P.O. Flip is Flipping Flawed

Posted by Pete Loughlin in Procurement Software, Purchase to Pay 17 Jul 2016

I’m fortunate. Like most people, I’ve never been in a serious car accident but accidents do happen and seat belts save lives. I must have been on tens of thousands of car journeys and despite the fact that I’d be no worse off if I’d never worn a seat belt, I still do and always will. So when a software provider says in answer to the question “What if something goes wrong?” and they say “But it shouldn’t” you have to question their judgement.

Flat Logo Light GreenThis kind of muddled thinking often happens when non-procurement people get involved in contract negotiations. They use the contract to describe what is supposed to happen – supplier provides a service, buyer pays – but they don’t pay enough attention to the bit about “what if something goes wrong?”

I’m reminded of this when P2P vendors talk about P.O. flip. For those unfamiliar with P.O. flip, it is a means of creating a digital invoice from a digital P.O. If I am a buyer and I create a purchase order from an online catalogue, it is reasonable to assume that the invoice information will reflect very closely what the P.O. information contained. It is possible therefore to effectively use the same information and “flip” the P.O. data to create an invoice. In this way, the invoice and the P.O. will always match.

Auditors will see the flaw in this logic straight away. The assumption is that the P.O. is correct all of the time. There’s also an assumption that the full content of the P.O. is shipped by the supplier. But “there’s many a slip twixt cup and lip” as they say – which roughly translates to “there’s a lot that can go wrong”.

P.O. flip has its place. There are some categories of spend and some P.O. scenarios where the invoice is almost by definition going to be identical to the P.O. Corporate software licenses for example. There’s a catalogue of one product – a new user licence. There’s no delivery charge, no variance from one user to another – that works well. But, apart from simplistic purchase to pay situations, P.O. flip is flipping flawed because it has at its heart an assumption that things always happen the way they should.

When you say to a software supplier – “but what happens if things go wrong?” – the answer should not be “well it shouldn’t”. We know it shouldn’t – like I shouldn’t crash my car. But what if I do?

Procurement and P2P systems are supposed to automate P2P processes but if they focus only on simplistic scenarios or have at their core an assumption that things always happen as they should, they add little value because in the real world, you’d not be automating enough to deliver efficiency. P.O. flip isn’t enough.

Pete Loughlin can be found on twitter @peteloughlin

  • Dave W July 18, 2016 at 12:22 pm /

    Most PO flip solutions i have seen allow the supplier to edit the data anyway, for precisely this reason. I think it’s a legal requirement in some jurisdictions as well. The PO flip still has value here because it guides the supplier to submit the right price. Also, in the scenario you suggested (catalog) the supplier will usually have provided the price so…. if the PO is wrong arguably it is the supplier’s fault.

  • Shaun H July 18, 2016 at 6:14 pm /

    Bravo, sir.

  • Mo July 18, 2016 at 10:34 pm /

    This has been overly simplified. PO flip is ok if you’re dealing with particular categories where 2 way match works but in reality the benefit of catalog purchasing supplier network is more than that. Whilst correct supplier pricing in a catalog = accurate PO in reality it’s the GR flip where the benefits come into play… invoicing based upon GR confirmation covers the points Pete is making. But even then there is much more capability in supplier networks that has only been fully explored by a few companies. There is huge value in a network but there is a lot more to it than ‘just’ PO flip… the companies that HAVE spent the time to invest in using the power of a good supplier network are reaping the rewards.

  • Richard July 20, 2016 at 9:05 am /

    @Pete – I would completely agree. Though I would add that the duplication of effort and activities – as well as the risk that the suppliers finance application will have a different view of the data compared to the invoice portal – are greater candidates for the ‘why PO Flip is flawed’ title. I accept that for micro businesses without a finance application, invoice portals and PO flip may be appropriate. But if a supplier already has their own finance application (which 99.9% of them will do), why would they want to raise their invoice in their own billing application (which is likely to be driven by their sales order processing app) and duplicate effort and do it again in a 3rd party portal? It just doesn’t make sense. For the supplier, the single source of truth is their finance system …. but portal providers are saying ‘the invoice you enter / we create is the master’???? Which view of the world are the auditors going to adhere tot?

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