The role of procurement in mitigating risk and driving value in financial service

  • Alex Saric, CMO at Ivalua

  • 28.03.2018 10:15 am
  • risk management , Risk Mitigating , financial services

Operating in the financial services industry is tough. It’s one of the most competitive, cut-throat and profitable industries on the planet, and organisations are driven by the pressure to maximise profits and reduce costs. However, rising competition, coupled with the constant flux of the regulatory environment and the subsequent risk this presents, is hindering organisations from achieving this.

In 2018, the role of procurement within financial services is set to be more important than ever as organisations look to increase value through the management of supplier performance, compliance and risk.

Since the financial crash, the industry has undergone tremendous change, with a series of reforms rolled out to make sure the crisis will never be repeated. This upheaval has reshaped the global financial industry and changed the way in which financial institutions and suppliers operate.

The regulations keep coming too. Basel III, for example, is not yet fully implemented yet Basel IV is already being planned. This is just one example of new regulation financial services organisations must be ready to comply with, no matter the timing, scope or impact.

The risk for organisations and suppliers that fail to comply with such regulations are sizeable fines and considerable damage to corporate reputation. As such, procurement teams must take a risk-reward approach of supplier evaluation, in the knowledge that the smallest supply risk event can negatively impact profitability and draw scrutiny from regulators. Despite this, procurement must continue to source suppliers that offer differentiated products and services and competitive costs that provide a competitive advantage.

Heavily scrutinised financial services firms are facing higher levels of regulation, competition and risk, and are relying on procurement teams to help manage these factors. Here are three ways procurement can ensure it is supporting financial services organisations and adding value.

Maintaining business and procurement agility

The level of competition within the financial services industry has been increased by the threat of new entrants to the market and disruptive technologies. Because of this, agility has become a driving principle in the financial services industry, and procurement plays a key role in ensuring the enterprise can react quickly and decisively to the changing industry landscape.

Procurement teams are at the leading edge of market innovation due to their close working relationship with suppliers, and therefore can collaborate with internal and external stakeholders to keep the business agile and ready to adapt.

Procurement agility takes many forms, but at its heart, it requires the right technology, skills, supplier management strategy and internal/external collaboration. All must be flexible to adjust to new or evolving requirements. Procurement teams with the ability to manage and optimise the supply base - collecting suppliers on one system - can develop a 360-degree view into supplier information, capabilities, risk and performance. This will allow financial services organisations to remain agile and stay competitive, allowing them to work with the right suppliers to innovate and thrive in the long-term.

Using the right tools well

The agility outlined above can only be enabled with the right tools. Luckily, financial services firms benefit from higher than average profit margins, supporting greater investment in supply management and procurement technology. This means procurement teams in the financial services industry are leaders when it comes to the adoption of technology.

Having the right tools enables procurement teams to better capture, analyse and cope with the huge amounts of business-critical internal and third-party data. This allows a greater emphasis on core process, whilst having centralised management over them. By modelling and managing core procurement and sourcing processes on a single tool, organisations benefit from having a common set of data standards. Finding the right technology is vital in achieving total visibility of all spending and supplier performance insights. Key is not just providing leading capabilities that can be deployed rapidly, but also the flexibility to adjust processes to align with new requirements. This in turn can help to improve operational efficiencies, helping to maximise profit margins.

Risk vs reward

Having the right tools in place to organise procurement policies and processes in one place is important for success, but it’s also important for the management of risk.

The need to ensure regulatory compliance has resulted in a much greater emphasis on supplier performance and risk mitigation. Procurement teams in financial services face a much higher bar when it comes to working with suppliers, due to the scrutiny placed on risk and compliance in the industry. The level of regulation in the financial services industry means there is pressure on procurement from executive teams and other business stakeholders, who are more engaged in supplier management than in other industries, to minimise risk. This means procurement must be highly collaborative with business stakeholders.

Gaining visibility and control over supplier and third-party risk can be challenging for any enterprise, even those with fully dedicated risk-management teams. Procurement technology provides financial services organisations with robust tools to gain visibility into supplier operations and risk, helping to build a true picture of what is really going on in the supply chain. These tools provide collaborative data management features, allowing internal stakeholders to collate and centralise supplier information from across the enterprise and share insights with senior leadership. It also provides a platform which suppliers can work with to upload and update information. This includes providing certification information, financial disclosures, remittance and contract details, products, services and other information necessary for the calculation of risk factors.

Having all this information in one place allows financial services organisations to proactively track and manage risk along the supply chain. Being able to build and track progress of improvements plans when gaps are found internally or with suppliers, ensures compliance and auditability of efforts to address gaps.

Procurement is a true value-add for financial services

The value that procurement brings to financial services is clear to see. In a volatile and competitive industry, procurement teams ensure organisations face up to increasing levels of competition, manage regulatory change and tackle risk, whilst also helping to maximise profit margins.

The procurement team’s performance, as well as that of their suppliers, can have a huge impact on revenue and profitability. As a result, procurement is facing increased levels of scrutiny regarding supplier performance and risk. But this scrutiny means that financial services organisations know the importance of the procurement function when it comes to adding value, helping to maximise profits and reduce costs.

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