12 May 2015 Purchase to Pay – Are you a leader or a laggard?
Purchase to pay means lots of different things to lots of people. Sometimes it’s simply a description of the purchasing process from beginning to end. It can be used as a euphemism for accounts payable or for an e-procurement system. Technologies like electronic invoicing get thrown into the mix and even supply chain finance seems linked in some way. And it can be all of the above.
All definitions are right but some are more sophisticated than others. P2P leaders tend to have a fuller understanding of the depth and breadth of P2P whereas the laggards are more simplistic.
So, are you a leader or a laggard? What are the characteristics of a P2P leader that sets them apart from the laggards? If you are a laggard, what can you do to catch up with the leaders.
Here’s a set of tips that can help your organization become a P2P leader.
Tip 1 – Ensure the foundations are sound
Despite having implemented P2P systems years ago, many organizations are failing to deliver the full potential benefits of P2P. The problem is that, compared to today, the world wasn’t ready for P2P 10 or 15 years ago. The systems weren’t robust; they weren’t fully secure and they weren’t universally available. Today, we can check all of these boxes but not all organizations are taking advantage and the basic foundations remain incomplete.
Some organizations simply tolerate poor P2P. Even the basics like PO systems fall short. They blame the team that implemented it in the first place. They and are not prepared to re-examine the possibilities of putting things right. The more enlightened organizations however see that continual improvement is fundamental and are prepared to go all the way back to square one if necessary to ensure that the foundational element of P2P are in place because without them, the more sophisticated P2P techniques cannot be exploited.
Leaders ensure that the basic foundations of P2P are in place, that they are robust and comprehensive.
Laggards make do. They tolerate a set of P2P systems that are archaic or inherited that are no longer (or perhaps never have been) fit for purpose.
Tip 2 – Finance, Procurement and IT needs to collaborate
Purchase to pay is unusual in the respect that it spans more than one function. For P2P to be effective it needs to be supported both by finance and procurement and in turn by IT. This is not always straightforward. If, as is the case most of the time that procurement and finance are seen as entire separate and autonomous functions, it can be difficult for them to collaborate in a meaningful sense. Overcoming this challenge is critical to P2P success and P2P leaders realize this and have confronted the problem successfully. Those organizations that have yet to bind finance, procurement and IT remain in the P2P dark ages.
Leaders ensure the 3 key stakeholders – Finance, Procurement and IT – are fully aligned to the P2P strategy and if organizational barriers get in the way, they knock them down.
Laggards work around organizational barriers seeing them as a necessary evil.
Tip 3 – Ensure the right people design and implement
If you need legal advice you’d go to a lawyer. If you’re sick, you see a doctor. You wouldn’t do things any other way so why would you go to a finance person to design a procurement system. And for that matter, why trust the expertise of a procurement pro to understand the nuances of accounts payable? This is common. P2P spans across procurement and finance and when systems are implemented without the right expertise they remain suboptimal.
Leaders ensure that the procurement end of a purchase to pay process is designed by procurement people, that the finance people design the finance end of the process and that the IT aspects are overseen by IT.
Laggards think they know best from whichever perspective they are looking.
Tip 4 – Understand what “electronic” is all about
When it comes to e-invoicing, e-procurement or e-anything, there is often a fundamental misunderstanding about what “e” actually means. Of course it means electronic but the benefit and fundamental purpose of using electronic messaging gets lost.
Retailers and restaurants make a similar mistake. They know that customer service is important so they train their staff to meet and greet, to say “have a nice day”, to ask how your meal is just as you put food in your mouth. But they miss the point. Successful retailers and restaurateurs do all of these things not because these things are important. They do it because they actually care.
Electronic in itself is unimportant. Despite what many would have us believe, “e” is not about saving the planet because we’re eliminating paper. Indeed some studies have suggested that “The Internet” is one of our worse environmental bad guys. We use “e” because we don’t want to do things twice. By using electronic communication in P2P we can create an electronic PO largely from product and pricing data that a supplier can give us and we can create an invoice largely from data held within a PO.
Leaders exploit electronic messaging in order to leverage data that already exists. They acquire data rather than input it and build end-to-end automated processes.
Laggards scan paper invoices and see PDF POs as “e-business” and they retain manual workarounds within their P2P processes.
Tip 5 – Beware of the cost of free
The Internet economy brought about a whole culture of “free”. Facebook and twitter are great examples of consumer products that are “free”. And there are those that would have you believe that this concept can translate easily to the B2B world. It is true to an extent. Certainly the cloud economy delivers economies of scale that makes the old-fashioned on-premise software model highly unattractive. But I’m reminded of the quote from Red Adair; “if you think it’s expensive to hire a professional to do the job, wait till you hire an amateur”.
The purpose of P2P is to save money – the better the solution, the greater the savings. “Free” is a feature – not a benefit.
Leaders recognize that the best solution isn’t always the cheapest. They hire the best people to design and implement and they realize that there’s no such thing as one size fits all in P2P. For e-procurement solutions for example, there are some categories, such as travel and some industries, such as hospitality, that are so highly specialized that category or industry specific solutions are the best choice
Laggards often reinvent the wheel by building in-house solutions to ‘save’ money or they look to low cost or “free” models.
Tip 6 – Take a strategic view
One of the biggest challenges for a P2P programme is securing buy-in at the right level. Without executive level endorsement P2P programmes fail. This is often said of any change programme and that is because it is almost always true. And it takes a special attitude to gain executive endorsement. Unfortunately, it has to be said, that procurement and accounts payable are not the most glamorous areas of any business and it would not be going too far to say that they can be a little boring to the outside world. But to take a boring back-office attitude would be to condemn a P2P programme to failure because no executive wants to back boring back-office.
While “Old World” purchase to pay is boring – new world P2P is actually pretty sexy. You only need to look at some of the New World solution providers like Taulia to get a feel for how cool New World P2P is. Slick, automated end-to-end procurement process take the drudgery out of purchasing and contribute to an efficient supply chain that can make a business responsive to change and reduce costs significantly. Best practice in AP transforms it from a function that reacts to invoices to a strategic partner to finance procurement and treasury playing a strategic role with the business.
Leaders recognize the strategic nature of P2P best practice and can articulate it with an energy that inspires and gains support at senior levels.
Laggards retain a boring back-office mentality, muddle through and do their best with support of their senior managers.
Pete Loughlin can be found on twitter @peteloughlin