How a Financial Services Company Modernized and Streamlined Its Sourcing and Procurement Operations

Modernizing and Streamlining Sourcing and Procurement Operations

Traditional banks face a competitive landscape. Customer expectations are evolving rapidly; FinTechs and hyperscalers are pushing the boundaries of the industry with new offerings. At the same time, regulations and supervisory oversight are getting tighter and stricter.

According to ISG’s 2022 Procurement Survey data, only 37% of the procurement leaders say they have implemented an end-to-end procurement solution for the supply chain management (SCM) function and four out of 10 respondents say the same for supplier relationship management (SRM) and spend analysis functions. Meanwhile, five out 10 say they have fully implemented a procurement solution for contract management, sourcing and spot-buying functions. Over 60% indicate a mature adoption rate for direct spend management and transactional procurement functions. This indicates that procurement solution adoption rates vary across functions within an organization.

A leading global financial institution needed to gain complete visibility and control of its sourcing and procurement operations. The company’s objective was to unify all its procurement functionality into a single platform that streamlines and automates the end-to-end source-to-settle (S2S) processes, with a focus on enhancing control, visibility and efficiency. The company also needed to optimize contract and third-party management, simplify spend processes and improve reporting capabilities, while mitigating risks and ensuring compliance with global regulations.

At the outset of the project, the company was managing a robust third-party ecosystem made up of a wide range of cloud service providers, payment processors, AI and data analytics firms and RPA software providers in a manual approach using spreadsheets. While these partnerships enabled the firm to leverage innovative technologies, its growing reliance on third parties presented new risks and vulnerabilities that could potentially impact the firm’s operational and financial resilience.

The challenging macroeconomic environment, stringent regulatory landscape and continued calls for cost reduction led to increasing pressure on the firm’s sourcing and procurement leaders to deliver value in new ways. This new value – whether it involved the adoption of AI, greater operational resiliency or modern technologies – required tight integration between sourcing and procurement leaders and risk teams.

Manual Procurement Practices Pose Challenges for Sourcing, Third-party Risk and Procurement Teams at the Financial Institution

Volatile market conditions and a fragmented third-party provider landscape were causing challenges in the company’s S2S lifecycle, which includes evaluation, selection and onboarding third parties, creation of formal contractual agreements and management of ongoing third-party relationships, purchase order management, contract compliance management and accounts payable automation.

With siloed tools and manual systems, the company lacked an integrated S2S process and solution, resulting in disparate purchasing processes and lost opportunities on mature third-party programs. This led to low visibility and transparency in the organization’s procurement processes and increased cycle time. Lack of visibility, automation and simplified processes made bottlenecks hard to spot, thereby increasing risk and leading to poor vendor performance, value leakage and complex compliance and reporting requirements.

Some of the key challenges faced by the firm were as follows:

• Disparate tools and manual processes: Many S2S activities required data from multiple sources but were done in silos, leading to a lack of visibility of information. Failure to unify the tools, systems and processes used by different departments resulted in inefficiencies. This also left blind spots in risk visibility, slowing onboarding and increased noncompliance. Lack of automation of workflows across the S2S lifecycle led to cost overruns, financial penalties and reactionary – rather than proactive – measures when a disruption occurred.
• Limited visibility and transparency: Though the financial institution has mature processes, it lacked a single source of truth and a centralized, 360-degree view of its third-party risk and performance, contractual and ESG compliance and spend analysis. Without this, it lacked what it needed to facilitate data-driven risk monitoring, sourcing decisions and timely corrective actions.
• Increasing number of risks: As the financial services company grows and scales its third-party relationships, the number of risks associated with third, fourth and nth parties, including cybersecurity, concentration, financial, legal and ESG risks, is growing, too. According to a recent report, 78% of Europe’s financial institutions experienced a third-party data breach in the past year and 84% have been exposed to a fourth-party breach. For example, in October 2020, a global investment bank and financial services firm paid a $60 million civil fine for failure to properly oversee the decommissioning of its data centers and failure to exercise adequate due diligence in selecting third parties and monitoring vendor performance. With increasing regulatory oversight, it has become mission-critical for financial institutions to run vendor due diligence, including measuring financial and reputational health, CSR and ESG, litigations and legal risks, compliance violations, cyber exposures of vendors before onboarding.
• Technical debt: Financial institutions that outsource their IT operations to a SaaS provider often lack transparency into their technical debt, which can have a significant impact on a firm’s agility and innovation. When credit bureau Equifax suffered a data breach in 2017, for example, it was due to criminals who exploited a vulnerability in the open-source software Apache Struts, which had been used to create Equifax’s online dispute portal.
• Poor vendor performance: Limited capabilities of the client’s vendor performance management tools, legacy systems and archaic processes for collecting real-time supplier data, meant that the team was spending too much time on transactional activities. This often led to sub-optimal third-party relationship management, ineffective cyber, ESG and SLA controls, inadequate metrics and KPIs and poor vendor performance.
• Value leakage: Manual invoice reviews, anomalies in the contract or overly complex contracts and unearned or missed discounts are some common causes of value leakage. The antidote is audit trails, real-time data visibility, alerts, automated workflows and system controls that ensure proactive management.
• Complex regulatory compliance and reporting requirements: Banking regulators across the UK, Europe, North America and Asia Pacific have issued guidelines and frameworks to help enterprises improve their governance over third-party relationships, enhance operational resilience and comply with the applicable laws and regulations. EU’s GDPR, UK’s National Cyber Security Center and India’s Digital Personal Data Protection Act provide guidance on regional-level third-party requirements. Regulations such as the UK Modern Slavery Act and Germany’s Supply Chain Due Diligence Act aims to protect human rights and environmental sustainability within the supply chain ecosystem. Navigating these complex regulations and reporting requirements is an increasingly challenging task.

Resource constraints: Implementing a robust S2S lifecycle program that includes sourcing, due diligence, risk assessment, contracting, purchase order management, invoicing, supplier lifecycle management (SLM), SPM and spend performance, requires significant resources, including skilled personnel, operational and financial investments, which may be a challenge for small to mid-tier financial institutions. Right technology with augmented AI and automation can enable banks to overcome resource constraints.

Lack of collaboration and innovation: Financial institutions that do not establish and maintain collaborative supplier relationships or negotiate with select suppliers through tailored strategies and targeted negotiations, driven by benchmarking, supplier performance and capabilities tracking, category management, tail spend management or spend analytics, may find it challenging to drive supply-side innovation. With an integrated S2S solution, banks can improve supplier relationships, diversity and sustainability to accelerate innovation.