CLOSED LOOP SPEND MANAGEMENT, THE KEY TO BALANCING THE NEED FOR IMMEDIATE PROFITABILITY WITH SUSTAINABLE GROWTH

Yashwin Bhoola, Senior Manager Strategy at Accenture in Africa

Johannesburg – The current burning business question being asked is how to curb organisational costs, balancing the need for immediate profitability and sustainable growth. This was top of the agenda in the recent engagement by business leaders from the Middle East, Latin America and Africa during a virtual Supply Chain Leaders Circle event hosted by Accenture.

In response to the current market challenges supply chain executives are expected to fulfil a fundamentally more strategic role across their organisations, pushing the envelope in search of new ways of working that unlocks traditional value levers for both business and society, whilst being mindful of the impact on natural and other resources.

Supported by statistics and case studies, a critical takeout from this Supply Chain Leaders Circle was that closed loop spend management (CLSM) can enable supply chain executives to generate up to four times more value than that of the average industry player, while enabling an agile, resilient business that will not only survive these challenging economic times, but continue to thrive beyond.

The supply chain executive of the future

Supply chain executives are no longer viewed as procurement specialists, but as architects who build resilient businesses, based on three key pillars:

1. New value

To unlock new value, supply chain executives must have a comprehensive understanding of every single area of the business operations to firstly question the consumption (can we use less) and specification (are these specifications really necessary) of products and services and to secondly explore new, innovative approaches to drive down costs in each area. Supply chain executives can leverage deep insights around spending patterns, already available to them, to support and enable better business decision making. During this event, one of the supply chain leaders pointed out that leveraging artificial intelligence (AI) and the Internet of Things (IoT) has enabled their business to monitor, manage and optimise their fleet 24/7, significantly reducing their fuel and fleet consumable costs. 

2. New ways of working

Supply chain leaders are focusing on achieving greater organisational agility, by using variable cost structures that are aligned with the return on cost of their supply chain teams. They are also evolving their traditional ‘waterfall-like’ supply chain and procurement processes to adopt new ways of working that are centred around value rather than volume. Leaders are structuring themselves around value releases to their organisation, typically achieved by running sprints over three-month intervals. Automation and digital analytics prove to be critical enablers to embed such a value-centred culture and empower teams with data-driven insights to inform the optimal utilisation of their capacity and capability.

3. Responsible sourcing

In South Africa, the current economic decline has exasperated the unemployment rate and widened social inequality exponentially. For this reason, responsible procurement is top-of-mind for supply chain executives, and leaders are pursuing new ways of driving localisation and inclusiveness as they face greater scrutiny from customers and consumers. The South African mining industry is for example embracing the new regulations by accelerating their localisation drive with the aim to unlock an additional R120 billion for the local economy, over the next five years. Both locally and globally, business leaders are also questioning the impact of their supply chains on their environment and taking a more hands-on approach, working with their supply chain executives and suppliers to pursue new ways to reduce their carbon footprint and eliminate waste.

How to implement CLSM and achieve quick wins

Accenture has developed a CLSM framework to help supply chain executives bring together the focus on new value, new ways of working and responsible supply chain. CLSM has three building blocks; namely an intelligent operating model, variable operating costs and implementation of living architecture.

In short, an intelligent operating model involves the right work and right size, autonomous and lean processes, a human + machine workforce and ongoing development and sourcing of future talent.

Variable operating costs speak to shared resources, right-sourcing and a liquid workforce.

The implementation of living architecture looks at the right source-to-pay (S2P) platform for standard processes, data and analytics for real-time decision-making, connected apps for digital supply chain and procurement capabilities and an ecosystem collaboration for innovation.

This CLSM approach can typically be implemented through six steps, which can be summarised as follows:

  1. Visibility on steroids: Create a baseline for spend, organisational size and sustainability with extensive price, consumption and operational benchmarks and assess the current digital landscape.
  2. Accelerated value targeting: Leverage digital assets to accelerate identification of initiatives across cost of goods sold (COGS), selling, general and administrative expenses (SG&As), capital expenditure (CAPEX), operating costs and responsibility trade-offs and impacts.
  3. Intervention ownership: Create accountability across executive leadership for CLSM interventions and full cost and responsibility implications.
  4. Lock value in budgets: Lock savings into budgets and define future state budgeting process and new ways of working.
  5. Execute and transform with agility: Implement quick wins followed by spend management initiatives in a sprint-based fashion. Transform into an agile and resilient organisation with variable cost base enabled by a living architecture, new ways of working and intelligent automation.
  6. Control and monitoring: Implement robust reporting to ensure both business and societal value and opportunities identified are delivered.

In these times where business leaders have exhausted all avenues to reduce organisational spend, CLSM brings a proven solution to the table. However, it is important to note that for any CLSM programme to be rolled out successfully, it must be supported and driven by three main components; namely a sprint-based execution, an intelligent CLSM platform and finally, a dedicated change management strategy to create the necessary paradigm shift in the business culture to sustain value and responsible sourcing and ensure continuous talent development.

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