Observations from Richard Evans and Kent Mahoney who lead Proxima’s financial services practices in the UK and US respectively.
What opportunities and challenges lie ahead?
Today, economists are reporting that we may be facing another global economic crisis. In many ways, the financial services sector continues to show resilience and has contributed greatly to mitigating the pandemic-caused recession, ensuring the world could transact despite the lockdown. However, the financial services sector is not out of the woods yet and firms that proactively manage future supply chain challenges will outperform their peers.
For those in procurement and supply chain, we wanted to offer our thoughts on some of the most critical supply chain challenges that the sector will face in the coming months including key insights on margin/ratio maintenance, managing long term remote work, and learnings from the Wirecard financial services scandal.
Maintaining margins
Our recent conversations with businesses have revealed a sharp focus on maintaining cost, income ratios, and profit margins during the current pandemic. For some, there will be new, unanticipated supply requirements which will demand agility and access to specialized expertise. Many retail banks have found themselves extending their emergency outreach far and wide to acquire in-demand products such as plexiglass shields, face masks, and hand sanitizer to protect their branch staff. While similar measures will create short-term added operational expense, there is a unique opportunity to better manage overall SG&A.
For most businesses, external costs make up 70% of turnover. For firms lacking a specialist procurement perspective, infusing the right capability and capacity can save somewhere between 8% and 15% on those supplier costs, based on our client experience. In these challenging times, delivering that 8% to 15% can have a significant impact on shareholder value. Working out a plan to deliver and maintain cost controls should be a top priority.
Managing the move to remote working
Wall Street. Canary Wharf. La Défense. The financial services sector occupies some of the most expensive commercial real estate in the world. However, much of the industry is operating with vacancies. We’ve already seen some prominent figures like Barclays CEO Jes Staley state that the days of national, corporate offices may be over.
Reducing prime office space would generate massive savings and serve as a huge benefit for any institution that can operate such a transition successfully. Firms have already started to implement comprehensive strategies around office space disposition and right sizing. Developing a corporate office transition strategy is important, and failing to prepare accordingly can result in businesses facing the decision to sell property as the commercial real estate market drops, missing out on current prime lease renegotiation opportunities, and incurring considerable unwarranted real estate and facilities expenses.
Likewise, we can see that not enough firms are taking advantage of new opportunities that the expanded virtual workforce creates. Forward-thinking leaders are evaluating their labor market strategy and exploring new resourcing models, ensuring access to essential skill sets while optimizing labor costs.
Strategic changes start by asking the right questions. What do you want to happen? What can you change? What’s too ambitious? How does your entire supply chain change with increased working from home? These are hard questions, but if businesses find the right solutions the reward potential is high.
Learning the lessons of the Wirecard collapse
The collapse of the German FinTech Wirecard was remarkable in a number of ways – from the speed of its decline to the disappearance of its former COO, who has touted his links to Russian intelligence. This story should be an important reminder that big-player FinTechs are not just a source of innovation, but also a risk that must be managed.
These risks can be controlled if you have sufficient supply chain visibility and management processes. Some institutions do, some don’t. Most have emerged relatively unscathed from the Wirecard scandal, but that’s not to say the next FinTech collapse won’t leave some leaders in our industry wishing they improved their supplier risk management practices when they had the chance.
