By Alex Saric, smart procurement expert at Ivalua 

The financial services industry is one of the most profitable industries in the world, but it is also one of the most cut throat. Organisations are driven to maximise profits and reduce costs yet rising competition and the changing regulatory environment is preventing them from achieving this.

The role of procurement within financial services is set to be more important than ever as organisations look to increase value through the management of suppliers, compliance and risk. Indeed, since the financial crash, the industry has undergone tremendous change, with a series of reforms rolled out to make sure the crisis will never be repeated. This upheaval has reshaped the global financial industry and changed the way in which financial institutions and the suppliers they work with.

New regulations are affecting this too. Basel III, for example, is coming and there are already plans for Basel IV in the works. This is just one example of new regulation financial services organisations must be ready to comply with, no matter the timing, scope or impact.

The risk for organisations and suppliers that fail to comply with such regulations are sizeable fines and considerable damage to corporate reputation. As such, procurement teams must take a risk-reward approach of supplier evaluation, in the knowledge that the smallest supply risk event can negatively impact profitability and draw scrutiny from regulators. Despite this, procurement must continue to source suppliers that offer differentiated products and services and competitive costs that provide a competitive advantage.

Heavily scrutinised financial services firms are facing higher levels of regulation, competition and risk, and are relying on procurement teams to help manage these factors. Here are three ways procurement can ensure it is supporting financial services organisations and adding value.

Responding to threats with agility

As fintech start-ups and new technologies take up more and more of the market, competition within the financial services industry has soared. To compensate, larger organisations with monolithic infrastructures have had to ensure they are agile when responding to change, and procurement plays a key role this.

Procurement teams are at the leading edge of market innovation due to their close working relationship with suppliers, and therefore can collaborate with internal and external stakeholders to keep the business agile and ready to adapt.

Procurement agility takes many forms, but at its heart, it requires the right technology, skills, supplier management strategy and internal/external collaboration. All must be flexible to adjust to new or evolving requirements. Procurement teams with the ability to manage and optimise the supply base – collecting suppliers on one system – can develop a 360-degree view into supplier information, capabilities, risk and performance. This will allow financial services organisations to remain agile and stay competitive, allowing them to work with the right suppliers to innovate and thrive in the long-term.

Leading the way

To respond with agility, financial services firms must utilise the correct technology. Luckily, they benefit from higher than average profit margins which means they can support a greater investment in supply management and procurement technology. As a result, procurement teams in the financial services industry are leaders when it comes to the adoption of technology.

Having the right tools enables procurement teams to better capture, analyse and cope with the huge amounts of business-critical internal and third-party data. This allows a greater emphasis on core process, whilst having centralised management over them. By modelling and managing core procurement and sourcing processes on a single tool, organisations benefit from having a common set of data standards. Finding the right technology is vital in achieving total visibility of all spending and supplier performance insights. Key is not just providing leading capabilities that can be deployed rapidly, but also the flexibility to adjust processes to align with new requirements. This in turn can help to improve operational efficiencies, helping to maximise profit margins.

Mitigating risk and reaping the rewards.

Implementing the correct tools is not only important when organising procurement policies and processes in one place, it is also important for managing risk.

The need to ensure regulatory compliance has resulted in a much greater emphasis on supplier performance and risk mitigation. Procurement teams in financial services face a much higher bar when it comes to working with suppliers, due to the scrutiny placed on risk and compliance in the industry. The level of regulation in the financial services industry means there is pressure on procurement from executive teams and other business stakeholders, who are more engaged in supplier management than in other industries, to minimise risk. This means procurement must be highly collaborative with business stakeholders.

Gaining visibility and control over supplier and third-party risk can be challenging for any enterprise, even those with fully dedicated risk-management teams. Procurement technology provides financial services organisations with robust tools to gain visibility into supplier operations and risk, helping to build a true picture of what is really going on in the supply chain. These tools provide collaborative data management features, allowing internal stakeholders to collate and centralise supplier information from across the enterprise and share insights with senior leadership. It also provides a platform which suppliers can work with to upload and update information. This includes providing certification information, financial disclosures, remittance and contract details, products, services and other information necessary for the calculation of risk factors.

Having all this information in one place allows financial services organisations to proactively track and manage risk along the supply chain. Being able to build and track progress of improvements plans when gaps are found internally or with suppliers, ensures compliance and auditability of efforts to address gaps.

Procurement can bring stability in a volatile industry

Procurement brings a huge amount of value to the financial services industry. It ensures organisations remain competitive by managing regulatory change, tackling risk and maximising profit margins despite an increasingly volatile and competitive industry.

The performance of the procurement team and that of its suppliers, can also have a huge impact on revenue and profitability, especially with financial services firms facing intense scrutiny in the current environment. As a result, procurement is facing increased levels of attention regarding supplier performance and risk. Financial services organisations clearly understand the importance of the procurement function when it comes to adding value and its enabling firms to reduce costs and maximise profits in such a volatile environment.