Friday 30 March, 2012

Supply chains are evolving into complex networks of commercial interactions

Global finance executives are concerned that the interdependency between suppliers, partners and customers, a consequence of increasingly complex supply networks, is creating commercial risks for buyer organisations, according to a report by Basware.

The second chapter of The Cost of Control – Disrupted Networks report, the third annual study commissioned by Basware, provides insight into the opinions and priorities of over 550 finance executives around the world. This chapter looks at the impact that the increasing complexity within any web of commercial interactions is having on buyers and suppliers and the implications of late or erroneous payments.

As a positive consequence of this networked commercial world, buyers are beginning to recognise suppliers as equals and take into account suppliers onward commitments to their own suppliers. Concern, however, exists around the impact of tight credit lines and late or erroneous payment as it puts pressure on suppliers and directly impacts the buyer. According to the report, finance executives believe 15% of invoices remain unpaid past their payment terms yet two thirds understand late payments cause problems for their suppliers, and 38% acknowledge that their late or erroneous payment to suppliers impact the suppliers’ commercial performance to the same level as it would their own business.

Concern also exists around the visibility of activity within the supply chain. 59% think the visibility of supply chain activity and supplier payment is becoming more difficult due to the increasing complexity of the networks. 64% believe that the transparency of an open and collaborative supplier network helps to overcome some of these challenges and provides a more effective basis for sustainable cost savings than closed or exclusive network environments. To take advantage of this networked world and to work effectively, transparency for all parties and automation is key.  

When asked what the most significant challenges are when making improvements to purchase-to-pay (P2P) systems, 46% of finance executives’ state the biggest challenges are the lack of flexibility of these systems and that changes made can disrupt complex supplier networks. However, 62% claim connecting disparate parts of the purchase and payment process within their business is critically important in the next 12 – 24 months.
Esa Tihilä, CEO, Basware comments: “Supply chains have become a complex web of commercial interactions and each organisation that is part of the network has a role to play in minimising commercial risk. Finance executives are aware that late or erroneous payments will create problems for their suppliers, yet late payments still exist. Businesses are recognizing buyers as ‘equals’ but the quality of this relationship is held back by a concern for the commercial risk on their own organisation. To navigate the complexity of these supply chain networks successfully, buyers and suppliers need to focus on building collaborative relationships and sharing information.”

Taking a deeper look at how organisations can improve collaborative interaction, 56% deemed shared information and e-commerce systems to be the most effective methods of enhancing businesses collaboration across disparate supply chains and improving the way companies interact on a commercial level.

Esa Tihilä, CEO, Basware continues: “Cash flow visibility continues to remain a key priority for finance executives. An open network creates a more effective basis for achieving this visibility and therefore sustainable cost savings. In a closed network complete visibility is challenging and the supplier can incur increased and unpredictable costs. An open network approach embraces every size business and enables all parties’ access to multiple automated formats, so there are no restrictions over the size of company an organization can do business with.”  

Peter Smith, Editor & co-Managing Director, Spend Matters UK / Europe: “The Basware report is interesting for procurement executives in that it gives a clear view of how senior Finance people see buyer / supplier networks and the key issues around them. It gives a good sense of both the positives, around greater inter-connectedness of buyers and suppliers, and some of the risks and challenges that such closeness can bring. Not surprisingly, the report also shows that CFOs are very aware of cash flow and payment issues, but that’s an area Spend Matters believes many procurement organisations need to focus on more strongly than they currently do.”