In 2011, finance and procurement departments will seek new methods of measuring successful cost cutting to reflect market volatility, finds a new report.
Basware, a purchase-to-pay (P2P) solutions provider, has announced its annual predictions for the key trends and issues that will dominate the chief financial officer agenda in 2011.
This year, themes are driven by the longer term and more complex fallout from the tough economic times. Volatility, forecasting and risk will be the key issues affecting businesses throughout 2011, according to Basware, as companies attempt to establish stability and predictability in a constantly changing global market.
The five top trends in 2011 will be:
1. Cost reduction is still a huge issue for businesses, caught between their cash and cost cultures. Whilst businesses have been careful with their cash, making sure that they have money on hand, they are still keen to reduce costs as much as possible, and ensure that they maintain strong levels of profitability.
2. Volatility will be key next year as constant fluctuations in currency and commodities are set to have a sizeable impact on the bottom line for businesses. This volatility makes it increasingly difficult for businesses to plan and effectively forecast the bottom line for their business, resulting in 'stocking up' on inventory when costs are low, leaving businesses with excessive storage costs.
This creates cash instability, as much of a business' cash flow can be tied up in stock. While 'currency madness' is the current focus of procurement teams, commodity inflation is the danger on the horizon, and currency and commodity volatility will remain front of mind. Volatility is a constantly shifting danger, and organisations need to be aware that issues such as changing tax regulations, and trade imbalance and risk can rapidly alter the landscape.
3. Where procurement teams have traditionally been measured on a purchase price variant (PPV) comparison, next year Basware predicts that CFOs will seek longer term cost/saving measurements that take into account inventory costs and supplier risk, and that strip out commodity variance. As the economy becomes more stable, teams will be looking to more stable measurements, which will continue to ensure profitability in the long-term.
4. Globalisation presents a great opportunity, but also a huge challenge for organisations. In order to ensure that companies are poised for growth, they need to have efficient, easy and agile transactional relationships across their global supply base. Multiple data formats, changing legislative requirements and a fragmented supplier base can leave CFOs struggling to find efficient solutions for transacting globally.
Open trading platforms requiring no proprietary technologies allow companies of all sizes to transact electronically and achieve operational excellence in their global trading relations. Last year, companies such as Toshiba TEC Germany realised significant savings through switching to e-invoicing, with invoicing costs dropping by 75%. Next year, many more will follow their lead.
5. Corporate social responsibility (CSR) initiatives will continue to feature in the CFO agenda next year, despite the continued tough climate, although for different reasons in different geographies.
"2011 will see businesses focus on longer-term supply deals and processes, whilst continuing to face increasingly complex challenges, that frequently do not have a simple answer," says Steve Muddiman, senior vice president (SVP), Basware. "Next year, volatility and cost reduction will continue to play a major role for organisations. As the economy becomes increasingly stable, businesses are planning and preparing further ahead than in recent times. For businesses to navigate the challenging times to come, accurate forecasting and appropriate measurement for inventory costs will be essential considerations."
MORE ARTICLES ON PROCUREMENT