It has been said that uncertainty is the only real certainty there is; looking at the landscape for the global market over the past few years, the phrase seems as apt as ever. While cost cutting has been the primary focus in trying economic times, the chief financial officer (CFO) agenda next year, and beyond, is likely to be driven by the longer term and more complex fallout still to come. Volatility, forecasting and risk will be the key issues affecting businesses throughout 2011, as companies attempt to establish stability and predictability in a constantly changing global market.
So what will that mean in practice?
- Spending less still matters most – cost reduction is still a huge issue for businesses, caught between their cash and cost cultures. While 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.
- Plus ça change – 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’s 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.
- New tasks for procurement – 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.
- Joining the global village – 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 electronic invoicing (e-invoicing), with invoicing costs dropping by 75%. Next year, many more will follow their lead.
- More than business as usual – 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. In the US, it will be for cost savings. However, in the EU, the primary driver will be regulation to provide more eco-friendly and sustainable working practices.
Although this isn’t to say existing challenges, such as cost reduction, will take a back seat, it looks likely 2011 will see businesses place more focus on longer-term supply deals and processes. As the economy becomes increasingly stable, businesses are likely to plan and prepare 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. If they aren’t already talking to their technology partners about how to make that happen, it’s certainly the right time of year to be making resolutions.
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