- Why TransferMate
When the GB cycling team left the 2004 Olympics behind in Athens and flew home, their carry-on luggage contained a respectable 4 medals, including 2 golds. However, when they left Beijing four years later, their airplane probably needed a special compartment to contain their 14-medal haul – 8 of them of the gold variety.
For many, this remarkable turnaround in fortunes was largely put down to the theory of ‘marginal gains’ – extracting efficiencies from everywhere, improving processes by 1% in lots of areas until the cumulative effect produced dramatic outcomes.
In the past, marginal gains for procurement professionals meant cutting costs. Looking for those 1% savings in every deal was their bread-and-butter, and one of the most straightforward ways of measuring performance.
This may no longer be the case. In Deloitte’s 2021 Global Chief Procurement Officer Survey, 78% of respondents said driving operational efficiency was their primary goal, edging out the traditional cutting of costs. It’s easy to see how this is now the case after the year we’ve had, from the continuing pandemic to volatile commodity prices to Suez Canal mishaps.
Agility, resiliency, and efficiency are becoming the watchwords of the forward-thinking CPOs of the world, but what are the steps they need to follow to take up this new mantle?
It’s hard to do something different tomorrow if it’s not the way it was done today, but the first step on any journey towards greater efficiency is reviewing current processes thoroughly, ideally using a new lens to look at them through.
While CPOs have never had so much on their plate, they will need to make room to carry out a review of how they are executing their strategies, and whether improvements can be made. Four fundamental pillars you need to review are 1) the suppliers you’re using, 2) the people using your systems, 3) the system itself and 4) how CPOs actively manage this system.
Increasing efficiency from your suppliers is all about creating economies of scale and leveraging good, consistent relationships to have a truly collaborative supply chain. Over time, though, maverick spending from individuals within the company can mean preferred suppliers are not used, and those benefits are lost.
Taking a thorough review of your supplier lists will allow you to create categories of spending (if you’ve not already done so), cut out suppliers who have erroneously become part of the system, and drive that spending towards preferred suppliers. It’s also an opportunity to look for new solutions that may not previously have been available. While onboarding a new supplier will take time and effort, the efficiencies their solution may create could boost efficiency in your procurement process significantly over time.
How many times does the procurement department talk to everyone in the company? In truth, it’s usually interactions between department heads on a case-by-case basis where communication occurs, or during annual meetings in a ten-minute slot.
If CPOs want to drive spending towards preferred suppliers, then they have to reiterate that message consistently and regularly.
Internal training sessions outlining the strategy, and the strategies’ purpose, will give people the ‘why,’ while practical initiatives such as creating a preferred supplier list that people can easily access will give them the ‘how.’
One of the quantum leaps made in procurement over the last decade or so has been the automation of processes and the embedding of technologies that increase efficiencies right across the supply chain.
The philosophy behind P2P has always been to create an efficient purchasing process by integrating purchasing and accounts payable systems. In the past, this was done manually by purchasing officers, often having to micro-manage every step of the process.
An automated system cuts down a big portion of administrative time, while also reducing spending outside of preferred suppliers and giving transparency over the entire process. Without one, you can quickly become drowned in a sea of paper and administrative knots that are hard to untangle.
“Finance teams need a single interface that improves access control and better visibility over spending” says David Hughes, Chief Commercial Officer of TransferMate, whose automated purchasing system enables organizations to automate and digitize the entire payments process, from mass payments to automated reconciliation. “Delays receiving funds can be a nightmare when managing cash-flow, and manual reconciliation is a significant administration burden on the team. Transparency, ease-of-use and efficiency are the key components.”
If the past two years has taught us nothing else, it’s that we need to be agile in the face of adversity. The ‘supply chain crisis’ has become part of the public vernacular, which is a clear sign that the problems CPOs are dealing with right now are not of the ordinary kind.
CPOs are being asked to innovate their processes, drive digital transformation, deal with geopolitical factors such as Brexit, and societal factors such as climate change. To gain a competitive advantage in this landscape, an agile mindset is needed – your team needs to be prepared to shift strategies, and quickly, when shocks to the system occur. What’s more, the processes themselves need to be agile to adapt to those shocks.
Operational efficiency is not just about creating an efficient system for today, it’s about creating an efficient system that will deal with the change coming tomorrow. As such, an agile mindset should be the default one for CPOs.
The pursuit of ‘marginal gains’ became a calling card of not only the GB cycling team, but subsequently for businesses, after the apparent success of its philosophy was demonstrated so clinically on the cycling track. In the end, however, it is not a new philosophy.
Japanese auto-workers would point towards ‘Kaizan’ – a philosophy of continuous improvement – that made their factory lines so much more efficient than their Western counterparts and allowed them to become the predominant manufacturers of high-tech goods in the world.
Whatever terms of philosophy you want to put to it, CPOs have moved beyond cost-cutting as their primary function and into new areas to add business value. After all, if you want to take home the gold medal, you need to go that bit further than your competitors.
This article originally appeared on SpendMatters.com.
If you want to learn how TransferMate can help you seamlessly manage mass payments, automate invoice reconciliation and have full transparency on your payment’s lifecycle, click here.
A chain is only as strong as its weakest link and, when it comes to global supply chains, there are a lot of links – each one vulnerable to fraud.
With commodity prices rising significantly, a scarcity in many finished goods that have driven up their value, and the ever-increasing global nature of the supply chain means businesses are more at risk than ever. With increased rewards comes increased motivation, both from one-off fraudsters and criminal gangs.
So, how do you strengthen the links in your supply chain? Today, we’re looking at common types of supply chain fraud, how to detect them, and how to prevent them.
From the simple to the complex, fraud along the supply chain is more common than you probably think. According to a recent Delloite survey of businesses, 30% of respondents had seen at least one instance of supply chain fraud in the previous year – and that was only the cases that were detected.
The typical supply chain frauds that you will see are:
Simple and straightforward, the ‘it fell off the back of a truck’ is still one of the most common ways businesses lose money along the supply chain. The theft can happen at any point along the line, including from within your business.
As you’d imagine, theft is particularly prevalent for products that are highly valued as consumables (electronics, clothes, etc.) that can either be used by the fraudsters themselves or converted into cash by reselling them.
Much of this theft is done by employees of the company themselves, or through collusion with an outside partner. One study found that 90% of all significant theft losses came from employees, while 60% of employees would steal if they knew they wouldn’t get caught.
With so many payments and paperwork (digital or physical) flying through the supply chain, it’s no surprise that people will try to manipulate the system. Billing schemes, authorized push payment fraud, Automated Clearing House (ACH) fraud, check payment fraud, expense fraud… these are all the names given to common tactics used by payment fraudsters.
For more information on common payment frauds and how to prevent them, click here.
Businesses often assume that any fraud will be picked up during the auditing process, but the truth is that scammers are smart and can use systems against themselves. According to the Association of Certified Fraud Examiners (ACFE), 44.7% of the fraud cases it surveyed were discovered through a tip or by accident, while only 39.2% of the fraud cases were discovered by internal audit, management review, account reconciliations, or document examination.
Bribery and Kickbacks
Bribery and kickback schemes are another common type of financial fraud in the supply chain, and often happen at more senior levels than we think. It can come in many forms, from simple bribes from a supplier to choose them over another, to kickback schemes which generally involve a supplier producing fraudulent invoices and an internal employee making sure they are paid and receive a ‘kickback’ for doing so.
When we think of kickback schemes, we often imagine the single executive working with a supplier on their own, but there are plenty of examples of institutional kickback schemes. Perdue Pharma – the makers of oxycontin – settled for $8.3 billion for ‘admitting to conspiring to defraud the US and violating anti-kickback laws in its distribution of the addictive painkillers’.
Detecting fraud in a supply chain can be broken down into three basic pillars – people, process, and technologies.
Systems don’t commit financial fraud, people do, so any anti-fraud system must put people at the heart of it.
Getting the right people through the door in the first place is the first port of call. The ACFE found in 2018 that 40% of employees who steal from their work have experienced prior HR red flags.
But how can you reasonably screen a person against the possibility they will commit fraud during the interview process? It’s only through the careful checking of references and work history that employers can begin to tackle this problem, but there is no silver bullet.
2. Monitoring behavior
Once a person is in a position of authority, monitoring behavior can generate those early warning signs. Does the person rarely take holidays? Are they the only person in control of a supplier relationship, and are they loathe to give control to anyone else? Do they often work outside normal hours, making payments during that time? Do they have strangely close relationships to suppliers?
Human beings are naturally trusting, so it can be difficult to ask these questions of a colleague, but it is essential if you want to detect fraud early.
A good anti-fraud program will always have a strong training element to it. You want to let employees know how to spot potential fraud, how to report it, and learn about the systems you have in place to prevent it.
The hidden truth behind fraud training programs is their inherent message to the potential fraudster that you are monitoring potential schemes, thereby discouraging them from starting their own.
It’s also important to give employees the psychological safety net that will allow them to report suspicious activity. Even if they turn out to be wrong, they should always be praised for taking what is often a brave step.
A strong anti-fraud process is your best method in detecting, and preventing, fraud on an ongoing basis.
Any payments to external parties should be either double-checked by another human being, or the responsibility of those payments should rest with more than one person. Ideally, both of these tactics would be put in place.
It doesn’t mean you do double the work, just that you put in place regular checks and balances.
2. Regular audits and Risk Assessments
While auditors are not technically responsible for detecting fraud, a good auditor will monitor your incomings and outgoings with fraud in mind. You can also carry out regular internal audits where the finance team essentially checks each other’s work. It’s important to have these as just part of the routine, and not do ad-hoc audits when it comes to mind – this will erode trust.
Going that one step further would be to conduct risk assessments on your supply chain. This can range from identifying steps in the supply chain that could potentially break international sanctions, to looking at transactions that are either high value or high volume and therefore contain a lot of risk to the company.
3. Supplier Due Diligence
Apart from internal monitoring and detection, actively doing due diligence on suppliers and third parties you interact with (such as bidding partners) will help create a culture of compliance and fraud prevention.
You can even draw up supplier code of conduct policies they have to agree to in order to do business. This code of conduct can include anything from identifying potential conflicts of interest with any of your employees, to whether the suppliers own supply chain adheres to your company’s policies (such as child-labor laws and environmental practices). You can also insert a right-to-audit or right-to-inspect that allows you to audit transactions and make surprise inspections.
4. Have a fraud response plan
Once you detect fraud, what happens in your organization? Having a defined response plan, and reporting system, is the only way you’ll systematically tackle fraud on an ongoing basis. Knowing who has to be notified (up to and including the police) will mean steps won’t be missed and further reputational damage done down the line.
Technologies, primarily using fraud detection algorithms and machine-learning tools, have become a key weapon in the fight against fraud.
With so many transactions happening digitally today, it’s vitally important to have systems that can raise automatic red flags when they detect something wrong. From detecting when payment details are changed within a system to recognizing when payments are going through a sanctioned or high-risk country, automated detection will help you catch and prevent fraud early.
As Alex Clements, Global Head of FinCrime, Investigations & Monitoring at TransferMate, said in a recent interview, “We’ve invested heavily into our compliance monitoring systems and we’ve built controls to detect all kinds of risk scenarios. We are also ISO 27001 compliant, and our system includes customer authentication controls and dual-authorization controls.
2. Anti-money laundering detection
Beyond pure payments fraud, bad actors using your supply chain to launder money is a risk you need to be aware of, and technologies can help here too. Just like those automated red flags around payments (and there’s a lot of crossover with the two) you need a system that detects unusual activity that could indicate money laundering.
The things a system would look out for here include immediate withdrawals of money when paid into an account, a sudden surge of payments to a long dormant client or bank account, and any steps along the chain that involve high-risk countries or individuals.
3. Don’t assume the technologies are working
One of the inherent risks of technology is relying on it too heavily. Technology is built and used by humans, so is still vulnerable to fraud. It is too easy to implement a new technology and forget about the people and process pillars in your anti-fraud program.
It is through the combination of all three that you’ll have a real chance to detect, prevent and minimize fraud in your supply chain.
‘Removing fraud is a never ending task for global enterprises. The first principle is to remove opportunity, and this is done via touchless data processes and/or segregation of ownership.’ says Stephen Carter, Director of Product Marketing at Ivalua. ‘The second is to create a high risk environment that ‘shouts out’ you will be caught, and this is done via visibility robust auditing and tracking. The hardest to catch is collaborative fraud which can easily go undetected within a supply chain, and that’s where a seamless source to pay solution (S2P) comes in. The right S2P solution removes the opportunity, while making any fraud attempt visible to everyone’.
A strong anti-fraud program requires a holistic approach involving the pillars of people, process, and technology. By getting in the right people, training them and, yes, monitoring their activities, your business will be able to use carefully designed processes and newly available technologies to detect and prevent fraud.
While no chain is unbreakable, by using the right approach you can make every link as strong as possible.
To discover how TransferMate’s technology can protect your supply chain against financial fraud, click here.
It had looked, for a short while, that we had ‘solved’ the supply chain problem. From simple but effective tracking barcodes, all the way up to the blockchain and AI technologies, supply chains were one of the first areas where combining technologies led to remarkably efficient processes – and helped usher in the era of globalization.
For a long time, procurements role within this was primarily focused on finding the lowest prices of goods that could move through the supply chain, creating additional value for their business by driving purchases through preferred suppliers and increasing economies of scale. Concepts like ‘just-in-time’ supply chain management added layers of complexity, but procurement departments proved to be agile and innovative, often leading from the front.
However, friction in the supply chain stubbornly remained and, in some cases, grew.
Factors beyond anyone’s control, from Brexit to the China-US tariff war, alongside the most recent crisis coming in the form of the pandemic and the blocking of the Suez Canal, showed that supply chains weren’t as resilient as we thought and that we’ll never truly ‘solve’ friction in the supply chain.
As well as those geo-political challenges, many of the old problems did not go away, or took on another form. Different systems and processes – all still primarily in the control of people – need to talk to each other seamlessly to create more simplified and integrated supply chains.
This ideal vision, even with all the technologies available to us, simply hasn’t come to pass.
In one piece of research based on studying a global logistics provider and their customers found that, between the purchase order being placed right through to the product landing in its destination, over 200 steps took place. In other words, 200 potential sources of friction.
These sources of friction can be loosely placed into two buckets – process and people.
Typically, purchase order execution, missing information or documents, delays of entry filing, poor visibility (and therefore control) over the supply chain, trade compliance procedures not being followed, etc. are the areas where human error and time delays can significantly impact on supply-chain efficiency and cause friction at multiple points along it.
These then, are the areas most ripe for improvements because, while technology and automation aren’t the silver bullet, they can be game changers when you’re looking for a competitive advantage.
While there are an incalculable number of ways to improve each of those steps along the supply chain – often dependent on what industry you are in and where you are sourcing from or sending to – there are several general principles that can be applied to almost any business.
Agility is one of those watchwords that have been thrown around within the business sphere over the last five years or so. It can sometimes feel like a catch-all term that is really telling the reader ‘do better, and do it faster’, which doesn’t feel too helpful.
It’s better to define agility closer to ‘find problems quicker to solve problems quicker’, which is a bit more actionable. Finding problems quicker means having visibility over them.
When you are using multiple systems, from spreadsheets to emails to external platforms, gaining visibility over your supply chain can be very difficult. And this goes two ways – your customers will want to have visibility of the products coming to them and will run into similar difficulties.
With this visibility comes agility, and the ability to better manage spend on a rolling basis.
‘When managing spend, it’s critical to have total visibility of the whole source to pay journey. Without this, possible savings disappear into the gaps between the procurement and finance teams’ says Stephen Carter, Director of Product Marketing at Ivalua. ‘By improving visibility, any friction points in the process can be spotted and quickly addressed. This will unlock supplier liquidity, strengthen links in the supply chain, and add savings to the bottom-line.’
Setting up systems that fully integrate with the supply chain then becomes a key priority for procurement professionals looking to identify friction points along the chain. One of the primary ways of getting visibility over your supply chain is automating your payment process.
Managing international payments, reconciling invoices, and dealing with local regulations can be a big administrative drain on your resources.
Digitizing your entire payment process will give your finance team much more control and visibility over spending, while also reducing errors, and helping to prevent fraud in the process. Having the ability to create and execute multiple payments easily in multiple territories, all housed within a single platform, will not only save time but money as well.
It gives your team greater ability to control and maximize cashflow, while also potentially saving on FX rates if the system you use has local banking rails. For the customers, automating payments and leveraging local payment rails will mean that suppliers will be paid accurately and on time, reducing debtor days in the process.
All these friction points will be reduced, or eradicated entirely, by automating payments.
Funneling spending through a number of preferred suppliers will improve relationships over time, help you identify and solve friction points, and reduce costs through bulk and long-term buying. This has always been the way procurement works, although this has been changing recently with the global upheavals.
Because of these global events, ‘Resilience’ is another watchword being thrust upon procurement officers, and the balance between resilience and cost-savings will be a real challenge over the coming years. This will be particularly true if no global shocks like we’ve seen over the last number of years occur. If all remains stable, questions will inevitably come from leadership and board level on why costs are higher than they need to be.
One solution is to ensure that you have more than one preferred supplier for each area required. This, again, is fairly standard today, but businesses will need to create more diversity in their preferred suppliers list, such as geographic location, so that if something happens in one part of the world you can quickly pivot to another.
What’s not measured is not managed, and it’s no different when it comes to supply chains. While it’s often a tedious and laborious task, analyzing your supply chain to produce actionable data is also a very necessary one.
Begin by mapping out all the steps, producing a flow-chart (or similar) to see all the links in the chain. Collecting data on each of these steps will then allow you to identify problems, such as deliveries being consistently late, or invoices not being paid on time due to inaccurate information being provided.
Then, if you can, compare these steps with others in the market and what they are doing. This can be difficult data to collect – after all, you wouldn’t make it easy for your competitors to do the same – but you may find some interesting insights with some basic inquiries.
After that, it’s a matter of analyzing the data you’ve collected.
Where are you sourcing from? Are their alternatives? Can delivery of the final product to the customer be executed in a different way? By simply asking these questions, innovative solutions may emerge. If your supply chain is of a significant enough size, it may be economically beneficial to purchase software for analyzing your supply chain, although these can be expensive.
The real benefit that comes from collecting data is getting internal buy-in for future change. With data, people are much likelier to act because they see the immediate benefits.
Building a frictionless supply chain is an impossible task – we can only search for improvements. As a truly collaborative exercise, the supply chain must be treated as a genuinely collaborative process, rather than one where you’re stitching disparate parts together.
Procurement professionals are the central spoke in this wheel, bringing multiple stakeholders together (often from different countries with different currencies, languages, regulations etc.), so are therefore best placed to reduce friction along each link in the chain. However, procurement officers can’t do this all alone; it requires collaboration within the business too.
By investing in technologies and processes, friction in the supply chain can be reduced considerably, especially when the above steps are taken (relatively) regularly and new iterations of the supply chain process are created to improve each time.
While we can never ‘solve’ the supply chain problem, we can work towards giving procurement professionals the tools and support to make everyone’s life a little bit easier, and supply chains a lot more efficient.
To learn how TransferMate can help you reduce friction in your supply-chain, click here.
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