Shared Service Centers: Reducing Supply Chain Disruptions
Implementing procure-to-pay initiatives can ensure your business can quickly and efficiently adjust and carry on operations in the face of supply chain disruptions.
Shared Service Centers (SSCs) are consolidated groups within a business that deliver back-office services to the rest of the organization. They’re an effective way to optimize cash, rein in costs and keep internal operations efficient.
In many organizations, one area ripe for streamlining through the SSC model is procure-to-pay (P2P)—the process that starts with requisitioning goods and services and ends in payments through accounts payable.
P2P initiatives are especially valuable in the wake of the COVID-19 pandemic, which strained global supply chains. In response to disruptions, businesses find themselves looking for new suppliers, new sourcing locations and new channels of payments.
With an average 6.3-day increase across the cash conversion cycle, corporates are equally focused on optimizing cash, as highlighted in the J.P. Morgan Working Capital Index 2021. Across the S&P 1500, the average days inventory outstanding (DIO) metric increased by 6.1 days between 2019 and 2020 due to a range of factors, such as increased shipping time. The average days payables outstanding (DPO) and days sales outstanding (DSO) metrics increased 2.7 days and 2.8 days, respectively, between 2019 and 2020.
To tackle these issues, an SSC handling P2P services can ensure that businesses can quickly and efficiently adjust and carry on operations.
Here are several ways P2P initiatives through a SSC model can benefit your organization:
- Transactional data and actionable insights: Housing P2P functions within an SSC gives your organization more data in one place rather than spread across several business silos. You’ll gain the ability to perform end-to-end spend analyses, combining your suppliers’ master data with demand-planning information from purchase orders and payment data from invoices. Using this information, the SSC can propose opportunities to optimize spending and give sourcing teams strategies to diversify suppliers. By documenting the payment terms, including for Tier 2 and Tier 3 suppliers further down the supply chain—and utilizing the right payment strategy for each type of spend—your organization can minimize supply disruptions and reduce the impact to the cash conversion cycle.
- Quick, seamless supplier onboarding: Consider a scenario where you’ve found new suppliers—but nothing’s getting supplied until you collect their information and integrate them into your systems. What used to take a week could now be completed in a day. A cloud-based onboarding experience through the SSC can allow for real-time buyer-supplier collaboration to capture critical details, ensuring the new supplier is system-ready on day one, and without compromising third-party risk management processes, compliance checks or enterprise resource planning (ERP) data maintenance.
- Earlier payments, lower cost of goods: Businesses are often willing to offer discounts on goods if payments arrive early. Implementing an accounts-payable process around electronic invoices means payments can happen sooner and ultimately reduce the cost of goods sold (COGS). An SSC can give sourcing buyers at your organization more flexibility to negotiate for better pricing of goods by proactively maintaining the discount payment terms for different suppliers, as well as supply chain financing capabilities.
- Payments from anywhere: Setting up bank accounts in new countries takes time that can add to the onboarding process for new suppliers. To avoid delays, SSCs can take advantage of cross-border treasury products so that payments will be seamless regardless of whether your organization has a bank account in-country. An effective SSC setup will identify options to enable paying domestic suppliers from designated treasury locations.
The journey toward a resilient supply chain buying strategy continues to evolve as the globe adapts to supply chain disruptions. Lean on your long-term banking relationship to help you and your SSCs create a holistic resiliency plan.