For years, the procurement and supply chain functions have talked about embracing digital technologies. Progress remains slow, but now these functions are operating in a global environment moving towards digital currency and cashless societies, meaning it is time to get on board.
The COVID-19 pandemic has accelerated the digital transformation. Generations of people previously reluctant to use the internet for some transactions and services now order home food delivery online, use telemedicine, order groceries via apps and even buy and sell expensive items on the internet. The Apple Pay app is a mobile contact payment and digital wallet service that allows people to make payments in person, in iOS apps and over the internet. Such “digital wallets” are becoming more common, with even grocery stores now offering coupons that are stored in a digital wallet and scanned at checkout. Artificial Intelligence and machine learning programs get smarter by the day, impacting everything from chat boxes to generating predictive analytics for business decision-making. Procurement and supply chains are now expected to deliver the same smooth, informative process to business users that people are used to in their personal lives, yet many continue to lag behind in embracing digital disruption.
EXPANDING DIGITAL PAYMENTS ON A COUNTRY WIDE BASIS
Digital payment systems include mobile wallets, peer-to-peer payments, digital coins and mobile point-of-sale devices. Digital payments in the U.S. are actually lagging behind countries such as China and Sweden. The arrival of COVID-19 led to some countries accelerating their move towards things like contactless payments. In April 2020, China rolled out the digital yuanin four cities. Backed by the Central Bank,this is part of China’s goal of becoming the world’s first cashless society.1Most businesses use a QR code, that consumers scan with a smartphone camera to pay with China’s main digital payment apps (WeChat and Alipay). The apps enable even small businesses to easily connect to modern financial services.
Sweden is another leader in in digital payments. Just one percent of Sweden’s GDP is now based in cash, making it another leader in becoming a cash-free society. The goal is to be cashless by March 2023. Most merchants already require customers to pay electronically. Stockholm’s public transportation system does not accept cash. This year, Sweden’s Central Bank is implementing a digital currency called the e-Krona which adds stability to the cashless system.
The acceptance of digital technologies by consumers has implications for business, of course. Procurement and supply chains have adopted digital technologies, including digital payments, but as a whole industry, progress remains slow. The procurement process at this stage should be fully digital and delivering a business user experience that meets what people expect today – fast, enjoyable, transparent, and able to optimize recommendations. The procurement business user should access an online portal, select a product, and submit a purchasing request. If the product is available, the procure-to-pay system includes order management and payment systems. If the product is unavailable, the request interfaces with digital sourcing tools that include requisition processing, specification development, supplier identification, RFP negotiations, smart contracts and then into procure-to-pay.
DIGITAL TRANSFORMATION AND ECONOMIC GROWTH
Digital supply chain finance could lead to global economic growth, because it would enable speedier andmore secure payments to small and medium sized businesses in emerging economies, like India. Buyers in any country benefit by having greater access to more suppliers. The importance of supply chain diversification came to light during the COVID-19 pandemic, when many businesses found their reliance on a single supplier for critical parts and materials left them unable to continue producing finished products.
Steve Murphy, Director, commercial and Enterprise Payments Advisory Service at Mercator Advisory Group, talked about automating supply chain finance for India’s small to medium sized enterprises, and said, “…the offline to online swing in the B2C segment of the supply chain has had a powerful impact on the B2B segment of the supply chain. An NPCI report suggests that one-third of India’s households are now using digital payment interfaces for purchase transactions. With digital purchasing gaining critical mass in B2C transactions, enterprises are choosing to procure goods from MSME suppliers through digital processes to make their entire supply chain online.”
Clutch, the B2B business finder to assist decision makers, names three reasons supply chain companies should adopt digital payments. One is to increase operational efficiency through blockchain solutions that unite the links of the supply chain while increasing liquidity. The second reason is to accommodate customers who have expectations for payment options. Increased financial transparency is the third reason. Digital payments reduce the risk of loss and human error, are more streamlined and make payments more easily traceable.
Supply chain finance is a key to growing businesses of all sizes around the world. It consists of three sectors:off-balance sheet trade finance instruments, like letters of credit; seller side finance that includes factoring and invoice finance; and buyer side finance which is supply chain finance aimed at buyers and suppliers.
Research by McKinsey found that almost 80 percent of eligible assets do not benefit from better working-capital financing. Supply chains are experiencing accelerated change in the market due to an increased focus on working capital, structural changes for SMEs in the form of digital adoption, and the possible geographic shift in spending from $2.9 trillion to $4.6 trillion on cross-border supply chains. Unfortunately, until now, supply chain finance has focused mostly on large multinational corporations, and change is slow. Catalysts are available for smaller companies, including digital delivery, fintech innovation, blockchain, API technologies and industry utilities. Yet, factors like fragmented process flows and data sharing, fragmented payables and receivables systems are an issue. They can be a stumbling block for shifts in global trade that are reshaping global value chains due to new technologies, like automation, AI and the internet of things.
DIGITAL TRANSFORMATION IS NO LONGER OPTIONAL
According to McKinsey, the financial industry is focusing on finding solutions that include bank and ERP partnerships on a fintech platform, fintech platform delivery only with bank financing, and diverse supply chain financing ecosystems(in which common standards are developed for data sharing and API libraries). Thesefinancing platforms would be completely digital from supplier self-management of invoices to financing to payments. The only way SMEs can access the platforms and the assets available for business growth is if they invest in digital technologies. This is the reality of the business world today.