26 Mar 2010 Purchase to Pay Doesn’t Work
That’s right. P2P doesn’t work – at least it doesn’t work most of the time – not because it can’t work – but because it is implemented in a dysfunctional environment. Until you fix the dysfunction, P2P will not deliver. (See: What is Purchase to Pay?)
There is a whole range of compelling reasons why P2P needs an holistic approach before it will pay dividends. Jason Busch articulates a number in Spend Matters but one of the most obvious is often overlooked.
Over many years, the retail banks have worked hard and spent millions of dollars developing what they referred to as “the single view of the customer”. Having grown through acquisition and merger over decades, the banks and insurance companies found themselves managing many instances of data relating to an individual customer – multiple bank accounts, credit cards and insurance policies, all managed on disparate database and IT platforms. Opportunities to cross sell were being missed and poor customer service common place. And while they still haven’t got it right, they are getting there.
So why do most organisations continue to separate entirely the relationship management of its supply chain. The whole concept of purchase to pay is to utilise best practice and technology to manage a purchasing transaction from cradle to grave – from requisition to payment. By managing the purchasing process through the procurement function and the payment through the finance function an entirely pointless divide is sustained. And suppliers love it.
For some suppliers the opportunity to divide and conquer allows them to encourage poor contract compliance and make greater margin. Failure to comply with invoice processes creates further confusion from which they can exploit further opportunities. A dysfunctional customer is a dream – a fool and his money are easily parted!
But there are bigger reasons to manage P2P holistically and to build a single view of the supplier. Imaginative use of flexible payment terms can generate a significant return on capital as well as support strategic suppliers through difficult trading environment, (refer here to see how dynamic discounting here), and supply chain headaches can be minimised when finance share the same strategic view of supplier relationships. Anyone who has ever seen an important project grind to a halt because a strategic supplier has put supplies on stop because of delayed payment will understand how bad things can get.
Purchase to Pay Won’t Work until the Organization Structure is Fixed
Only by developing a single view of the supplier by managing the purchase to pay transaction in its entirety will P2P payoff. Whether it is managed by finance or purchasing depends on the organization but until this happens – Purchase to Pay doesn’t work.