World class P2P – not just about KPIs
What is world class P2P? KPIs alone don’t give a true picture because they can be cherry picked. What about culture? What about working practices and organisational design? It’s very difficult to describe what truly world class P2P looks like but I have to tell you, you’ll know it when you see it. And seen it, I have.
Some measures of P2P look impressive but look under the hood and see you’ll the reality. For example, 90% e-invoicing? Sounds impressive but for a retailer that uses conventional EDI – standard practice in that industry in many markets – that’s mundane. For an organisation outside that industry, like a bank, the same statistic would be mind boggling.
How about 90% plus PO spend? (That means 90% of spend has a Purchase Order associated with it.) That’s good but if 20% of the POs are retrospective, I’d get less excited about it?
Some automotive manufacturers demonstrate mind-blowing efficiency – when it comes to direct goods – but their management of indirect spend is about as bad as it gets.
KPIs are important but they only tell half the story.
There are some standard indicators that I would look for in world class. First and foremost would be PO spend. i.e. what proportion of spend has a PO raised for it or in other words, the spend is under control. Second would be AP practices – is there a 3 way match before payment is approved? Third would be technology. To what extend are P2P processes automated using e-procurement, approval workflow and electronic invoicing. But world class goes beyond that. How closely are procurement and finance collaborating? The closer they work together, the better the synergy between them and the fewer issues that fall through the cracks. What about the synergy within procurement – how do the operational team work with their strategic sourcing colleagues? Do they know each other’s issues? Do they consult one another? And what about supplier relationship management and collaboration – not just on a technology level but on a strategic business level?
Recently, I visited a large hospital in the UK – Central Manchester NHS Trust (Central Manchester University Hospitals NHS Foundation Trust to give it its full name). Under the leadership of their Procurement Director, Simon Walsh, they have built what I would say is as close to world class in P2P that I have seen. Of course the KPIs are impressive – %PO spend in the high 90s, payment timescales and efficiencies that allow discounts to be claimed routinely, e-invoicing is still work in progress but their e-procurement is mature and working well. What is most impressive of all however is the culture and structure within the Trust. The synergy between AP and Procurement is as good as it gets – it’s all part of the same team. An order can be tracked from cradle to grave – not just on the system – but within a few metres across the same office. The operational team, as well as the AP team, take part in supplier contract discussions together with their strategic sourcing colleagues to make sure that what is promised can actually be delivered. Absenteeism is very low, personal development is high on the agenda, people are motivated, people are proud. Suppliers like dealing with Manchester because they pay promptly and they’re efficient. That puts Manchester in an enviable negotiating position.
I evangelise this kind of stuff. At conferences, I preach synergy and collaboration because I’ve seen it work well. I’ve seen AP working as part of Procurement to deliver synergy and savings, I’ve seen supportive cultures that value people. I’ve seen procurement teams that collaborate and consult one another and I’ve seen some very impressive P2P KPIs – but I’ve never seen them all in one place before. Well done Manchester for demonstrating that world class is much more than simply having impressive KPIs.
Pete Loughlin can be found on twitter @peteloughlin