to-end P2P process operates both efficiently & effectively.

So, what practical measures can business leaders take?

• Identify the best suppliers for your needs and negotiate key terms & conditions (T&Cs) with them.

In the day-to-day running of your business, it’s important to ensure that you are getting the best overall value at the lowest price possible each time you are prepared to spend. Having a Procurement person or team in your organization who is dedicated to thoroughly selecting those preferred suppliers & agreeing applicable T&Cs, is the foundation of healthy cost management. This is not the end of the journey though.

• Leverage your organization’s purchasing power

You also need to ensure that any purchases of goods or services by your organization in the same categories as those of your preferred suppliers, are actually made from the latter. The more purchases from them the more likely you are to obtain even more favourable T&C’s in the future, by way of volume discounts or otherwise.

For this to happen though, your indirect Procurement process must clearly guide employees towards purchasing from those preferred suppliers, be easy to use and be supported by relevant controls, analytics & KPIs. You may also want to streamline the number of active vendors in your master file for each purchase category, so as to drive spend concentration with just a few suppliers.

• Build an effective governance & spend control mechanism

Another critical dimension of healthy cost management is to ensure that all purchases & expenditures are being reviewed and pre-authorised by the right people across your organization. It is therefore essential to define an indirect Procurement policy - inclusive of an Approval Matrix - that clearly determines who should approve what, with the number of layers driven by the spend amount/purchase category mix.

Equally, all managers in your organization must have the opportunity to manage their budgets at all times.

Continue read this article HERE for more practical measures, and find out about how an integrated P2P system can benefit your business.

We would love to hear your thoughts or questions in a comment below, by email on [email protected] or indeed through our Contact page https://financeotcconsulting.com/contact

Need support to bring your Digital or otherwise Finance transformation roadmap to life? Let’s have a FREE discovery chat!

------------------------------------------------------------

Quotes – More food for thought…

‘The value of our knowledge multiplies when we share what we know with others.’ – Simon Sinek

‘Power is gained by sharing knowledge, not hoarding it.’ – Maria Khan

‘Gaining knowledge, is the first step to wisdom. Sharing it, is the first step to humanity.’ - Unknown

------------------------------------------------------------

Recommendation – Dive into the ITFA’s DNI Initiative

We recently talked about how businesses are gradually digitalizing their global trade operations with regards to transport of/title to goods or guarantee documents.

In a similar move, Supply Chain & Trade finance is following suit with traditional negotiable instruments such as Bill of Exchange or Promissory Note now becoming digital equivalents of themselves, that is Digital Negotiable Instruments (DNIs).

While the ITFA (International Trade & Forfaiting Association) has now defined the specifications of digital documents (dDOCS), a lot more work is under way leveraging new digital technologies for DNIs to meet all enforceability, security, integrity & traceability requirements from a legal, regulatory & compliance perspective. Another challenge is for DNIs to be technically transferable to/accepted by the systems & communication channels used by banking institutions & other players in the Financial Services sector.

To learn more about the intricacies of securely bringing DNIs to the market, visit: Digital Negotiable Instruments (tradefinanceglobal.com)

------------------------------------------------------------