Managing risk across the supply chain is no longer a happy bonus – but rather represents a fundamental need for every serious business. Yet addressing the issue needn’t require major investment. Finance Director Europe talks to Daniel Cashen and David Thorley at Fiscal Technologies to learn more
The past decade has seen perhaps the most volatile period in global economics since the 1930s. From the seismic shocks of Brexit and Trump, through the twin disruptions of the global pandemic and a war on the European mainland, it’s unlikely that any business has found itself untouched by events.
A central thread of this narrative has been the disruption caused to global supply chains. From sourcing raw materials and accessing logistics and labour resources to unexpected price spikes, very few companies have remained above the fray.
To that can be added the increasing risk of fraud. Building on KPMG research – which found that the number of fraud cases reaching UK courts doubled in the first half of 2021 – a recent report from the Purchase to Pay Network (PPN) showed that 36% of respondents felt that fraud or potential fraud had increased during 2021. That compares with just 7% who felt it had decreased.
A new approach
In short, businesses cannot hope to make smart strategic decisions without improved visibility of their supply chain risks – and the confidence to deploy a strategy designed to withstand shocks. To do this, they must adopt a data-driven approach that puts at its centre a number of key elements, including accessibility and speed of data, as well as the standardisation of processes.
Yet many organisations continue to struggle in this area. PPN, for instance, asked buying organisations about the checks they currently carry out. Quizzed about a wide range of issues they validate among suppliers, respondents highlighted that bank details changes, duplicate suppliers and VAT verification were all areas of serious concern. There’s also no denying that better understanding risk remains challenging. For its part, the PPN report highlights several factors that companies identify as getting in the way of efficient processes. 29% highlighted the excessive time taken to respond to queries, while 27% said the high percentage of exceptions to processes got in the way of smoothly fixing anomalies.
It’s in that sphere that Fiscal Technologies have carved out a niche as the premium provider of supply chain risk analysis – with a particular focus on accounts payable (AP). “We work specifically in the procurement space, so we get AP data from suppliers and we take in a number of data fields from suppliers to build a ‘spend transaction’ environment,” explains Daniel Cashen, product director at Fiscal.
Essentially, that allows Fiscal to use algorithms to detect issues coming down the line. “In addition to that,” continues Cashen, “we look at the supplier data – all the supply records that come through and identify which suppliers are live, and which are dormant.”
Fundamentally, driving these technical changes is the proliferation of data that businesses now access. “That’s grown enormously over the past few years,” Cashen stresses. “But alongside that, the expectations around the use of that data to drive insight have also changed.”
In short, businesses expect to see key data captured, aggregated and played back. Yet as Cashen says, that’s not all. “They also want to see that done in a more effective manner: so you can’t get away with just showing some on an Excel spreadsheet anymore.”
Instead, the executive argues, CFOs and procurement leaders want a graphical user interface that can reveal trend patterns of how spending is evolving. And as a business expands, that’s shadowed by different layers of data – each appropriate to distinct stakeholders.
In practice, of course, data without insight is inert – data that isn’t brought to life by analysis and iteration will forever remain a two-dimensional substance.
Fiscal’s NXG platform evolved to address the evolving risk environment in which large companies operate. Recognised as a leader in the field of transactional risk, Fiscal long ago established itself as the pre-eminent AP management tool provider. Businesses relied on it to trawl through raw transactional data, processing millions of transactions to quickly spot anomalies and errors. Now, however, supply chains have become more complex and with that comes the need to deepen the understanding of the different – and ever changing – risk exposures.
A broader view
“We’re seeing a demand to dig deeper into the supply chain,” says Cashen. “Look at issues like ESG: it might still be a nebulous and ill-defined area, but there’s no doubt that it’s an emerging threat around compliance and risk. So it’s not surprising that our customers are now demanding more monitoring around that.”
In practice, that might involve identifying sanctioned entities, or those that have scored poorly on other practices such as environmental compliance or waste. Sanctions are an excellent example here. The recent outbreak of war in Ukraine has led to the introduction of a wide raft of sanctions against Russian businesses and individuals. And while it’s a dynamic situation, it’s fair to say that any business with exposure to Russian partners will need to pay close attention to their risk for the foreseeable future.
Currently, sanction lists are updated every day, but just 9% of organisations conduct monthly checks on whether suppliers have been sanctioned. A reliance on one-off sanction checks during new supplier on-boarding does not provide adequate protection – anything less than daily checks introduces a risk of non-compliant supplier purchasing.
“Businesses will want to know if sanctioned entities might be in their supply chain as well as who’s done something about that,” explains Cashen, noting that understanding whether they’ve been paid since the sanction was applied is important too.
“Essentially, buyers need information that can enable them to take remedial action if necessary,” Cashen adds. “And it needs to be in one place, clearly presented, and delivered in a timely way. They want it now, they want it accurate – and they want to know what to do about it.”
Crucially, the Fiscal approach builds in continual risk monitoring, allowing it to augment existing systems. “It’s an easy, quick, fairly simple transfer from a standard ERP,” says Cashen. “It’s automated and it can be set up in 3–4 hours. And while some clients opt for a big bang approach, others are more iterative.”
But while it may not be sexy, fraud prevention and loss detection isn’t seen as a business critical factor – but more as a cost burden. “The irony is that the amount you can save on the bottom line is remarkable,” says David Thorley, customer development director at Fiscal. “In fact, most customers typically find that it’s repaid its investment cost within 30 to 60 days.”
Given all this, it’s hard to understand why the continuous monitoring approach hasn’t become more widespread as a solution to the problem. But, as Cashen suggests, the customers that deploy this solution most effectively are those that recognise they have a problem in the first place. “We do sometimes see customers who may be too proud to admit that they could do better.”
“But organisations that are self-aware, open and forward thinking in this area – and keen to run their processes more efficiently – embrace it,” Cashen adds. “They have to acknowledge they can do better here. Because most companies can – and we can help them.”
Fiscal Technologies was founded in 2003 on the belief that it could provide a single Procure-to-Pay (P2P) risk management solution from which great things can grow and scale.
Fiscal clients have a choice – seize the opportunity for change or be left behind. Its engineers have spent 17 years designing and building a dedicated P2P risk protection solution. The result is a comprehensive solution that proactively identifies risks and reduces costs.
To read an exclusive whitepaper from FISCAL looking at transforming operational finance, and 5 best practices for implementing a P2P risk management programme, please click here