How Finance and Procurement Leaders can Deter Supplier Fraud

Costas Xyloyiannis, CEO at HICX, tells Supply Chain Digital how data and supplier-centricity can act as a foundation for digital transformation in business

Supplier fraud has risen sharply in recent years, with very few companies able to say they haven't experienced some kind of vendor, supplier or procurement fraud.

In truth, this can often put down to faulty supplier information, a problem HICX—a leading supplier experience management solution—has been combatting over the past 12 years. 

Costas Xyloyiannis, the firm's Co-Founder and CEO, established HICX in a bid to address the challenges presented by bad supplier data across enterprise. He has spent the last two decades helping some of the world’s largest companies take control of their supplier data and deliver a superior supplier experience.

Here, Xyloyiannis tells Supply Chain Digital how data and supplier-centricity can act as a foundation for digital transformation in business.

Tell us a bit more about HICX and the main services it provides

HICX is a supplier management solution trusted by some of the world’s largest companies, including Unilever, Mars, Mondelez, Lenovo, Baker Hughes and BAE Systems

We have three main products:

  • SIM (Supplier Information Management): Supplier onboarding and data lifecycle management for all of an enterprise's suppliers across 100% of the supplier base, with no exceptions
  • SXP (Supplier Experience Portal): A unified, intelligent supplier portal with single sign-on that connects supplier-facing systems within an enterprise, providing a single ‘one-stop-shop’ for suppliers to interact
  • HICX Process Orchestration Platform: A no-code platform to orchestrate every supplier workflow across multiple systems, functions and processes, bringing together all aspects of supplier management

How do the digital set-ups businesses use to manage suppliers lead to fraud?

Despite their best efforts, finance leaders are struggling to combat criminals posing as suppliers. This remains a key area of exposure to fraud and one that finance teams could stop by using accurate supplier information. In practice, though, this information is notoriously outdated. 

Ensuring supplier data is always accurate requires the digital environment with which a business manages its suppliers to be transformed. It’s a complex task because of the way this set-up has evolved. Historically, finance has used established tools such as procure-to-pay suites to transact with suppliers. As it happens, these suites also store supplier information are used by procurement to manage suppliers too.

This dual purpose is problematic. Procurement teams need to manage supplier information and automate complex governance workflows at scale, for which suites aren’t designed. So, they become overloaded with inaccurate data. Furthermore, suites don’t integrate well with other tools. So, when a specialist tool is used to engage suppliers, the suite’s data controls are significantly weakened.  

Why has this problem not yet been solved?

To fix the data problem, businesses must reconfigure the digital landscape in which all their suppliers work to reach 100% accuracy in supplier records.

This is seen as a mammoth task, that neither procurement (which is responsible for managing supplier information) nor finance (which needs to manage fraud) is rushing to tackle. So, the situation has persisted for years. 

Fraudsters, like hackers, continuously look for weaknesses to exploit, making it imperative to ensure complete coverage and compliance. Supplier records, therefore, must always be 100% accurate. Any less gives fraudsters a foothold because the teams fighting against them will miss nefarious activities. Will that payment go to a real supplier? Are those bank account changes valid? Do any employees have a relationship with the supplier? 

The digital tools with which teams try to spot fraud are also limited by the accuracy of supplier information, as are advancing technologies in AI, cybersecurity and blockchain. So, the longer businesses wait to address the data problem, the longer they’ll continue to lose money to fraudsters. 

It’s time, therefore, for finance and procurement leaders to team up and transform the supplier-facing tech environment in order to ensure accurate supplier data and stop fraud.

What can leaders do to close gaps in their defences?

As owners of the supplier relationship, procurement teams should lead the transformation, supported closely by finance.

The first consideration in rebuilding the landscape is to prioritise master data. Every relevant supplier detail must be captured at the start of every relationship, and processes added to check and verify all information, including third-party data sources (e.g. validating suppliers’ credentials against their bank details). Treat this as an opportunity to set up structured, controlled, dependable processes.

With a system established for capturing new supplier information, next the resulting data must be protected because fresh entries are likely to change quickly, becoming obsolete. 

There must be no weak spots for fraudsters to exploit, so, at this stage, data governance is important. The next step is adding a process to support data changes, with all the necessary checks and balances – for example, running workflows from purchase requests through to invoice matching, building legitimate communication channels, and establishing robust ways for people to edit supplier data and change invoices. 

The final step is to funnel all data through a single front door and into a golden record. This way, it can be used by a variety of tools and people and remain 100% accurate. This will save much pain down the line and reduce the need for hot fixes like data cleansing. 

Aside from fighting fraud, what other board-level issues can be addressed with good data?

Establishing a golden record makes a higher level of compliance possible. This means expensive teams and tools in a variety of areas can be set up for success. For example, businesses can ensure their ESG reporting is accurate by using reliable supplier data. This means they can plan and budget for a host of related programmes – such as directing supplier spend towards businesses that are 51% diverse-owned and reducing carbon emissions – in order to deliver on public commitments by specific dates. 

Additionally, businesses can ensure operational efficiency when they’re able to see into the supply chain. 

A significant benefit of good supplier data is also that it improves the experience that suppliers have in serving a business because it improves communication and removes friction in the supplier-business relationship. I like to think of this as supplier experience management (SXM). Ultimately, SXM leads to happier suppliers who are willing and able to do better work, and who are more likely to view the business as a 'customer of choice'.  The result is more innovation, better quality and a plethora of other benefits that lead to a stronger competitive advantage.

So, having accurate supplier data is a valuable asset for any business in multiple areas.

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