Needless friction in the supply chain is a headache that isn’t going away. According to our recent research, the average UK business is losing £88,725 per year through clunky accounts payable practices and this is wasting time and valuable employee energy. IT has an important role to play in fixing this.
Friction, according to business writer Josh Kaufman, is “any force or process that removes energy from a system over time.” Inevitably when friction is present, more energy is required to keep a system moving at the same rate over time. Without that extra energy, friction will slow anything down until it comes to a complete stop.
State of the nation
Every business process has some amount of friction but the sheer scale of the situation in UK back offices is troubling. Something needs to be done before the UK plc drowns in paper and numbs its work force to endless, cumbersome processes.
Tungsten Network’s inaugural Friction Index report found that companies spend almost 6,500 man hours chasing purchase order numbers, reworking paper invoices and responding to supplier enquiries. It revealed that businesses are spending on average around 55 hours per week doing manual, paper-based processes and checks; 39 hours chasing invoice exceptions, discrepancies and errors; and 23 hours responding to supplier enquiries. They also spend five hours on compliance-related challenges such as handling international taxes, and three hours tackling invoice fraud.
A brave new frictionless world
We developed The Friction Index because we are passionate about encouraging businesses to
embrace digitisation and begin enjoying the benefits of a frictionless back office. We also wanted to highlight the financial cost of the current paper-based, manual processes to help businesses wake up to the reality of the situation and the opportunity provided by FinTech.
The wonderful thing is that if businesses aren’t tied up chasing invoices or receiving phone calls from suppliers, they have more time to explore opportunities for growth with existing customers and go after new ones. Technology exists which will do away with these tiresome and menial tasks that clog business work streams.
As Andrew Grove, the former CEO of Intel, famously said “there are so many people working so hard and achieving so little.” We believe this is particularly true in the accounts payable process. So often, employees get distracted from core objectives and income generating activities by urgent enquiries and laborious, paper-based processes. These inefficiencies can drain the life-blood from companies and cause ‘friction’ that impacts the bottom line.
The top five enemies
The top “friction factors” were the high proportion of paper invoices received, the large number of non-PO based invoices, the high volume of supplier enquiries regarding invoice or payment status, the lack of automated exceptions and the lack of automated approval. Many of these problems result in time-consuming administration.
Understandably, given the wasted money and manpower, 36 per cent of businesses did state that removing friction from the accounts payable process is a top priority for 2017. However, a full 20 per cent state it is not a priority at all – perhaps an indication that the scale and cost of the problem is largely unseen.
One small step
While an amount of friction is inevitable in all roles, the key, as you will know, is to take simple steps to remove this, in order to see significant improvements in both quality and efficiency. Technology exists which would eliminate many of these sources of friction. For example, every day businesses waste time and energy by checking invoice documents received from a growing global supply chain whereas if they used an e-invoicing provider, it would reject incorrect invoices before they were even processed.
Similarly, instead of spending increasing amounts of time responding to supplier enquiries about invoice status, all of this information could be accessed online with an electronic network that has real time updates. Other challenges such as tax compliance and fighting invoice fraud are also eliminated through automating the process.
Another less obvious source of friction is inaccessible data – especially if staff are based across multiple locations, it is easy for duplications to occur and for too much time to be spent by different departments liaising with one another and questioning figures. The technology exists to support this form of collaboration at the touch of a button and provide organisations with a wealth of data on spend invoicing habits. Yet so often, this unanalysed procurement data stagnates in paper invoices, instead of being quickly captured to highlight efficiency savings.
This is what FinTech is all about: easing friction and demonstrating that technology is an enabler of relationships and development, not the enemy. That’s why we developed the Friction Index to understand the scale and impact of the friction epidemic. By cutting friction in this way, the whole business community can innovate and grow.
Join the revolution
So would you join us in planting the flag for a frictionless world? As early adopters, we know you are passionate about technology but we need to see it transform back office processes just as it has been doing for the front office. As Andrew Grove also said: “just as you would not permit a fellow employee to steal a piece of office equipment worth $2,000, you shouldn't let anyone walk away with the time of his fellow managers.”
To find out your business’ causes of friction, visit http://frictionfinder.com/
Richard Hurwitz, Chief Executive Officer, Tungsten Network
Image source: Shutterstock/KAMONRAT