A solid purchasing process saves money, reduces risk and creates control. What is there to not like about it? But implementing a purchasing process successfully is no walk in the park. Many organisations have been persisting for years without success so we’ve formulated the “Seven Steps to Success” for implementing a solid purchasing process.

Implementing a Purchasing Process

1. Back to Basics – Garbage In,  Garbage Out. If your supplier master data and your catalogues are not bang up to date and accurate you’ll never succeed. Don’t even start before you have this nailed.
2. Approval Work Flow – Get this right first time, embed it and make sure that updates to your hierarchy filter through to the purchasing system automatically. As soon as requisitions get stuck in the system, users lose faith.
3. Leverage the Suppliers’ Technology – Suppliers love it when their customers embrace their technology. Use Punchout and other collaborative tools – where appropriate – but take care. It can sometimes be difficult to untangle yourself from a deeply embedded relationship.
4. Don’t overlook receipting. Build the receipting process as a can’t-avoid activity. The end-to-end purchasing process is only as strong as its weakest link
5. No PO – No Pay – No Exceptions – Say it like you mean it and mean it like you say. Supplier soon get the message and they help police your maverick users’ behaviour
6. Exceptions – There are always exceptions and emergencies and you need to respect this. But remember, users will always follow the line of least resistance so make sure that the compliant process is the least painful.

A one size fits all approach just won’t work with purchase to pay. And that’s not just intuition or experience informing  that view.

The Hackett Group reported this in their May Procurement Metric of the Month :  “Many organizations define sourcing and supplier management processes by spend category as the basis for understanding how to best source and manage their suppliers. However, they often do not specify how to buy from and pay those suppliers based on the nature of the spend category and the needs of stakeholders (spend owners, requisi­tioners, suppliers, etc.). While companies usually have some type of “n-step” sourcing methodology, they may have tens if not hundreds of different ways to buy and pay for goods and services. This can reduce efficiency and customer satisfaction and lead to higher noncompliance rates and greater risk”

Take an example of a key strategic supplier of technology components to a globally dispersed manufacturing business. The potential for purchase to pay problems is enormous. There can often be invoice and reciepting queries because delivery is regularly held up with some cross border customs issues. Even where both supplier and buyer adopt best in class supply chain solutions, they are not necessarilyjoined up. These kinds of issues need a solution that is customized for individual circumstances.

It’s best to take a category approach with purchase to pay, however, with strategic suppliers, even a category approach won’t always fit the bill. Strategic spend is more often than not where the transaction volumes, and consequently the P2P benefits, are concentrated so it’s worth the effort to develop a bespoke solution like a Purchase to Pay Charter

Purchase to Pay Charter

The Purchase to Pay charter is an agreement between two supply chain partners that defines their P2P relationship, how they order, how orders are fulfilled and how invoicing and payment works. It provides a means of defining system requiremnts as well as business requirements.

A properly implemented Purchase to Pay Charter provides a collaborative platform from which optimze and further enhance purchase to pay processes for mutual benefit. It can stabalise fraught relationships and build stronger more sustainable working partnerships and best of all, it reduces the cost of doing business.

Press Release from iPayables

iPayables released InvoiceWorks version 8.441 August 10, 2010.  The upgraded version includes new functionality and upgrades to the InvoiceWorks product.  The three most notable enhancements are around:  Managed Security,  Mass Downloads and CASS Address Verification.

Managed Security – While InvoiceWorks has always allowed the administrator of a customers’ InvoiceWorks account to manually create distinct and separate security access levels, this functionality has been upgraded to allow the mimicking of ERP security roles.  The enhancement also allows users to be assigned to those roles and removed from them whenever needed.  It allows for the editing of existing security levels by the customer with complete flexibility to design and manage their account’s access to the utmost detail. In addition, security audit regulation and company preference in limiting and controlling access to invoices has been enhanced.

Mass Downloads – Simply stated this allows for the download and printing of invoice attachments in bulk.  Instead of printing one attachment at a time or for one invoice at a time this allows for invoices within a criteria to be selected and all the attachments (typically pdfs and supporting docs) to be printed in one mass effect.  While iPayables encourages the use of electronic media to reduce paper, we also recognize that some countries still require paper documentation from a legal aspect.

CASS Address Verification – Customers can now elect to use verification on vendor and invoice addresses’ against the official addresses that are recorded in the database of the United States Postal Service. This insures address accuracy for ship to information and bill to information to prevent clerical errors.

In regards to the new version, Jon Titel, CTO stated, “iPayables is constantly seeking ways to improve the InvoiceWorks system.  Release 8.441 is just one of the efforts in a constant striving,  to provide the best electronic invoicing solution.”

At a time when wise use of resources, both from a commercial point of view and an environmental point of view, is seen as a priority, Purchase to Pay stands proud having had an environmentally friendly heart even before the green band wagon rolled into town. And that’s why I discard my cynicism when I see OB10 launching its Green program.

According to Yahoo Finance, the initiative, titled the OB10 Green Program, is a continuation of OB10’s strong foundation of facilitating good environmental stewardship among its global customers and their suppliers. Paper-based invoicing is still a regular practice among many companies, claims Yahoo, whether they are sending and receiving invoices through the mail, implementing OCR or e-mailing an invoice that is printed at the recipient’s end. Yahoo goes on to explain that by transitioning to OB10’s electronic invoicing network, companies have saved over 60 millions of sheets of paper as well as additional resources that go into the manufacturing and distribution of paper such as trees, oil, electricity and water. OB10 is recognizing a select number of customers and suppliers that have demonstrated a commitment to sustainability and e-Invoicing by awarding them the OB10 Green Award.

Electronic Invoicing

OB10 isn’t unique in claiming green credit for e-invoicing. EIPP Platform recently reported Vodafone’s Plant-a-Tree initiative. They reported that Vodafone Czech Republic has joined forces with local NGO ‘Agency for nature conservation and landscape protection’ (Agentura ochrany prirody a krajiny CR, AOPK CR) to launch an environmental campaign throughout the country. As part of this campaign, a tree will be planted for every customer that activates Vodafone’s recently launched electronic billing service.

With this initiative, Vodafone claim, it is enabling AOPK CR to continue the latter’s efforts to increase the diversity of the country’s flora despite reductions in public funding.

Let’s not pretend that P2P is about saving the planet. It isn’t. But let’s also not be shy about declaring P2P’s green credentials and lets join OB10 and Vodafone in celebrating their green initiatives. P2P is about efficient use of resources. It’s about getting a job done as quickly and as economically as possible through an holistic approach. It’s about the elimination of waste. And it’s very, very green and always has been

Let’s indulge for a while in a purchasing and finance fantasy where a CFO and a CPO have a constructive conversation about how best to manage working capital. Suppose there’s a supplier – a strategic supplier with whom the company spends a lot of money – and they’re on 30 day terms. (That is, once they’ve invoiced for goods, they get paid thirty days later.) The CFO and the CPO compare ideas on how to make best strategic advantage of the relationship with this supplier.

The CFO view

“Thirty day terms is quite generous. Most of our suppliers are on 45 day terms and we actually pay on average in about 60 days. DPO (day payables outstanding) is a key measure for us and helps us to optimise our working capital. We take great pride in keeping one step ahead on this and we’d recommend that the contract is renegotiated to 45 days at least”

This is a typical CFO view of course. The only lever they have access to as far as suppliers is concerned, is payment terms and the retention of working capital.

The CPO view

“As a strategic supplier, we value the fact that they buy into our strategic commercial objectives and we are keen to nurture this important relationship. While we are always happy to extend payment terms when it is to our commercial advantage, our risk assessment points to a need for caution with some suppliers and we would be keen not to extend payment terms in some cases for fear of imposing undue financial pressure on them which, in turn, could increase risk to our business. The procurement function is as much about reducing supply risk as it is reducing costs.”

A very measured response and again, a typical CPO stance that takes a very different view from the CFO.

But what about this as an alternative view – the CEO

The CEO View

“As CEO – my primary concern is the bottom line. On the one hand, my CFO wants to optimize our working capital and report strong numbers to our shareholders. On the other my CPO want to maintain a stable and secure supply chain by ensuring that critical suppliers are not put under undue financial pressure.

But if our critical suppliers are feeling the pinch that much – wouldn’t we support them more if we paid early? How valuable would that be to them and how much would they pay for early payment?

If a supplier gave us a 2% discount for payment in 10 days instead of 30, what’s the return on capital? Gaining 2% in 20 days, that’s over 30% isn’t it?”

Snap out of it! Back to reality. The fact is, most organizations are so siloed that treasury management and procurement might as well live on separate planets and even if the benefits of dynamic discounting were recognized, most company’s procure to pay processes are barely able to support payment to terms in any case.

The fact is – discounts in return for prompt payment can give a huge return on working capital but until robust purchase to pay processes and systems are in place, they are just a fantasy.

Unless of course your company has robust P2P processes, in which case – what are you waiting for?