How RBS’s Procurement function improved costs and value

The bank explains how it shifted its sourcing and procurement focus towards value and innovation.

Since the banking crisis RBS has been on a journey to reform, rebuild and refocus its operations. At the heart of the journey has been a fresh emphasis on Procurement and management of the supply chain.

The imperative to deliver significant value to shareholders remains particularly acute in the financial servcies sector. But increasingly the agenda is becoming more holistic and focused on ‘value’ than cost.

Toby Munyard, Vice President at Efficio, talks to Laura Faulkner, Head of Supply Chain Services at RBS, about the road the bank has travelled since its transition into state ownership.

Q: How have you demonstrated the value Procurement brings to the wider business?  

Laura Faulkner: With income levels so dependent upon external forces such as Central Bank interest rates, we need to focus on our costs even more. In Supply Chain Services (SCS), our purpose is to enable the bank’s long-term success through our people and our supply chain partners.

To do so, we prioritise the sourcing and management of supplier services covering around 95% of third-party spend, and 10-15% of the volume of suppliers. Ultimately, it’s about delivering the most effective customer journey and we recognise we have a role to play in ensuring that.

Q: How has your Procurement function evolved to focus more on customer and business engagement than merely cost reduction?

Over the years we have changed our operating model, moving from traditional category management to a business-aligned model. Now we have a Supply Chain Management model merging Sourcing and Contract Management together with each Leadership Team member aligning to each of our key businesses to ensure we fully understand their strategy and drivers. 

Our focus is upon creating real value while securing the sustainability and driving innovation in each supply chain. Levels of sponsorship of SCS within the bank are high but can always be higher. Success is when we are brought in at project inception and considered as a trusted advisor. 

Q: What challenges are presented by the way banks’ services are delivered to customers?

Our focus on meeting the diverse needs of all of our customers is paramount and to support this we’re looking at supporting our customer journeys through automation, robotics and artificial intelligence. In the bank, cost is a key driver but innovation, agility and speed are also important considerations.

Q: While the race is on to develop the ‘next big thing’, what challenges are your traditional suppliers facing?

In five years’ time I believe our supply chain will be unrecognisable; we will have moved to a primary vendor model deriving greater innovation and value from key suppliers. The shape of the supply chain will completely change – we’ll work with more fintechs and other SMEs and we need to get on with managing that change.

Some current categories will no longer be as crucial, for example print, and we will see increased focus on areas such as digital, and no doubt there will be new categories that we haven’t even heard of yet.

Q: How do you leverage the supplier management function to help identify opportunities for the business as a whole?

We’ve always focused upon supplier management, aiming to work with our key suppliers as an extension of our own organisation. It’s about collaboration. We recently ran a programme inviting our suppliers to respond to bank-wide challenges around improving customer service and efficiency, asking them to tell us how they dealt with certain challenges in their own organisations. We received some excellent responses and are working to investigate them further now.

We all need to be less defensive about our supply chains; we must recognise that we do not have all the answers and that our supply base is rich with ideas. We should be asking our suppliers: “What more can we do with you? What are you doing with the others? What should we be doing differently?”

Q: How does regulation impact on your ability to innovate?

We pursue end-to-end supply chain management, tailoring controls and approach to ensure an appropriate balance between risk and value. Regulation can stifle innovation; however, our job is to recognise there’s a smarter way of working. A full-blown contract is fine for a top-tier supplier but it will kill off a small fintech. We need to work out a smarter approach, by understanding the real risk and what we need to do to take a pragmatic view.