Dive Brief:

• Approximately 60% of business leaders say a lack of transparency between their finance and procurement functions and their suppliers represents a risk to their business, according to a report prepared by Harvard Business Review Analytic Services for Basware, a procure-to-pay and e-invoicing solution provider.
• Of the 779 executives surveyed, 24% said they do not effectively evaluate supplier business practices at their companies, citing manual and incomplete data entry processes as a significant barrier. Furthermore, 23% of respondents said their suppliers are not connected to their electronic purchase-to-pay systems.
• In the survey, 26% estimated improved transparency in their financial and procurement functions could generate cost savings of 11% to 20%, and 60% said they would undertake efforts to promote a culture of transparency in their organizations this year.

Dive Insight:

Three main factors — internal cost savings, improved decision making and ensuring ethical practices throughout the supply chain — are motivators of the procurement and finance functions' push for transparency, the report found.

Developing visibility doesn't happen overnight and it "doesn’t come for free; you have to work hard to get it," Guillaume Roels, Timken Chaired Professor of Global Technology and Innovation at Insead, said in the report. "It’s a hard problem to crack."

The biggest and most common challenge executives reported facing was manual data entry — a time-consuming process prone to human error. Currently, 50% of procurement functions run on static spreadsheets, according to a 2019 Cognitive Sourcing Study from LevaData.

Not having access to accurate, cross-functional data in real-time can significantly hamper a company's competitive advantage in the market as it can slow decision-making and drain resources. Enterprise software solutions can help companies collect, clean and automate data processing and analysis. The challenge is ensuring the right processes are being automated and getting buy-in from supply chain partners to embrace the system, according to the report. Of note, Basware, which commissioned the report, is a vendor of enterprise procurement software.

"It requires a lot of trust," Julie Niederhoff, associate professor of supply chain management at the Whitman Business School at Syracuse University, said in the report. "Often it’s an enormous network. You may not even know all the players."

Many suppliers in a supply chain are smaller firms with varying degrees of technical capabilities or willingness to trust their information to a more centralized data management system. "We have to understand each other’s decision making and cultures. We’ve got the technology, but technology alone does not solve this problem," Roels said.

Basware's data shows that if a supply chain organization can succeed at generating transparency, the effort is positively correlated to the success of procurement and finance functions.

As more consumers demand to see proof that a brand is engaging in ethical sourcing, environmentally responsible business practices or confirmation that a product is genuine, having supply chain visibility is key as failures in those areas (even if they were multiple tiers below a company's awareness) can significantly damage a brand's reputation.

"If you look at the growth of more sustainable products versus the general market, there’s a huge growth opportunity in developing and marketing products that people can feel great about buying," Jenny Ahlen, director of supply chain at Environmental Defense Fund (EDF), who has worked with Walmart on supply chain sustainability, said in the report.