Supply Chain Friction Costs Businesses 6,500 Hours a Year
September 13th, 2017: The average US business loses $171,340 per year through clunky payment practices causing friction in their supply chain, according to new research by Tungsten Network. This equates to almost 6,500 man hours chasing purchase order numbers, processing paper invoices and responding to supplier enquiries.
As Tungsten Network launches its inaugural Friction Index report, businesses estimate they spend on average per week around 55 hours 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.
Rick Hurwitz, Tungsten Network CEO, comments: “Numerous processes in the financial world remain cumbersome and time consuming when they needn’t be. Technology means we can do away with the tiresome and menial tasks that clog business work streams and instead boost productivity and efficiency. It is surprising that in this tech enabled day and age businesses are still spending so many hours per week managing a process that could be automated.”
The sources of friction identified by the report amount to 125 hours per business per week or 6,500 hours per year. When multiplied by the average hourly US pay ($26.36) this means US businesses are losing as much as $171,340 a year resolving payment issues.
When surveyed, the Top Five Friction factors were named as:
- High proportion of paper invoices received
- Too many non-PO based invoices
- High volume of supplier enquiries regarding invoice or payment status
- Lack of automated exceptions
- Lack of automated approval
Understandably given the wasted money and man power, 36 percent of businesses state that removing friction from the payment process is a top priority for 2017. However, a full 20 percent state it is not a priority at all – perhaps an indication that the scale and cost of the problem is largely unseen.
Rick continued: “If businesses aren’t tied up chasing invoices or receiving phone calls from suppliers doing the same, they have more time to explore opportunities for growth with existing customers and go after new ones. If all the data from past invoices is easily accessible, opportunities to identify variances that will target inefficiencies are more visible. The technology exists to remove this supply chain friction, which can cause stress, waste time and ultimately impact the wider economy, and we want to challenge US businesses to embrace digitization and begin enjoying the benefits of a frictionless back office.”
Tungsten has developed The Friction Index to explore which companies are most affected by friction in the supply chain. By analyzing the current state of potential causes of friction and the priority level of removing friction from procure-to-pay processes, it has created a friction score which it will be able to review year-on-year. In 2017, large companies had a friction score of 101.0 whereas medium (99.7) and smaller (96.3) companies recorded lower Friction Index scores. This shows that larger companies are most affected by friction and are more likely to lose valuable resources chasing after payments and responding to queries.
Finance teams at large companies with more than 1,000 employees, and smaller firms with less than 100 employees from 422 businesses all over the world took part in the study. They were asked about what supply chain friction looks like for them and the impact it has on their business.
About the Friction Index
The Friction Index is an ongoing survey-based tracker of supply chain friction. It shines a light on all of the inefficiencies that cause frustration and conflict in the P2P process.
Research was conducted in April – May 2016 on 422 senior financial decision makers and process owners in large, small and medium sized businesses.
About Tungsten Network
Our vision is to be the world’s most trusted business transaction network by using data intelligently to strengthen the global supply chain.
Tungsten Network is a secure e-invoicing, purchase order services and workflow platform that brings businesses and their suppliers closer together with unique technology that revolutionizes invoice processing, maximizes efficiency and improves cash flow. Delivering trusted connections and streamlined transactions, the network also provides users with real-time spend analysis and offers suppliers access to invoice financing through Tungsten Network Finance, a form of alternative finance for businesses.
Tungsten Network processes invoices for 76 percent of the FTSE 100 and 67 percent of the Fortune 500. It enables suppliers to submit tax compliant e-invoices in 48 countries, and last year processed transactions worth over £155bn for organizations such as Alliance Data, Cargill, Deutsche Lufthansa, General Motors, GlaxoSmithKline, Mondelēz International, Henkel, IBM, Kellogg’s and the US Federal Government.
Trusted, passionate and proven, Tungsten is making the digitization of global commerce between buyers and suppliers faster, easier and smarter.