GUILDFORD, England, November 17 /PRNewswire/ -- The relationship between businesses and suppliers is hanging in the balance as cost cutting options narrow, according to a new piece of research released today by Basware and leading academic Adrian Done of the IESE business school. The analysis shows Chief Financial Officers and Chief Procurement Officers of large organisations struggling despite reports of economies beginning to lift out of recession as they continue to apply existing approaches in cost control to tackle the ongoing demands of a tough economic climate.
Following a study of CFOs conducted in June 2009 that showed only 28% of businesses associate financial risk with procurement, today's published report provides compelling insight into how large organisations are struggling with risk evaluation and cost control. Cost control and reduction has become 'the new normal' going into 2010, with the urgency for reactive cost cutting measures continuing to supersede longer term investment driven directives. The report also identifies a growing trend for increased levels of finance and procurement collaboration as well as transparency amongst businesses seeking to overcome finance and purchasing challenges. Key findings include:
- Risk not reward - While the majority of respondents are aware of the instability caused by constant cost cutting efforts on the supply chain, they are struggling to find another way to meet their business goals. Organisations are also focusing on discrete risk while failing to address the more likely and potentially disastrous scenario of sequential risk in the supply chain. - CFO / CPO tensions - Departmental tensions between finance and procurement are common, though the absence of good relations is lamented by both CFOs and CPO respondents. The lack of collaboration between these groups pose clear risks as spend visibility is vital, however both finance and procurement professions see benefits in improving relations. There is a clear emerging trend towards using technology as a way of overcoming operational challenges and harmonising 'buyers' and 'payers' within the business. - Automation needs - The need for urgent tangible cost savings place automation of finance processes at the forefront of business IT needs. The report shows that procurement is more likely to make an impact on commercial goals if high levels of automation and integration are applied in tandem. - Neutral outlook, open future - Views taken on the state of the economy show there is little confidence moving into 2010. Organisations less impacted by the downturn treat the climate as 'business as usual', while those companies that have been more challenged say they see no green shoots. The study also shows that a tight and embattled commercial environment is driving large businesses to seek support from peers and the wider market in order to resolve the challenges of supplier stability, cost control and future environmental and financial legislation pressures.
Commenting on the report, Professor Adrian Done, IESE, Barcelona said: Businesses are looking for 'tsunami' events in the supply chain but failing to keep track of the 'soil erosion' that takes place day-to-day. This mentality is a big disruption as decision makers fail to see the sequential risks of suppliers struggling to meet demands, whilst obsessing about discrete insolvency episodes and their impact on short-term operations.
Basware's Paul Cowley said: As cost reduction and control becomes the 'new normal', automation will continue to be a key component of realising cost savings via operational changes. However, when headcount reductions and unit cost savings are harder to realise, businesses must turn their attention to address more systemic inefficiencies. Organisations that will thrive going forward will be those that lift themselves out of purely reactive cost cutting directives and begin to think more strategically, adding a more systemic approach to address supply chain risk.
To help tackle the challenges identified in The Cost of Control: The Real Price of Cost Cutting, Basware recommends a three point plan for CFOs and CPOs alike:
- As cost cutting options narrow, Finance and Procurement must utilise each department's expertise to find a way forward. CFOs need the knowledge residing in the realm of the CPO to fully grasp the issues involved, and likewise, CPOs will need to take a more active part in formulating corporate strategy and be more innovative in its execution across the supply chain. - It is imperative that organisations push levels of spend visibility, cost transparency and general openness to unprecedented levels in order to unleash significant new areas of cost savings. Only once an organisation has 100% spend visibility - both direct and indirect - can they make informed and effective financial decisions. - Develop integrated and collaborative relationships with 1st and 2nd tier suppliers to better evaluate and control risk in the supply chain. Fostering closer relationships with preferred suppliers will enable an organisation to tap into supplier expertise to identify the source of potential threats.
---------------------------------  The Cost of Control: The Real Price of Cost Cutting study features insight from CFO, CPO and equivalent level roles in large organisations with 20 surveyed in-depth across the USA, UK, Germany and Scandinavia.
Basware is the global leader in purchase-to-pay solutions with more than 1,500 customers and 850,000 users in over 50 countries around the world. With Basware, organisations can reduce the cost of buying and paying for goods and services and gain visibility and control of their entire spending process by automating manual processes, from sourcing, contract management, purchasing and supplier collaboration to invoice automation. Basware solutions and services enable substantial cost reductions across businesses and deliver value by providing compliance and control, as well as fast return on investment. The solutions are distributed and implemented, either on site or as a service, in Europe, the US, and Asia-Pacific through an extensive network of Basware offices and business partners. http://www.basware.com
About the research:
The Cost of Control: The Real Price of Cost Cutting study was conducted for Basware by independent research company Loudhouse during October 2009. Results came from a range of large businesses across the globe, with all respondents occupying CFO, CPO or equivalent level roles. The size of the organisations at which those surveyed are employed ranged from 1,000 to 50,000 employees.
Interviews were conducted to present a proportional picture from across the globe, with 20 respondents surveyed in-depth across the USA, UK, Scandinavia and Germany.
About the Professor Done and the IESE:
Adrian Done is assistant professor in IESE's department of production, technology and operations management and research associate with the Advanced Institute of Management (AIM) in the UK. He earned his Ph.D. from the London Business School, University of London and his MBA from IESE. He also holds a Postgraduate Certificate of Education from the Open University and a Bachelors Degree in Mechanical Engineering from the Loughborough University of Technology.
IESE Business School is widely recognized as one of Europe's top international business schools. Founded in 1958 in Barcelona as the graduate business school of the University of Navarra. IESE has facilities in Munich, New York and Sao Paulo. It offers the MBA, Global Executive MBA, Executive MBA and PhD in Management degrees, as well as a wide range of executive education programs for global senior executives and Continuing Education programs for alumni.
SOURCE: Basware Corporation
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