Supply chain disruption means manufacturers 'must adapt'

Spend management specialists Payhawk on why manufacturers must adapt their financial systems to cope with supply chain disruption

Supply chain disruption is one of the top fears among retail and consumer packaged goods (CPG) executives, research shows.

The joint study – from professional services firm Genpact and research organisation HFS – reveals that companies can't keep pace with supply challenges, with just 22% feeling they have successfully modernised order-management operations.

The research also highlights the need for organisations to transform supply chain processes and operations to meet ever-evolving consumer needs. 

Pandemic-fuelled supply chain disruption is something that 70% of retail and CPG executives are still struggling to cope with, the study shows, with inflation and cybersecurity being among the other top concerns.

A Boston Consulting Group (BCG) study, meanwhile, suggests just 10% of companies are truly prepared for supply chain disruptions

The study found that, of 150 companies, just a tenth are able to anticipate and recover from a crisis in the short term and be resilient in the middle- and long-term. 

Most of the remaining 90% are simply reacting to crises as they occur, BCG says.

BCH says nearly all companies “must increase their investments in capabilities that enhance their resilience”, and adds “organisations that invest significantly can create a potent source of competitive advantage”.

Among the risks companies are failing to plan for include disruptions in their own plants, interruptions in supply from vendors, and external risks, such as geopolitical events and natural disasters.

According to Hristo Borisov, CEO and Co-founder of Payhawk, there are a number of optimisations that manufacturing companies can consider to manage these times of turmoil.

“At all times, the main goal for manufacturers is maintaining your margin. The majority of manufacturing businesses work to tight margins at high volume, where a 1% difference in cost can completely erode profit,” Borisov says.  

In a high inflation economy - especially with B2C products - the domestic demand is often lacking, therefore cost control and spend visibility becomes key because pricing is naturally subdued. Generic spend control becomes even more important, whether that’s across subsidiaries, subscriptions or recurring costs.

Borisov says that to try and avoid the worst effects of inflation (particularly if your goods are being sold by resellers and retailers) it’s important to make sure that pricing is linked to inflation in your contracts. 

“A lot of the focus is going to be on keeping costs low, rather than big price increases,” he says. “Obviously, flexibility of the supply chain is important to be able to negotiate discounts. The focus should be on balance - being flexible to get the lowest cost whilst maintaining quality.”

Fintech gives supply chain spending insight

In the current market, companies are spending more on tech and software which frequently comes with subscription based models. The controls and governance needed for their management is very different from when manufacturers initially built their systems. 

“In the past, it meant managing credit limits, compliance of the supplier, supply chain, deliverables, service-level agreements (SLAs),” says Borisov. “However, now all these very common management of supplier techniques don’t work so well for subscriptions because the risks are so different. In subscriptions, the risks lie in duplicates, particularly in relation to bulk-buying and cost creep.”

Bulk buying is very typical in manufacturing, to achieve a lower unit cost. This can be done with subscriptions too - if a manufacturer identifies all the licences across the company, they can negotiate one global licence. 

“But you first need to have visibility over all the costs, which is something that a lot of companies don’t have,” says Borisov. 

The other risk is cost creep. Subscription models often go up in price - year one might have an introductory offer, then in year two the price goes up. Therefore Borisov says that it is essential to have visibility over time and usage data on how the subscription is being used. 

“It’s a very different type of control and governance than a lot of manufacturing companies are used to, but this is where additional technology can be used to gain a great understanding of spending.”

Although investing in technology can be expensive, it may be more cost-effective than additional staffing because of the associated salary or wage costs in a high inflationary market. Updating financial systems and continuing to invest in tech could also save costs in the long run. 

“Looking ahead, there’s also a huge potential for benefitting from automation across the finance function, using AI to automate manual processes,” says Borisov. “Not to say that this removes the need for accounting staff because ultimately, the goal should be to upskill staff by investing in training so that they can focus on value-add activities. Right now there are a lot of people doing transactional work, because there are a lot of transactions in manufacturing.” 

Borisov knows that by automating these processes, manufacturing staff can be better employed in analysing information and communicating data to stakeholders, to be able to make better business decisions. 

“Automation yields the opportunity for people to take on more value-add activities, which ultimately drive further efficiency and commercial growth.”

Technology helps CSCOs prioritise spending

Across manufacturing, inventory management systems are often linked into an ERP (enterprise resource planning), the fundamental pieces of software that drive the business management. Ultimately the process of managing inventory varies from sector to sector, depending on what type of inventory you have, but the challenge that some ERP systems have is that they don’t necessarily have in-built, user-friendly ways to support spend management before any expenses hit accounting

“There are many modern spend management solutions (including cards, spend control, categorisation, and automatic data capture) on the market, which if they integrate well with an ERP, enable the user to create business expenses and reconcile them seamlessly in real time. Open APIs offer greater synergy and opportunity for connecting systems, and a company can benefit from more latitude and flexibility in the technology stack. The process remains fundamentally the same, but what changes is how people interact with it, giving the day-to-day finance manager an easier experience,” explains Borisov. 

This seamless, connected view over spend is a generational change which not many systems can achieve on their own. By adopting software with an easier user-experience, the finance team will spend less time chasing expenses and manually reconciling, and more time doing strategic work, like forecasting or stakeholder engagement.

“This can also have a huge effect on  employee turnover - a fulfilled staff member who feels like their day-to-day work has real impact and avoids the stresses of manual chasing is far more likely to stay in post.”

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