Financial services procurement is not just about cost

Fuller and earlier supply chain management is key to moving Procurement beyond mere cost reduction and towards greater customer and business engagement.

It’s vital that Procurement is recognised as creating actual business value. Yet getting the Procurement model right is often a story of gradual evolution.

Procurement in financial services used to be much more about function than business value. But for many financial institutions, the Procurement model has evolved to be much more around customer and business engagement than merely cost reduction. 

Supply chain management now comes in earlier and stays longer. It is the ‘end-to-end’ model seen in many mature organisations.

Greater leverage

Procurement is the one department that can look internally at everything, but it’s also a key link to the outside world through management of suppliers. By leveraging that position, Procurement can drive earlier engagement with the business and signpost a route towards innovation though, of course, the cost agenda is never far away.

Procurement is now learning from other industries that the business’s customer is actually the end customer, not the internal client along the way. There’s been a quantum leap in levels of insight among Procurement teams – gone are the days when Procurement was full of people unfamiliar with life at the customer coal face. 

However, the way banks’ services are delivered to customers is changing fast, which presents a set of new challenges. In the past Procurement could be criticised for being a brake pedal but now we have to be on the front foot, driving the conversation about how to facilitate innovation and development. 

Modern Procurement needs to constantly understand and monitor the landscape and ask tough questions as to whether we are facilitating or stifling innovation. 

Very few companies have any product or service that is not heavily reliant on third parties to produce it – whether in design, manufacture or delivery. It’s vital to understand fully how to engage with suppliers. 

From a supplier relationship management (SRM) perspective, we need to ask whether we are covering off all the right routes to value and using contract management and performance management correctly to drive innovation.

Mapping supply chains

The next stage of this development is to ensure companies have a full understanding of their second- and third-tier supply chain. 

Whether driven by regulation or as a reaction to public events, the customer expects the name above the door to know what’s going on in the name of that organisation and to take full responsibility for it. But this doesn’t come easy, particularly when it comes to dealing with the regulatory burden.

Regulation is not going away. If anything, compliance will become more difficult, as we have to integrate regulations (and product offerings) from multiple jurisdictions. The right way to address these issues is through collaboration. Many areas of regulation are right for collaboration and simplification across the sector. 

Contemporary Procurement has truly come of age as a peer of the business, which can continue if Procurement builds on its existing proven successes.

Despite all these changes, some things stay the same. Procurement must always deliver value and take out cost – the cost agenda is never going away. The customer must always be at the heart of strategy and companies need to work in collaboration with their suppliers to take an end-to-end view of value and the supply chain.