TweetPurchase to Pay can sometimes be a hard sell. In a highly siloed organization where purchasing and finance see themselves as different species, getting buy in to an end to end holistic approach to purchasing is virtually impossible. But without the holistic approach some serious stuff goes wrong. Below are to top 5 problems that occur when purchase to pay best practice is ignored. continue reading…

TweetCompanies across the globe are missing out on the opportunity to make huge financial savings by introducing efficiencies in accounts payable. There’s nothing new in that. But it’s not just the opportunity to save cash by using P2P efficiencies that is being missed. Current practices are contributing to significant losses of cash! Money that should be in the balance sheet is hemorrhaging from the company coffers because of human error, data inaccuracy and  and lack of integration between systems and the scale of loss should be cause for concern.

Basware, one of the leaders in Purchase to Pay solutions, has just published the results of some research into AP performance – the results are shocking and every CFO should be well aware of it. Despite the clear opportunities to make significant costs saving through the implementation of P2P process models current practice falls way short of what we might call “Best Practice Purchase to Pay”

Purchase to Pay – The Uncomfortable Truth

Basware talked to Accounts Payable heads in the USA, UK and Europe as well as Australia. There are 2 particularly interesting findings: 1. 30% of companies report missed early payment discounts and 27% incurring penalties for late payment; 2. 39% of companies manually match invoices with POs and only 5% use a Purchase to Pay (P2P) product to perform automated matching.

Is it just me or are these two findings connected in some way? Like cause and effect maybe?

This is a great research report and provides very clear evidence that the implementation of P2P doesn’t just help to provide a more efficient infrastructure. It doesn’t just provide a platform on which highly profitable techniques like dynamic discounting can be launched. It is invaluable tool in controlling leakage of cash.

TweetWhatever stage of P2P maturity your organisation is at, it is almost certainly not world class. You see, you might be good. You might even be very good but you’re never as good as you could be. That’s why it’s good sometimes to know how high the bar can really go.

World Class Purchase to Pay

So what does the World Class Purchase to Pay Organization look like? Let’s look at it in simple terms of People, Process and Technology.

People – Purchase to Pay Structure and Governance

The problem in most organizations is that P2P is either p2P (owned by finance with procurement being the junior partner) or P2p (owned by procurement with finance being the junior partner). Inappropriate governance is the Achilles heel of most purchase to pay programmes. It often doesn’t fit culturally to have purchasing and finance reporting to the same point. But without it your P2P organization is dysfunctional.

The world-class organisation has “P2P” with purchasing and finance being equal partners – right? Wrong! – you forgot about the supplier.

Process – End to End Purchase to Pay Process

To get Purchase to Pay right, you need to embrace end-to-end processes. But ask yourself, where are the ends? Does it start with the requisition and end in receipt? Or does it start at P.O. and end in Payment? This is way too simplistic and it’s not a linear process. World Class Purchase to Pay starts at the supplier. If P2P doesn’t create synergy between the supplier’s and buyer’s processes and systems, it will miss out on the potential for win-wins that truly reduce the cost of doing business.

Technology – Use it Or Lose It

IT systems are like musical instruments. At their best, they are amazing albeit expensive but without a talented player to draw out the best in them, they are a waste of money. It is not good enough to spend millions of dollars on great IT if its full potential is not exploited. And, I guarantee that if you employ the best IT that is out there but fail to invest in training of your people to use it to its maximum, the next time you ask the CFO to spend big time on IT he’ll reject it.

TweetIn a thought provoking and incisive article by Tracy Bramlet, she describes in some detail the adverse effects on the financial supply chain following the disastrous explosion that sunk the Deepwater Horizon rig, killed 11 workers that initiated the current spill that is pumping 200,000 gallons of oil a day into the Gulf of Mexico.

As she writes, it will be the regional firms, small businesses and individuals who make their living from the Gulf Coast’s seafood industry who will bear the brunt .  The fisherman, shrimpers and their families. These are the ones who will find it necessary to extend DPOs while trying to shorten DSOs in a bid to help keep their heads above water.  And with far too many of their suppliers and/or buyers in the same situation, relief from within their own supply chain is unlikely.  So these will be the ones who will struggle to get or pay a premium for credit.  These, unfortunately, are the ones for whom the crisis on the Gulf Coast may not just strain their physical supply chain but might just cause a full break in their financial one as well.

Today, we see enough business and economic reasons to see the sense in adopting 21st century financial supply chain methods like dynamic discounting. And now we are increasingly being made aware of the impact of natural, as well as man made, environmental disasters on our financial supply chains. In order to adapt, we need agility. Old ways of working just won’t do and with the technology and techniques at out disposal in 2010, we have  fewer and fewer excuses to blame acts of God on our ability to manage business.

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The selection of procurement software is no – absolutely not – a technical decision.

The successful implementation of Purchase to Pay Processes in a global environment has many challenges. In a short series of items, Purchasing Insight discusses some of the pitfalls. In the second, we look at the procurement software options, the challenges in making the right choice, integration issues and some pointers towards the right route.

Procurement Software

The selection of procurement software is far from straight forward. Although every organization considers itself to be special or different, in reality, there’s no such thing as unique from a P2P perspective. All organizations do more or less the same things. And if you are looking to accommodate the idiosyncrasies that do make your organization unique, you can be sure you at too low a level of detail.

This makes the first choice easy. Build or buy? Purchase to Pay and procurement software are not at the bleeding edge. In 2010, the market is mature and there is a wide range of solutions. The option to build (or adapt an existing solution) should not be in your list of options.

So what are the options? It is usually a safe assumption that the choice of finance system is separate from the selection of a Purchase to Pay system. (Finance systems are a fundamental part of the foundation of an organization that spans much wider than procurement and supply chain.)

The Options

Use you ERP Vendors Module

Some ERP vendors’ procurement and P2P modules are best in class even in isolation from their core finance systems, SAP and Oracle being good examples. But it’s not quite as simple as that. SAP is especially strong in a manufacturing environment but for a financial services company for whom procurement processes are fundamentally different it would SAP would be an unusual choice.

The key benefit of following the finance system lead is integration. Vendor master data may already exist. Version upgrades are a non-issue and there are no interfaces to be managed. The key question however is does it deliver the P2P benefits you want? Great integration doesn’t help if you can’t get suppliers to adopt your purchasing processes.

Third Party Vendors

If your finance system is second tier or lower or is not specific to your industry, third party vendors are a likely optimum choice. Ariba is amongst the best in class for eprocurement and esourcing but will also accomodate electronic invoicing, EIPP and Dynamic Discounting and with a proven track record of implementing alongside a wide range of finance systems Ariba should be included in most short lists.

But also look at the new kids on the block. Coupa for example is a cloud  based service that is seeing some success competing with Ariba in the SMB space. Specilialst vendors such as Basware with an einvoicing heritage are extending their reach and should be including in the mix.

A summary of Purchase to Pay Software is here.

Summary

There’s an adage in investment circles: “I can guarantee I can double your money (I just can’t tell you how long it will take)”. It’s like that with Procurement Software and all business software – it will do what ever you want it to do – it’s just a matter of time and money and in business it’s the time and the money that count. The selection of the right procurement software is not about headline cost and it’s not – absolutely not – a technical decision.

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SRM remains a hot topic for organisations, and creating the business case for change is challenging. All of us understand SRM is the right thing to do, but putting absolute values on benefits achieved through an SRM programme is difficult.

In 2009 State of Flux focused their survey around 6 steps for SRM success. They have extended the 2010 survey to include how organisations approach SRM and the business case for change, implementation and overall approach to SRM, and to allow organisations to benchmark to leading SRM practices.

If you would like to contribute, the survey takes 10 to 15 minutes to complete. Responses are confidential. State of Flux will provide the results upon completion and will run cross organisational workshops to discuss results.

The survey link is http://www.stateofflux.co.uk//surveys/srm_survey.aspx

TweetLate payment is a blunt P2P weapon and it’s disappointing to read in Supply Management that small suppliers are waiting longer than ever.

Nick Martindale reports that research performed by BACS in the UK found small and medium-sized companies had to wait an average of 41 days beyond the agreed payment date before invoices were settled in the second half of 2009; a rise of 9.5 days on the previous half-year’s figures. Large organisations were named as the worst offenders by 37 per cent of small firms; twice as many as the second-placed group in the list (17 per cent said sole traders and other small businesses were mostly to blame). It is pleasing to note that government departments and not-for-profit organisations were seen as the main problem in just 6 per cent of cases.

So what is going on? Are large organisation flexing their muscles to hang on to cash that bit longer? Are they employing their vast array of procurement technology options to fine tune their financial supply chain to optimize their treasury mangement strategy?

They wish!

I’ve heard companies brag about their ability to keep small suppliers waiting while they benefit from improved cash flow, yet in 100% of cases when I’ve had the opportunity to look under the hood, late payment is either directly caused by or inspired by incompetance. More often than not, an incompetant finance team, under resourced by an incompetent CFO who doesn’t appreciate the supply chain pain that their under resourcing costs.

I want to ask the CFOs responsible for the increase in late payments a question: Paying early and using Dynamic Discounting can give you a return on capital of over 30%. In 2010, when interests are practically zero, how does that compare to the return you get paying 41 days late?