What are procurement best practices in the financial services industry?
Implementing procurement best practices is a challenging process that requires the coordination, understanding, expertise, and focus of various teams, experts, and professionals. However, in the financial services industry, practicing efficient procurement has become increasingly difficult, and many industry players are aiming to adopt ideal procurement best practices to overcome various market challenges. The economic crash of 2008-09, multiple changes in political, social, and economic scenarios, technological development, and the COVID-19 crisis has caused many significant setbacks for financial service companies. Additionally, costs have risen substantially, and risk and compliance have become the front-running problem for many companies in this sector. Changing regulations, challenging consumer demands, data-dependency and security threats, and increasing pressure from stakeholders and the general public for transparency have posed various procurement obstacles in the financial services industry. Therefore, industry leaders search for procurement best practices that address major challenges, mitigate risks, and improve their supply chain and procurement process overall efficiency.
Procurement challenges faced by financial services industry
Increased Regulatory Stringency: Since the economic impact of the 2008-09 economical crisis, governments, consumers, and political leaders have become increasingly invested in ensuring safety, visibility, and limitations within the financial services industry. This has led to a rise in stipulations and regulations about compliance and risk within the sector. The sudden upsurge in regulations and stringency has led to companies needing further insights into the legal scenario and making well-informed, knowledgeable business decisions that comply with the rules while maintaining business agility and profitability. Governments have recently announced various new policies and internationally agreed with measures to strengthen banking institutions’ supervision, regulation, and risk management.
Rising Demand for Digital Platforms: Consumers’ changing preferences and demands lead to various business challenges from the procurement to the delivery stage. In the financial services industry, the sudden upsurge of digitization, rising demand for online capabilities, software for tracking, maintaining, executing transactions, and advanced facilities within institutions have caused major setbacks. Since the procurement process in financial services significantly deals in the purchase of services, consultancy, and professional guidance, digitization and technological transformation have given rise to higher costs, the need for new experts and expertise, and rising investment in skilled resources.
Data-Security Risks: Cloud-based software, new internet-based systems, and digital platforms in the financial services industry have been highly demanded, and for the most part, provided across the globe. However, banking and financial data are among the most sensitive data for any individual, and cyber-threats hold significant weightage in this industry. These risks have caused further regulatory stringency, made it increasingly difficult for firms to comply, and led to consumers’ being selective and particular about the institutions they choose. It has also led to increased investment in the expertise and equipment to ensure data security and provide the government, general public, and stakeholders with the confidence required to trust the firm.
Need for Transparency: The economic crash led to an upsurge in public, media, and legal scrutiny in the financial services industry. Providing stakeholders with clarity and visibility into the supply chain has always been imperative for efficiency, but since the general public and media have become increasingly invested, there has been a rising need for public transparency in banking processes. Additionally, stringent regulations and the requirement to keep regulatory bodies, investors, and other involved parties informed of compliance and risks require further visibility and transparency into the procurement and supply chain processes. Media focus and legal intervention have made this a crucial and challenging necessity in the financial services market.
Cost Pressures: Rising demands, changing regulations, cyber-security challenges, and cross-departmental transparency require investment, new contracts, different expertise, more equipped professionals, skilled labor, and up-to-date facilities. Simultaneously, banking institutions and financial service providers face regulations that limit how banks can achieve their goals and make the process of reducing costs challenging. This has led to further losses, more unnecessary expenditure, and increased challenges. Industry players have also witnessed the need for new contracts and capabilities that incur other losses through the procurement process. The impact of the pandemic resultant economic crisis has also given rise to higher costs and the need for further investment.
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Procurement Best Practices for the Financial Services Industry
Supplier Evaluation: Industry leaders and procurement experts repeatedly advise buying better or making better evaluated and well-informed decisions when choosing a supplier. As the financial services industry grows and demands change, selecting and working with the right supplier can be the most significant differentiator. Suppliers bring about significant risks and could cause various challenges within the procurement processes. Therefore, one of the most major procurement best practices is conducting an in-depth evaluation, detailed research, and data-driven comparison of the capabilities, offerings, potential risks, prices, and cooperation of every supplier partnered with your company. This procurement best practice helps mitigate certain risks, improve compliance, and reduce costs.
Supplier Relationship Management: Developing a strong, positive, and mutually beneficial partnership with suppliers can help business propel their processes and efficiency forward significantly. In the financial services industry, maintaining and fostering positive supplier relationships can help mitigate significant risks by ensuring long-term reliability, evaluating and renegotiating contracts, and overcoming compliance challenges together. This effort also helps develop a better understanding of your suppliers’ capabilities and gain insights into innovations, technologies, systems, and processes entering and succeeding in the market. Supplier relationship management (SRM) is a procurement best practice that helps address compliance, reduce risks, mitigate unnecessary costs, and maintain a significant competitive edge in a challenging market.
Optimize Supply Chain Communication: Regardless of the industry, ensuring efficient communication across the supply chain is imperative to growth, sustainable success, and long-term efficacy. In the financial services industry, this procurement best practice can make or break a firm, and failure to maintain good communication can lead to high costs and losses. As the sector continues to grow, regulations become increasingly stringent, and risks keep rising; keeping tabs on the ongoings in various departments is imperative to achieving supply chain efficiency. Procurement managers and professionals must coordinate with other crucial departments such as logistics and other strategic sourcing departments. This practice helps mitigate potential misunderstandings, improves workflow and efficiency, reduces risks, increases compliance, and helps improve visibility into the supply chain.
Leverage Technology: The rise of technology and digitization has led to various financial services industry challenges. However, if accurately used, it can help mitigate those and many other procurement challenges for industry players while boosting efficiency and creating a collaborative environment. Technology within the supply chain and procurement departments can help track, modify, and execute purchasing orders while coordinating with departments such as sales, logistics, or production to ensure all needs meet fulfillment. Further, it helps revisit and make changes to contracts, communicate with external parties and suppliers, and enable much-needed automation in certain supply chain areas.
Regular Reviewing: Supply chains are susceptible to change, vulnerable to risks, and often the source of various organizational challenges. While procurement best practices and supply chain expert insights and recommendations are imperative and effective, maintaining an efficient supply chain requires sustainable solutions, constant overseeing, and regular reviews. This practice can help preemptively identify and mitigate risks, ensure that suppliers perform and deliver as negotiated, and revisit contracts to review, change, or terminate vendors. Further, keeping track of agreements, negotiations, and functionality within the procurement department can improve compliance, help meet targets, reduce costs, and maintain business agility and continuity.
Success Story – SpendEdge
SpendEdge understands the value of procurement best practices and has witnessed the jarring impact of various economic, procurement, regulatory, and supply chain challenges within the financial services industry. Recently, our experts helped a financial services industry player identify and analyze the impact of upcoming regulations in the European region for banking institutions and understand the need for proper procurement best practices and supplier relationships. With insights from the experts, the industry player mitigated various supply chain and procurement risks, reduced costs substantially, and found better suppliers while complying with all European and international regulations. Additionally, SpendEdge helped the client develop a system to ensure that all contracts, processes, and departments are regularly reviewed, adopt superior and successful technology, and create inter-departmental efficiency and communication.
With the growing prospects of the financial industry, economic uncertainty still impacts many countries, banks, insurance providers, investors, and other major firms find it challenging to efficiently overcome the impact of regulations, rising costs, changing technologies, and consumers’ demands. With the right procurement best practices and a comprehensive understanding of the challenges within the financial services industry, their impact, and the ideal way to tackle them, companies can maintain business continuity, improve agility, invest in procurement best practices, and mitigate risks. SpendEdge helps companies understand their market, evaluate risks and factors impacting business, adopt or develop the ideal systems to address any roadblocks while propelling growth within the company, and create long-term partnerships and solutions for a comprehensive future success.