COVID Magnifies the Need for Procurement & Tax Alignment

COVID Implications on Supply Chain & Logistics

As global supply chains buckle due to COVID-19 disruptions—along with numerous preexisting conditions—leading procurement functions are transforming how they operate in the global digital economy. The pandemic also has exposed many operational and logistic approaches that are unsuitable for responding to COVID’s many challenges. These shortcomings have a silver lining, though, as more procurement leaders recognize the value of deploying a next-generation procurement platform that smoothly integrates a tax engine into a revamped procure-to-pay cycle.

Some procurement functions were on the brink of momentous change prior to the current pandemic. This global event has magnified fault lines at the foundation of international trade flow arrangements and infrastructures designed for supply chain management activities in a mercantile economy, but not in an interconnected global digital economy defined by a complex, multi-leveled chains of supply networks.

Adapting on a Global Level

While global businesses have yet to fully embrace a more fluid and dynamic systemic approach amid rising geopolitical tensions, economic difficulties and intensifying trade disputes and competition, there is a growing recognition that we need to move away from 20th Century supply chain management tactics and toward designing and managing global adaptive digital chain value networks that are more mobile, agile and responsive to 21st-Century crises and subsequent supply and demand alignments. In a recent post, Vertex Chief Tax Officer Michael Bernard reports that future supply chain decision-making will place a much greater emphasis on risk exposure, supply alternatives, channel complexity and tax considerations.

Yes, overhauling a decades-old global supply chain management model is a massive undertaking. Yet, it requires the involvement of the procurement functions and tax departments.

What this Means for Leaders in Procurement & Tax

Both functions generally have increased the level of their strategic work in recent years, and that trend should only accelerate. Procurement leaders are rethinking how they source, how they assess risk, what they source and how they respond to ongoing external disruptions. They should also recognize that external disruptions lead to higher enterprise risks that will also have internal consequences. Tax leaders are assuming larger roles in strategic decision-making pertaining to entering new geographies, selecting manufacturing and office sites, and launching new products and services.

Leading procurement functions have been using powerful platforms, often embedded in (or tightly integrated with) enterprise resource planning (ERP) systems, that reduce costs, increase efficiency and free their professionals to invest more time in higher-value work. In a wider cost-benefit analysis, those benefits are at risk, however, if the procurement platform does not contain sufficient tax automation to apply accurate sales and use rates and value added tax (VAT) codes. Those errors can result in the underpayment of taxes (increasing audit exposure) or overpayments (creating the need for time-consuming recouping work).

Enhancing Procurement Systems with a Tax Engine

Forward-looking procurement and functional tax and data allocations are mitigating those risks by enhancing their procurement systems with a third-party tax engine, which enables the tax department to control the tax calculation within the procure-to-pay process in an automated fashion. That assurance and efficiency enables procurement and tax leaders to devote more time to strategic matters like the maturation of global adaptive digital value networks.