Lack of visibility into enterprise-wide spend due to multiple different business units and associated accounts payable systems
No centralized repository to store and retrieve all contracts
Multiple contracts with the same vendor or its subsidiaries, leading to inefficiencies as aggregate purchasing power is not being fully leveraged
No standard process to engage suppliers and monitor performance through specific SLAs and KPIs
Vulnerability to third-party risks including cyber, digital, reputational, and compliance as outsourcing operations to third party suppliers requires sharing of sensitive business and customer information
Lack of critical procurement resources like market intelligence, pricing benchmarks, RFP templates and negotiation toolkits
Third-party vendors are tightly integrated into core business processes which can make switching vendors difficult
Business unit stakeholders driving procurement conversations with suppliers leading to inherent biases and skills mismatch
Valorant recommends the following steps that any bank needs to take to start building an industry leading Procurement function
1) Get Enterprise-Wide Spend Visibility: Through a spend analysis exercise, the third-party spend data is collected, cleansed, enriched, categorized and finally analyzed with a company-wide perspective to enable identification of strategic cost reduction initiatives. Our proprietary spend taxonomy developed over years of experience in key banks’ categories helps organize your data to reveal critical business insights.
2) Systematic Collaboration between Procurement & Business Teams: Procurement must take a proactive approach in developing a clear understanding of the business’s strategies, goals and plans. At the same time, the business must appreciate the role that procurement can play in driving its objectives. The business should include Procurement in key meetings relating to budgets, vendor management and upcoming projects.
3) Establish a Supplier Relationship Management (SRM) Program: Banks need to fundamentally alter their approach of working with third-party vendors. An effective SRM program identifies strategic & non-strategic vendors and creates a suitable engagement plan for both the groups. Monitoring performance through specific SLAs & KPIs and incentivizing top performers is a proven approach to transform supplier relationships from transactional to strategic.
4) Third-Party Risk Management (TPRM): Banks should set up a comprehensive TPRM program which extends beyond initial vetting of third parties during on-boarding. Throughout the supplier engagement lifecycle, suppliers should be monitored based on a predefined governance structure (with a clearly defined risk approach and model) and clear policies around stakeholder responsibilities.
An effective Procurement program can empower banks to identify and deliver savings opportunities across business unit boundaries. As Procurement at banks evolves from a transactional function to a strategic value-creator, it will not only drive operational cost savings, but also preserve the bank’s overall reputation and help increase customer satisfaction.
A detailed analysis of key industry trends for the banking sector and what to expect in 2020 from a procurement perspective