Even though only a week has passed since the news of Silicon Valley Bank’s (SVB) potential insolvency first emerged — and a few, well, not so subtle subsequent plot lines taking final shape in the immediate wake of the news — the world of procurement and supplier management has been forever changed as companies have become aware of additional risk elements they should be monitoring and managing in their supply base.
Indeed, procurement should no longer just look at its “part-time” job in risk management from the vantage point of only “supply risk,” i.e., physical or labor supply risk. The other two key factors that procurement MUST manage from a risk perspective with its suppliers include the financial supply chain (i.e., how money is secure and moves across and up and down the supply chain) and the information supply chain, such as provenance and cyber.
Historically, companies that have embarked on a mission to identify and manage risk have, at best, tackled these areas independently. But, as SVB has taught procurement and vendor management teams with significant exposure to technology and solution providers in their supply base, it’s increasingly important to look at these areas together, as they provide a comprehensive view into supplier and supply risk — albeit in this case “virtual goods” supply.
Curiously, for those of us that grew up in direct materials procurement, the notion of supply concentration in SaaS and solution providers may seem laughable at first. But don’t let a chuckle get in the way of the new reality we operate in!
The risk is very real.
In fact, in many areas of technology, the notion of having to switch out one supplier for another relative to direct categories of spend, such as raw or semi-finished material, stampings, plastic injection molded parts or electronics, actually may present additional complexity in comparison — not to mention change management.
Invest accordingly! And yes, as you might have guessed by now, even something as mundane as a supplier’s banking relationships can matter. Think about that when you on-board them — perhaps making an “alternative bank” a requirement for a vendor’s approval.
AI? Yes, please!
Another area that I can’t stop thinking about in the wake of SVB’s implosion is AI. And not just generative AI, such as ChatGPT. AI truly means more than just replacing the work humans can do, such as writing this column. AI is truly in the process of changing everything from a risk management perspective because there are patterns that we humans can’t see so easily.
There are a near infinite number of data sets that we don’t consider in risk-weighted decisions, such as chat streams on our phones, keywords in social trending, podcast sentiment analysis, market movements, market volume, satellite imaging, the weather, etc. But AI can and should raise alarm bells — especially when the risk of false positives, such as a recommendation to “wire money out” of a particular at-risk bank, does not come with a huge downside if you’re a day ahead of your peers.
I suspect we will see a new generation of solutions (and capability on top of existing products and platforms) that begin to layer in truly prescriptive analytics for risk and other areas sooner.
In Treasury Management We Trust
A final point I’ll make today is that SVB’s failure should be seen as a wake-up call: even SMB firms should invest in a treasury management system (alongside AP and AR) which can help manage real-time cash positioning and visibility across accounts.
There are many good choices in the market (we’ve developed an unpublished benchmark and set of TMS functionality at Spend Matters), but ideally treasurers (and CFOs/controllers) should have access to a “portal of portals” across their accounts to optimize daily positioning, cash management and cash visibility.
TMS cash/bank feature requirements should include:
- Liquidity Enablement — Do you provide liquidity management services to help treasury clients optimize cash flows by allowing them to set up cash pools, sweeps, zero balance structures, etc.?
- Cash Visibility Formats — How can cash be viewed, e.g., by bank, currency, legal entity or region? Is intraday reporting and reconciliation also a feature?
- Cash Pooling — Can the system automate cash pooling and centrally manage bank accounts in one place?
- Cash Pooling — Describe any internal transactional systems used to augment cash positioning balances, e.g., using incoming collections and outgoing disbursements such as AR, lockbox, lease, wire, ACH?
- Bank Account Consolidation — Describe how you automate and consolidate various bank account statement data, e.g., bank polling?
In treasury management and beyond, I wish you all the best in embarking on your technology journey to better manage risk and opportunity in the wake of SVB.
Below, you’ll find a few links to various Spend Matters research areas that we’ve curated which we think could prove helpful:
Supplier Risk Management:
Supplier Management:
Treasury/Payments:
