09 Jan P2P – Part of the Solution – not Part of the Problem
The disastrous economic climate means that most organisations are looking at their costs even more closely than normal and it is the so called “discretionary” spend that is coming into a very clear focus. When times are tough and the immediate future is uncertain, it’s right turn off all but essential spend. Marketing budgets will suffer. New hires are simply not going to be taken on. Large IT projects will be postponed. It’s the commercial reality of our time.
But – and this is a large “but” – executives need to be very clear about what exactly is “discretionary” spend.
A well known manufacturing business recently embarked on a programme to identify and create efficiencies in their Purchase to Pay (P2P) processes particularly in their invoice processing. Through a combination of tighter control on process, some sensible rationalisation of supplier base and a bit of IT investment to enable and support the new processes, annual savings of $3 million was identified – approximately 1% of the value of their annual spend or the cost equivalent of 80 staff.
Then times got tough. There was uncertainty about the short term as well as the long term. The pipeline of new work was drying up. It was time to contain costs – especially discretionary spend – including their P2P programme.
Why is this misguided? Here’s why. The P2P programme cost was not the discretionary spend. It was the $3 million of overspend which is discretionary. They shot at the wrong target.
In difficult times when companies need to contain costs, purchasing initiatives, whether they be strategic sourcing programmes, eProcurement implementations or P2P projects are not part of the problem – they are part of the solution.