Streamlining back office processes has become as much a source of competitive advantage as service and product innovation. Trimming as much excess from the cost structure as possible, and creating lean, slick organisations that are able to adapt to the constant changes in the market has become essential for twenty-first century business.
As the growth in e-procurement and supply chain management systems testifies, consolidating and managing the supply chain is one of the most effective ways of achieving both these aims. However e-procurement, by its very nature, cannot incorporate the multitude of paper-based transactions that a typical organisation experiences every week. Furthermore, it only becomes possible to control the supply chain once you have identified it.
Discovering the supply chain
For global companies, who operate in a truly international context, this can be a major obstacle to achieving the financially streamlined organisation they desire. Although technology has undoubtedly improved supply chain management, it has also provided the means for diversifying and complicating it. Thanks to internet-based communications, a company's location is now almost irrelevant when it comes to the provision and procurement of goods - with the result that the majority of organisations operate within a complex network of supply and demand.
Naturally, successful organisations have mastered this complexity when it comes to their core product. So manufacturers and retailers, for example, have established advanced systems to procure the raw goods or component parts required to run their business. Service industries are investigating methodologies and systems for ensuring that the best people are always available to them - in the knowledge that these are their greatest assets.
But whereas these direct elements in the supply chain - the obvious and the visible - are subject to the strictest negotiations and managed by sophisticated software, the indirect elements are still often left to a far more ad hoc or arbitrary decision-making process.
Yet these indirect elements can prove to be a substantial cost centre. Consider the vast expanse of options for transport, hotels, room service, restaurants, phone calls and taxi fares that a single business traveller uses in one trip alone. This forms something of a supply chain black market - hard to calculate and outside standard controls. Yet travel and entertainment (T&E) expenses are typically the second largest controllable costs after salaries, and represent something in the region of 50 to 80 basis points of sales volume.
Equally MRO - maintenance, repair and operations costs - can subsume huge amounts of revenue through the idiosyncrasies of departmental purchasing arrangements. Again, these indirect' supplies are frequently purchased by any number of people who are not necessarily authorised to do so and who do not stick to the formal processes, where these exist. This can be problematic enough for organisations based in a single location. But for multinationals with a number of offices spread across the globe it factors up to represent a significant amount of unmeasured - and therefore uncontrolled - expense. Behind this, of course, is an equally uncontrolled supply chain.
So instead of having the rich transaction data they need to control working capital, financial controllers are left with a rather grey area, with details only coming to light some months after the transactions have occurred. Control requires visibility: and visibility entails having data that is timely, flexible, easily accessible and, most of all, comprehensive.
A solution for supply chain confusion
Commercial card programmes are designed to provide exactly this kind of information, from line-item and folio-level details all the way through to consolidated global transaction data. This enables organisations to analyse purchasing patterns quickly, efficiently and accurately. All transaction data can be made available centrally, so financial controllers have an accurate view on global spending and hence all the direct and indirect elements of their supply chain.
Moreover it provides a sound basis from which to negotiate with vendors - securing improved rates in return for a place on the approved suppliers list - and thus consolidate the number of providers used. Policy controls can then be set to ensure that this list is adhered to.
What's more, commercial cards can bring expenses that have traditionally been paper-based - either through cash or cheque - under the influence of the wider e-procurement system.
It has long been accepted that e-procurement delivers significant advantages, but with large swathes of corporate spend outside their remit, their effect can only be limited at best.
By integrating with these existing systems, card programmes can maximise investments that have already been made in this area, and deliver further advantages. Card programmes can also provide automatic data feeds into accounts payable software and online ledgers. Consolidation with the financial modules of Enterprise Resource Planning systems and automated expense management software reduces costs further by eliminating time consuming manual processes and enhancing data accuracy - creating an additional level of streamlining to the management of the supply chain.
Further improvements can be made by combining the power of purchasing cards - typically used for MRO expenditure - with the T&E corporate cards. By offering one platform for all types of spend through consistent technology and unified formats, these combined One' cards offer even greater opportunities for cost containment and reduction in the supply chain.
