Supply chain management back on the corporate agenda for 2010
24 May 2010
By Paddy Earnshaw
Travelex Global Business Payments
As the UK creeps out of recession, growing numbers of British businesses have increased their focus on cash management strategies. With short-term cost cutting measures such as headcount reductions exhausted in 2009, cost reduction through more effective supply-chain management has become a key item on the corporate agenda.
Increasingly, businesses are finding that they must rely on more efficient supply chain networks to be able to compete in the new global economy. Over the past decade, outsourcing, globalisation and improved technology have allowed many global enterprises to successfully operate supply networks that offer a new level of organisation and integration.
For British SMEs, supply-chain management is a process that is constantly plagued with difficulties and issues that, more often than not, require manual intervention. At the supply-side of the chain, valuable time and money can be easily wasted managing supplier information and chasing down payment enquiries. In paying supplier invoices, businesses have to contend with many different payment destinations, banking systems and different payment types, often having to cope with multiple payment platforms and multiple log-ins.
These issues have become even more pertinent since the global crisis hit. Companies no longer have the time or money to waste on inefficient supply-chain management. Unfortunately, as the crisis hit the banks, investment in payment innovation fell by the wayside and new priorities took hold.
Transferring your supply chain online helps reduce costs and improve risk management strategies, giving a better view of short-term assets and liabilities. Providing an instant dashboard of cash positions across the business, it reduces the risk of human error, speeds up processing time and offers greater opportunities for consolidation of resources.
Saving your bottom line
Plenty of recent research suggests that finance directors who now manage their supply chains online have saved their companies vast amounts of money. A centralised online system allows for automated invoice processing that saves companies up to 80 per cent, according to a survey by data management company Formscan.
Interestingly, the survey also found that despite this potential saving, 48 per cent of the UK’s businesses are still processing their invoices manually. The same is true for many large corporates in both the UK and US – invoices are faxed/emailed and payment details manually keyed into bank platforms.
Managing your businesses’ global exposure to FX volatility is another advantage to maintaining an online supply chain network. With one interface showing multiple global transactions, financial directors can take advantage of foreign exchange differentials to make the most of international payments and transactions, which massive savings to be made.
Transparency and accuracy
Certainly, in this current climate, it is essential that SMEs have more visibility and a clearer management of their cash flow as it allows them to plan ahead. This also allows them to avoid the consequences of late payments. Although the UK government has dogmatically tried to eliminate the late payment issue - the UK was one of the first countries in Europe to introduce laws to tackle late payments - the situation continues to deteriorate. Research shows that collectively, UK SMEs are now owed almost £16 billion in late payments – an increase of £5 billion from two years ago.
Late payments can cause real problems for smaller businesses that do not have the cash flow and flexibility of larger companies. At any one time, the average SME is owed £22,000. Clearly, this unreliable method of managing payments can have serious consequences on the relationship of a business with its suppliers, as well as the wider UK economy.
Companies that are starting to process their payments automatically have already seen the long-term investment potential. According to the “Way We Pay 2009: UK Cheques” survey, cheque usage has dropped to its lowest rate yet, falling by 12 per cent from 2008. As cheques exacerbate cash flow issues with their longer clearing times, businesses are now recognising just how beneficial automated payments are, in terms of saving time, cost and resource.
These companies understand that keeping their options open is essential to keeping their business going in this new economy. Research outfit ‘The Aberdeen Group’ found in its cash management survey that contrary to the classic cash management approach of ‘collect early, pay late,’ top performing companies were not delaying payment as long as possible. Instead, they paid their invoices promptly, minimising late payment fees and lost discounts.
As sophisticated technology becomes more standardised, online vendor management systems are becoming more affordable, whatever the size of a business. It is important to look at the businesses’ future and consider the long-term benefits, rather than the initial investment. Certainly the benefit of putting supply networks online is too strong to ignore for too long and businesses that do not adapt will find themselves behind the times.