Build a strategic purchasing function in retail banking

Retail banks around the world are under increasing pressure to optimize their costs, across the entire value chain. Kenan Nouwailati, a leader at KPMG, explains how procurement excellence can help improve performance and shares three ways to create a strategic procurement function.

With the rise of digital banking, fintechs and other disruptors in the financial services space, retail banks need to leverage their features to provide the best services at lower costs and maintain brand image .

With ambitious thinking and a robust approach to vendor and spend management, banks can improve the maturity of procurement functions to help navigate a changing financial environment.

Retail banks can potentially face a range of challenges in their procurement function that can hamper their ability to reduce costs and increase market reach.

The first major challenge is the framing of the procurement function as an administrative function, instead of a strategic function, without mandate and with limited alignment with other functions. With administrative etiquette, procurement policies emerge with little or no consequences for non-compliance.

The second challenge stems from a lack of planning due to the detachment of procurement planning from business plans and budgets. This leads to a reactive function with a high volume of low value transactions and limited framework agreement coverage.

The third challenge is the lack of data, which covers spend analysis, market analysis and supplier management. Spend analysis is often ad hoc without clear objectives, making it difficult to interpret data and results, limiting reporting and realizing cost savings.

Another area that suffers is market analysis, which is lacking with little or no price benchmarking activities. A lack of data analytics results in a large and fragmented supplier base with limited supplier performance tracking and contract management. Thus, enterprise resource planning data is compromised and cannot be used to improve business process results.

Develop a strategic purchasing function

In order to take advantage of the savings potential of procurement, banks need to ensure that the function evolves from a business process executor to a strategic value partner by increasing its level of maturity. This forces banks to address the challenges plaguing supply and to do so, they must follow three main paths:

Maturity Assessment
Perform a maturity assessment to identify gaps in the procurement function. This includes an understanding of the organization’s maturity in terms of people, skills, size, processes and strategy.

It’s important to assess whether the function is hiring the people with the best skills for the job, as well as whether they meet local content requirements. Specialized skills in the purchasing function are becoming increasingly important with the digital transformation of the bank. Acquiring the right skills and services can save the bank in the face of fierce competition, while failure to do so increases the risks to the bank and the potential for its brand to be tarnished.

The procurement function must also have appropriate policies and procedures with established KPIs, planning tools and ERP data to evolve into a strategic value partner within the bank.

Spending Transparency
Provide spend transparency to identify potential cost savings and implement effective strategic sourcing activities.

Banks should assess procuring entities, what is purchased by category and volume, and suppliers. Leveraging spend transparency data allows banks to identify short- and long-term savings potential and procurement inefficiencies. This data can also shed light on availability and reliance on local providers.

Supplier relations
Manage end-to-end supplier relationships. The Supplier Relationship Management (SRM) lifecycle includes:

  • Analyze and segment the current supplier portfolio to derive differentiated supplier relationships
  • Identify potential suppliers through performance and qualification tools
  • Constant monitoring of supplier performance
  • Improve the performance or capabilities of suppliers to be valued
  • Transition or Termination of Business Relationships with Suppliers
  • Supply Chain Risk Monitoring and Mitigation

It is good practice for banks to keep in mind a variety of risks, such as having a single supplier for critical needs, which means problems for the bank if that supplier goes bankrupt.

One strategy to reduce supply chain risks, which banks faced during the Covid-19 pandemic, would be to contract more with local suppliers to mitigate the possibility of cross-border delays. This will also contribute to a broader strategy to maximize local content in the various activities of the procurement function.

About the Author: Kenan Nouweilati is KPMG Saudi Arabia’s Eastern Province Consulting Manager and Head of Procurement and Supply Chain for the firm in Saudi Arabia, Jordan, Lebanon and Iraq. He has over 20 years of experience and has held senior industry and consulting positions in Europe, the United States, Africa, Asia and the Middle East.

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