By Daniel Saraste, Medius
The 2019 holiday shopping season was a great success. According to MasterCard, overall holiday sales, excluding autos, rose 3.4 percent, with eCommerce sales reaching a record high of 18.8 percent of total retail sales – an increase from 14.6 percent in 2018. All of this despite Thanksgiving – the start of the traditional holiday shopping season – was late this year, giving retailers six fewer days to ring up holiday sales.
With the holiday season behind us, it’s the perfect time for retailers to explore new ways to hone their competitive edge. Chief among these are modernizing the financial supply chain.
AP Automation: Accuracy, Speed, Reduced Costs
Retailers deal with a multitude of invoices from a vast array of suppliers. This crush of invoices, particularly around their busy seasons, can be unmanageable without the right systems in place. Direct spend matching in a manual or semi-automated system is messy; complex invoices with multiple line items make it a time-consuming procedure to match line-by-line or get to the bottom of deviations.
In an industry where success depends on remaining agile and innovative, every hour freed up translates to more creative thinking and progress toward the next great product. AP automation is key to making this a reality. The technologies used by leading retailers allows organizations to reach genuinely touchless levels of direct spend processing, by using dynamic line and header level matching from the invoice to the corresponding purchase order or goods receipt. As a result, AP staff gets back much of their time, and purchasers in the business spend less time approving invoices, only getting involved in the event of an exception.
Relationships with suppliers are critical in the retail business. For every product sold, likely multiple suppliers contribute one or more elements to the complete package. If a slow, manual AP process is preventing a retailer from paying suppliers on time, it could warrant a situation where one burned bridge turns into an industrywide reputation; the last thing a retailer wants. The ease of AP automation guarantees fast and accurate invoice approvals and streamlines the process of working with suppliers.
According to Ardent Partners, “following the lead of Best-in-Class AP departments, AP professionals (and their leaders) must turn to a wider range of strategies, solutions, and innovations from which to reimagine their programs and attempt to align core processes with the long-term, digital roadmap of the next-generation enterprise.” More and more retailers understand that strategic improvements in the heart of the business will ultimately translate to better customer-facing operations. AP automation and streamlined back-office operations help save time while freeing up more working capital.
Seeing Is Believing: Understanding Key KPI That Drive The Financial Processes
Without insight into the financial processes that create the working engine of the business, such as AP automation, it can be nearly impossible for retailers to improve, let alone understand which areas need improvement.
To increase accounts payable efficiency, a retailer needs to be able to identify and track complex factors impacting the invoice workflow. A genuinely robust AP automation system for retailers offers the technology capable of providing insight into Key Performance Indicators (KPIs) over time and across suppliers, employees, and business departments. The power of data analytics systems is creating high-functioning data-driven businesses, and retailers should expect to see this trend continue in 2020.
What’s equally important is a backdrop to compare performance against. Accurate data-based benchmarks with real-time statistics consolidated from a pool of organizations using the same system and standardized process can offer retailers an idea of what is achievable and where their performance falls among the below average, standard or the industry leaders.
Growth, Globalization And Finance Supply Chain Modernization: LUSH And Marc Jacobs
One progressive retailer modernizing its AP operations is global cosmetic brand LUSH. The company is planning to open 100 new stores in the next 3 years – adding to its current 950 store fleet worldwide – and ensuring its financial supply chain is a fine-tuned and well-oiled machine is key to supporting its “glide path” to growth. LUSH recently deployed a cloud-based AP automation solution to achieve its goals of touchless AP processing, streamlined month-end and outside auditing processes, and reduced processing cycle time.
Another progressive retailer modernizing its financial supply chain is fashion juggernaut Marc Jacobs. To create new products for more than 100 stores around the world, a vast wholesale network, and countless online orders, Marc Jacobs must manage a vast supply chain of direct and indirect spend. In any given week, the company engages 50 new vendors in work that, over the course of a year, generates more than 54,000 invoices.
Centralized purchasing ceases to exist in the fashion industry because every collection entails a whole new slate of vendors – making managing the vendor invoice process and tracking expenses extremely challenging. Agility is also a must: Sometimes Marc Jacobs has to set up a new warehouse in a couple of days or engage with a new vendor in a country where it’s never operated. Outside of the administrative challenges elicited by the huge volume of incoming bills, the high volume of indirect spend also can translate into a dangerous financial blind spot.
To keep pace with the fast-moving world of fashion, Marc Jacobs recently modernized the way it managed supplier invoices and tracked expenses. The company gained newfound speed, agility, and visibility leveraging cloud-based AP automation to modernize management of supplier invoices and tracked expenses. As a result, Marc Jacobs has cut its invoice processing lead time from 45 days down to 11, while saving $150,000 in productivity gains annually.
Recognizing The Opportunity In Optimizing The Financial Supply Chain
Retailers always have recognized the criticality of optimizing their supply chain operations, however now they are realizing the benefits of applying this same discipline to optimize their financial supply chains. In 2020, retailers that modernize the financial supply chain with AP automation will enhance corporate performance and streamline operations critical to supporting growth and expansion, all while successfully navigating the rigors of the retail landscape.
About the Author
Daniel Saraste is Senior Vice President of Strategy and Innovation at Medius. Daniel has nearly 20 years’ experience in spend management and net working capital optimization from having worked with global and mid-market clients in the retail, manufacturing and distribution verticals.