Paper-driven supply chain management: a thing of the past? Pt. 1

Blog Best practice June 21, 2020

With digital transformation booming, paper-based supply chain management is quickly becoming the least efficient way of doing business. Luis Ortega, Pagero’s managing director for the Middle East, Africa and Asia, explains the importance of going digital to obtain high-quality data and which methods will finally align the needs of the public and private sectors.

The end of manual supply chain management?

I came across a compelling article in 2018 called “The Death of Supply Chain Management” by A. Lyall, P. Mercier and S. Gstettner for the Harvard Business Review. It addresses the importance of reskilling the workforce and updating processes so companies can thrive in the age of digitalisation. This refers to the digital foundation that will allow companies to capture, analyse and interpret real-time data.

With this in mind, there are two key aspects of this new industrial revolution which I will discuss: the value of data and the role of people when manual processes are replaced by technology. Here in part one, I’ll focus on the value of data and the importance it plays in modern business.

Value of data

There is a general sentiment across the private sector and government worldwide: data hunger. We want and need quality data for the survival and growth of our businesses. High-quality data fuels process automation, predictive analytics, AI and robotics – the emerging technologies of today that will soon surpass traditional supply chain management.

I have worked alongside many businesses and government entities during my time at Pagero. In my experience, I have witnessed thorough analysis of innovative and emerging technology. However, it has been increasingly concerning to see the number of back office and admin staff still manually scanning, typing, obtaining physical approval signatures. Many businesses still rely on manually dematerialising business documents into their existing ERP or back office solutions.

So, my first question is: Why are businesses still well behind the digitalisation of common trading business documents?

Private companies require real-time, quality data to feed to their AI algorithms. This data is the key decision maker in defining what products need manufacturing and which materials need purchasing. Data determines who to buy from and the appropriate price based on real-time information. This data resides in 90% of common physical business documents in the buying and selling process (orders, shipping notices, invoices).

However, physical documents still require scanning, optical character recognition (OCR) or manual input, therefore risking data entry errors. Surprisingly, only 10% of the 550 billion invoices exchanged globally each year are done in a truly digital fashion (Koch, 2019). Most businesses are still exchanging trading documents semi-manually (e.g. paper, images by email or PDF files).

Data hunger: two prime examples

From a government perspective, business documents contain vital information for tax collection. Documents exchanged in public procurement also contain information that helps policymakers control public expenditure, supporting governmental macroeconomic forecasting.

Governments all over the world are defining new policies on e-invoicing, real-time invoice reporting, and real-time tax reporting. In most cases, these are country-specific and do not take into account global trading and cross-border transactions. These policies often focus solely on collecting data to improve the indirect tax gap. They frequently dismiss private company needs for business efficiency and digital supply chain operations. So while businesses work to meet local compliance regulations, they are likely to fall behind and lose growth opportunities.

If we draw comparisons to other industries, an intriguing example is the education sector. A mass of data exists regarding courses and results, and misinterpretation of it can be detrimental to a student’s future. AI or machine learning initiatives allow proper analysis of data, providing valuable insights that improve the quality of learning. The findings certifiably support students in further courses or job applications.

Given the repercussions of the COVID-19 pandemic, the education sector is now even more reliant on digital connections with students. Innovative technology supports these needs by generating valuable data, regardless of where students are. Both the public and private business sectors can learn from this initiative and apply it across the entire trading process.

Aligning government and business needs

This leads me to my second question: Can government and private entity interests align to facilitate the exchange of data for tax collection, and domestic and cross-border trade?

Many European and APAC countries have rolled out global standardisation initiatives, and LATAM countries have plans to do the same. For now, let’s analyse one specific initiative: Peppol.

Peppol started in the Nordics as a public procurement digitalisation initiative. It later expanded throughout Europe, and as of 2019 became a worldwide business standardisation initiative. Peppol sits within the business-to-government (B2G), business-to-business (B2B) and business-to-customer (B2C) space. Currently, 28 European countries, Singapore, Australia and New Zealand use Peppol as their common framework for digital business.

According to OpenPeppol, the framework supports cross-border e-procurement and the exchange of standards-based electronic documents over the Peppol network. Peppol-certified Service Providers like Pagero connect users to the network and facilitate e-document exchange based on Peppol specifications.

Therefore, I would like to draw attention to the benefits of this particular initiative, whereby:

  • documents are exchanged electronically using standardised specifications;
  • the model is based on a network: connect once, connect to all;
  • cross-border trading is supported;
  • Service Providers can be chosen freely.

The situation in the Middle East and Africa

For the last 20 years, my career has been based out of Dubai overseeing the Middle East and Africa regions. I have experienced that in most cases, digitalisation initiatives are adopted later here than in other parts of the world. They are often implemented after learning from the experiences of others and therefore tend to be successful from the beginning.

Rwanda is an excellent example of a country where the economy has leapfrogged, with 8.6% GDP growth in 2018 (WorldBank) due to a great focus on digitalising its economy.

Governments in the Middle East, particularly GCC countries, are prioritising similar approaches to access real-time data and tackle tax fraud. However, in order to avoid compliance burdens, many initiatives do not consider cross-border trading or the need for business efficiency.

I encourage Middle East and African countries to look into the experiences of Singapore, Australia and New Zealand for inspiration. These initiatives, driven by digitalisation agencies or tax authorities, perfectly combine government needs for real-time indirect tax data and business needs for digital transformation support.

At Pagero, we want to support your business on its digitalisation journey. Let’s discuss how we can collaborate to attain quality data and drive the digitalisation of all paper-based supply chain processes. Please contact me directly at the link below and stay tuned for part two: my analysis of the role people play in the future of digitalisation.

Contact Luis Ortega

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