16 Jun 2015 How to overcome the inevitable failure of Purchase to Pay
I’ve often said, partly to be provocative but also because I believe it to be true, that Purchase to Pay (P2P) simply doesn’t work.
I’m a P2P expert. I have helped many organizations optimize their purchase to pay processes so this statement appears to be somewhat of a contradiction. How is it that I can evangelize something that I also claim cannot work? So here’s the caveat to the claim. To be more exact, what I mean is that purchase to pay cannot work without some fundamental organizational change. Indeed, I borrow some wisdom from game theory and claim that for many organizations the failure of P2P is an “inevitable consequence of the rules of the game”.
Game theory is a field of mathematics that helps us to understand how decisions are made in complex systems in human life. It is used in economic modelling, politics and military theory and many more fields. Not being a mathematician I don’t pretend to have any more than the highest level of understanding of this specialist field but the concept of game theory is extremely useful in explaining what I mean when I say that P2P doesn’t work.
At a webinar that I presented recently, I explained in detail what I mean. You can access a recording of the webinar here.
I explained why, in an organization where finance and procurement operate as separate silos, it is inevitable that purchase to pay processes are impossible to implement effectively and we see this problem manifest itself in a number of ways.
Ask a bunch of procurement people to describe a typical Accounts Payable person. They will come up with a whole load of stereotypical attributes – female; middle aged; probably a little bit crazy. But ask Finance people the same thing about Procurement people and they’ll do the same. Male; aggressive; incompetent. In many organizations finance and procurement people don’t like each other – despite the fact that they don’t know each other. They sit on opposite sides of the P2P fence and you’d think they were competitors rather than co-workers.
You can also see the effect of dysfunctional P2P processes in other ways. The mismanagement of GRNI for example is common and a symptom of poor P2P. Similarly, the conflict between procurement and finance on the issue of DPO is symptomatic of an organization that is not collaborating effectively.
And it’s not good enough simply to say “Finance and Procurement must collaborate”. This is because failure to collaborate is “an inevitable consequence of the rules of the game”. To fix the problem the rules of the game need to change. A fundamental organizational change is required.
To understand how that organizational change can be effected, watch the webinar recording here or, if you prefer, reach out and ask me.
Pete Loughlin can be found on twitter @peteloughlin