Keith Hausmann , Chief Customer Officer at Globality, the autonomous sourcing platform used by leading companies including Santander and BT
Regulatory and cost pressures make adopting new technology to reduce OPEX and drive savings a priority for financial services firms, says autonomous sourcing expert Keith Hausmann
The vast majority of a financial services company’s spend is not direct, but rather indirect.
A car maker buys widgets and assembles cars. A bank or investment house doesn’t have this type of physical supply chain, however, and instead of spending money on parts, a huge portion is spent on IT and telecom, marketing and legal, to PR and recruiting.
A big part of that is risk and regulatory compliance, which financial firms need to be on top of for AML/anti-money laundering, data protection and privacy reasons. So how, in the tough economic conditions we are experiencing, do financial firms gain pricing and expenditure gains?
The most effective and, as yet, untapped way for CFOs to do this is by looking hard at their indirect spend—an area that is ripe for optimisation, using new technology to improve efficiencies, and reduce costs and Operating Expenses (OPEX).
To date, this has not happened with the exactitude that it should have done, despite indirect spending being a huge focus for the sector and typically making up 20% to 40% of annual revenues at a Global 2000 banking or financial services company – translating into costs amounting to billions of dollars.
Despite this, many organisations mistakenly assume that they have their indirect spend under control, whereas the actual situation is often very different. Most financial services companies spend significant money on their technology, on marketing, their people and facilities costs, and legal and consulting support without fully appreciating the complete picture when it comes to how they are managed. Purchases such as these are often complex and bespoke, something that you have to define every time that you’re contracting for any of these types of needs.
And the mere existence of a signed-off purchase order does not guarantee that the spend is optimised either. Very little indirect spend is ever genuinely managed through a fair and inclusive sourcing process. In a recent survey of global procurement leaders we carried out, only a quarter of respondents had a transparent, competitive buying model for their indirect spend, leaving substantial cost savings on the table.
AI and machine learning will bridge the gap between theoretical and tangible results
The lack of proper tracking and accounting of savings can make it difficult to accurately measure the impact of procurement initiatives and to demonstrate the value they bring to the organisation. Even under a scenario where budgets are cut proactively, that is rarely followed through with procurement efforts to ensure the remaining budgets are stretched and utilised optimally.
Change is coming, at last, though. Accenture is talking about closed loop spend management, which seeks to optimise the entire spend cycle from sourcing and purchasing to payment and analysis. There is growing interest in zero-based budgeting (ZBB), a method of budgeting in which all expenses must be justified for each new period, which promises to help companies make informed decisions about their spending.
All these are great starting points, and new ways to reframe your thinking on indirect spend. But it’s really incorporating AI and machine learning into a seamless, autonomous sourcing process that can help bridge the gap between these theoretical benefits and the tangible savings and efficiencies you want to realise.
Santander Bank has done just this, transforming its procurement function by introducing new self-serve sourcing technology to drive efficiency throughout the organisation, while maintaining strict regulatory compliance and risk management. The increased agility means its procurement teams can focus more strategic aspects of their role while technology instantly matches business users with the best supplier for every project. As a result, more than €3 billion of spend was placed on its autonomous sourcing platform last year, delivering average cost savings of 15% and 20x ROI.
Adopting such AI-powered autonomous sourcing technologies will help you analyse huge amounts of data to identify patterns and trends that would be difficult to detect manually—and so give you an intuitive way of managing and optimising this substantial, but often overlooked, area of your outgoings.
In times of economic uncertainty, the ability to reduce costs and OPEX, and improve supplier performance is critical for ensuring business resilience and stability. In banking, they say you should never be left standing when the music stops. Optimising your indirect spend is the way to always secure a seat.
