07 Jun 2011 Holistic Purchase to Pay
It doesn’t take a mathematical genius to understand the business case for some purchase to pay initiatives. Dynamic discounting – exchanging a discount in return for early payment – can give a return on capital of over 30%. Reverse factoring and other supply chain finance methods can substantially increase DPO and AP automation can reduce costs by 50%. But despite the compelling business case, most organisations remain firmly in the 20th century when it comes to purchase to pay optimisation. If the benefits are so great, why are more businesses not grasping the opportunity?
It’s not for want of trying to improve things. There are plenty of failed P2P projects that illustrate the difficulties. Legacy IT systems that just don’t cut it in the 21st century; siloed organisations where purchasing and finance don’t speak; dysfunctional supplier relationships. Fixing these issues is not trivial.
Purchase to Pay is not about getting purchasing processes SARBOX compliant. It is not about managing an accounts payable process. It is a means to eliminate waste and to unlock cash from within a business. But it is also a partnership – a partnership between buyers and suppliers and a partnership between purchasing and finance. Getting it right can be highly lucrative.
It doesn’t have to be particularly complicated. Many organisations have the infrastructure in place already and even an incremental change can bring about significant improvements. e-procurement for example – it’s not just a purchasing system – it can act as a gateway to a vast supply chain ecosystem that you can leverage to your advantage and as supplier networks become more open and interoperable, businesses can access suppliers that are not even sharing the same supplier network.
Operating within silos doesn’t work. Tackling small parts of the process in isolation doesn’t work. Purchase to pay is a complex set of interlinked processes, people and technology. It is only as strong as the weakest link and the only way to profit from P2P is to adopt an holistic approach to every purchase to pay project.
You can read more about holistic purchase to pay in our white paper “Holistic Purchase to Pay” – Download here