Technology’s Co-Starring Role in Supply Chain Transformation

In the final article of this three-part series taking a working capital perspective on some of the foremost issues of the day, experts from SAP-owned fintech, Taulia – Blake Evans, Head of Sales for Americas, Alexander Mutter, Managing Director EMEA, and Steve Scott, Head of Sales APAC – explore how companies can best use technology to drive supply chain and working capital management towards new efficiencies.

For participants in the world’s supply chain ecosystems, a wake-up call has been sounding over the past couple of years. It’s been forcing recognition that global business has for too long been running on antiquated and disconnected systems, and signalling that these are now barely fit for purpose.

Blake Evans
Head of Sales for Americas, Taulia

Acceptance that digitalisation is essential if trade ecosystems are to survive, let alone thrive, gained a lot of ground during the Covid-19 pandemic. Lockdown events around the world demonstrated the fragility of legacy-run supply chains as shipping and logistics connections were disrupted, and production activities were cut back or halted.

But less obvious to a world waiting for its goods to arrive were the legions of employees, across a range of functions, who were unable to gain ready access to the data needed to maintain trade flows. In particular, notes Evans, the “lack of visibility and transparency over supply chain movements and costs” caused by legacy-system inflexibility has hindered vital decision-making processes, heaping undue pressure on commercial relationships.

Alexander Mutter
Managing Director EMEA, Taulia

Access to data is often suboptimal within trade ecosystems and should alone be sufficient motivation to find a new solution. As Scott notes: “If you can’t measure the situation, you can’t do anything about it.” But the ability to consume the right data at the right time to be able to make strategic decisions indicates that digitalisation is now equally critical to the support of trade flows.

For global trade participants, manual collection of data that is paper-based or held in locally siloed systems is becoming both an anchor on progress and a significant risk. At any moment, a business may need to pivot sharply, says Scott. Indeed, the pandemic, the energy crisis, rising inflation and interest rates (and the potential for SMEs to face greater difficulty accessing liquidity) need rapid responses. “You can’t respond in three months’ time to something that needs action now. The only way a business can see what’s happening now is by measuring the changes in real time.”

Steve Scott
Head of Sales APAC, Taulia

With treasury currently taking responsibility for a remit that expands well beyond daily cash management, pushing into the realms of, for example, ESG, Mutter believes that it is increasingly important to access data in real time. This should be possible not just within the enterprise but also across the entire trading ecosystem. “Treasury has to be agile; it has to have all the data available to make the right decisions, often in a short time frame,” he explains. “The wider adoption of real time should now be a given because in an increasingly volatile world, successful trading ecosystems come only from having full data visibility and traceability, and that means having the tools to inform and take immediate action.”

Buy-in

If ecosystem-wide data is a vital component of survival, and the optimal state for data acquisition, processing and analysis is real time, then spreadsheet proliferation and the persistence of isolated systems are a problem to be resolved sooner rather than later. “Part of the issue holding companies back is inertia,” suggests Evans.

With many administrative functions preferring to maintain a “steady state”, he says continuing with legacy applications and platforms is seemingly the easy option. “People become comfortable with how these systems work, and are reluctant to let them go, many seeing them as valuable workhorses,” he notes. But, Mutter adds, “change is often equated with unnecessary risk”.

It has not helped that banking platforms are “generally antiquated and often not fully able to support the real-time flow of information”, continues Evans. While he acknowledges that the more forward-looking institutions – including some tier-one banks – have been busy investing and partnering with the fintech and vendor community to deliver the latest digital tools to their corporate clients, he sees the laggards still fighting with their mainframes, to the detriment of their clients’ progress.

“But the more we see through the pandemic and all the other macroeconomic impacts the world is currently facing, the more businesses will understand that they must move quicker now,” says Evans. “This is beginning to drive the desire to invest and create more digital connectivity in functions such as finance, treasury, and procurement.”

Where fear of change is holding back progress, Mutter advises that strong change management will be necessary. “It’s not just about presenting a grand vision and some buzzwords. It’s also about communication and explanation to secure buy-in,” he states. “Start by ensuring every stakeholder – from teams to individuals – can understand the real value to them of what’s being proposed, and what the risks are to them of not advancing. From the start, it needs the right tone from the top.”

For some business leaders, there may be a growing awareness that they should have taken this path sooner, as now they are having to be more reactive. The urgency with which the pandemic forced new ways of working, for example, is driving many more businesses to consider the limited, and limiting, value of systems they have held on to for too long. The difficulty faced by many businesses under lockdown rules of using something as simple but essential as a traditional wet signature underscores this point.

Having been forced to resolve such issues, the benefits of digitalisation to those that have already taken this pathway were obvious, Scott believes. For them, digitalisation is no longer seen as a short-term fix but “as part of a longer-term vision of high efficiency and performance”. However, while tech-inertia has been overcome by many, he believes that part of the confusion for those yet to digitalise is what to do first within such a broad area of exploration. Undertaking an honest review of the most pressing issues is, he states, now vital for survival.

Indeed, the pandemic gave businesses a beneficial lesson on the importance of supply chain resilience. The general public was watching closely, experiencing failures first hand. With shops and supermarkets in certain countries running out of some of the basic necessities – toilet paper being a classic example – it would be unwise for any business to take its supply chain efficiency for granted.

Business case

The pandemic significantly raised the profile of supply chain management. As those concerned realised that digitalisation should be among their priorities, building a compelling function-specific business case has been the order of the day. But there is stiff competition for funding.

Over the years, corporate financial systems often proliferate. It’s common for a large and acquisitive organisation to be running multiple instances of an ERP across several regions. Prioritising supply chain digitalisation over core system aggregation is unlikely.

“This is why Taulia’s focus is now on the entire AP process,” comments Scott. “We know that once a business has visibility and transparency over its supply chain movements, and can make data-informed strategic decisions, it can support its trading whole ecosystem.” He believes that this “inclusive approach” to supply chain and working capital management helps build a stronger business case for a digitalisation programme.

For Mutter, it’s important to create a detailed business case that explores not only the required expenditures but also how and when return on investment will be generated. As an example, he says Taulia can completely digitise communication between buyers and suppliers. “With procurement and finance employees more focused on value-adding tasks, platform set-up and running costs can often be repaid within the first 12 months”.

In addition to a strong business case, a compelling use case is also important, adds Mutter. Manual processes harbour many hidden costs, including those generated by inefficiency and repeated mistakes, he explains. “But in this industry, there is a lot of insight already available on digitalisation programmes. Learning from others, especially those who have faced similar circumstances, enables companies to adopt best practice and create realistic performance benchmarks.”

Starring role

By investing deeply in digitalisation, it can be argued that a business will be better positioned to become a leader not a follower when the latest technologies take yet another step forward. “It can enable a company to deliver a whole raft of new customer services and experiences that their competitors can’t,” suggests Evans. Indeed, he adds: “The days of standing by an old platform and hoping that it will keep you afloat are gone. You have to invest and move forward to be able to adapt and remain competitive.”

However, the shift to a digital environment is rarely a matter of plugging in the latest technologies and waiting for miraculous results. Creating an efficient supply chain, being able to track inventories and understand events in payables and receivables, and having full visibility over working capital positions is an achievable goal, states Evans. “But while tools such as AI can provide quicker and deeper visibility into supply chains, facilitating the most cost-effective and timely decision-making, businesses first need the data to make that happen.”

Automation is already used widely in physical supply chains, particularly in sourcing, manufacturing and delivery, notes Mutter. This generates a lot of digitally available data where new technologies such as blockchain can play an enhancing role in further streamlining processes. A notable use case here is the smart contract, which automatically progresses supply chain events, based on contracted terms such as meeting an agreed manufacturing or shipping date.

By using such tools, full visibility and control across physical supply chain processes has a positive financial supply chain impact. It not only helps trigger financial supply chain events such as the release of payment or financing options, but it also enables the management of inventory levels with greater accuracy, and thus spend, which in turn enables the treasury to finely tune its understanding of working capital flows.

Automation and digitalisation create the huge volume of data that is needed to optimise processes, from manufacturing and inventory management, to payments and collections. “On the purchase-to-pay side, integrating that data into an ERP creates a single source of truth that can be made available to a working capital platform such as Taulia,” says Mutter. This information can then be shared enterprise-wide.

But by integrating with Taulia, it also means supplier access to selected data, such as approved invoice files, is enabled as well, facilitating real-time supplier self-service. This, for instance, enables suppliers to query deductions, see when credit notes are issued, or make their own decisions on taking early payment. As Mutter says: “Having all this information on one platform completely streamlines the operational process and generates significant financial value.”

The aim is to give clients a cost-efficient supply chain. This, explains Scott, translates into providing the tools for treasury to boost returns on their underused cash, enabling suppliers to be financed at a cheaper rate than they can get on their own, and delivering working capital to those that don’t have it. “And it’s only by accessing the data that underpins these activities that it’s possible for businesses to adopt a more proactive approach to working capital and supply chain management.”

Equal billing

While adoption of the latest technologies is dependent on and will be steered by individual company priorities, the objective to automate processes end-to-end is gaining urgency, notes Mutter. “Each break in the process disrupts the entire chain of events.”

But even with real-time data and the latest tools to hand, there is one component that can never be replaced. Evans sums it up when he says the final decision still needs to be made “based on what the treasurer knows and sees from a commercial reality”.

Indeed, with global economics and geopolitics changing rapidly as 2022 unfolds, historical results would have been misleading. It seems that the traditional caveat issued to investors – past performance is no guarantee of future results – also now holds true for working capital decisions.

As businesses assess their upgrade priorities and begin progressing towards the digitalisation of their supply chain and working capital processes, it’s clear that the right data, tools, experience and knowledge must share equal billing.