A Key Enabler of Supply Chain Performance
Establishing integrated end-to-end processes is a top priority for many companies. However, most have disconnected sourcing, purchasing, and accounts payable processes. This creates challenges such as decreased efficiency and reduced stakeholder satisfaction.
Building a procure-to-pay process with a well-defined strategy and governance can provide your company with the foundation to realize significant benefits such as reduced staffing levels, improved liquidity, and increased savings. To learn more about how to adopt leading procure-to-pay practices, contact us.
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Procure-to-Pay Process Framework: A Key Enabler of Supply Chain Performance
The Procure-to-Pay Process How Do You Stack Up?
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- The Procure-to-Pay (P2P) process starts with a customers identification of a need and ends with a supplier who provides goods or services being paid Upstream P2P (sourcing and purchasing) and downstream P2P (accounts payable) are one continuous process However, in most large companies, this process has evolved to where the upstream and downstream segments are managed by different organizations Over time, this has led to disconnects at key integration points, which drive re-work, inefficiency, frustration, and higher costs Fixing P2P issues requires re-integrating the upstream with the downstream segments in a single, seamless process Many global organizations have experienced significant challenges when establishing an integrated P2P model different business drivers and a lack of internal customer adoption Despite the challenges, aligning the process is a priority for many companies
- Sources: Thinking End-to-End: Time for Cinderella to Go to the Ball? Rob Davis, sharedserviceslink.com
Typical Challenges of the
P2P Process
Users
-
- Purchasing
- Suppliers
- Suppliers Receiving Users
- Suppliers
- Accounts Payable (AP) Receiving Users
- Purchase request identified
- Source of supply determined and PO processed
- PO received and processed
- Materials and services delivered and received
- Invoice prepared and sent
- Invoice received and verified and payment processed
- Users and Purchasing Challenges Material lead times are excessive due to unnecessary, complicated prescriptive specifications Inconsistent or manual planning purchase request processes increase the time to source/procure materials and services and can lead to PO errors Purchasing forgoes supplier discounts due to lack of awareness or inflexible processes Limited knowledge of suppliers and markets can increase overall purchasing costs Purchasing and Suppliers Challenges Lack of active contract monitoring can minimize on-contract spend and could lead to inconsistent supplier performance Oral orders are given to suppliers or purchasing makes an error in PO data Suppliers, Receiving, and Users Challenges Suppliers ship/provide incorrect goods/services Receiving data is not entered or is not entered in a timely manner Receiving data is not entered correctly Planned work cannot proceed due to material not on hand Items fail after installation due to incorrect specifications
- Suppliers, AP, Receiving, and Users Challenges Suppliers not paid on time or correctly due to upstream issues POs not updated or funded Improper tax treatment on POs Non-standard or manual invoice processes and multiple, disparate systems create several issues Need for more staff Increased cycle time, Lack of visibility for spend, payment status Weak or non-existent invoice standards increase processing time Receipt of invoices is not centralized
- There are myriad challenges across the P2P process which decrease efficiency, impact stakeholder satisfaction, and drive up costs.
P2P Process Leading Practices
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- In ScottMaddens experience, companies can address the typical challenges by adopting these leading practices.
- Leading Practices Users submit online requests Blanket POs for on-contract spend Vendor database maintained Spend analysis and vendor portals leveraged High-value spend strategically managed Packing list line items match PO Advance shipping notices used Three-way check for materials receipts Service contracts actively managed
- Leading Practices (Contd) Invoices are received and processed centrally Invoice keying and approval utilize electronic (i.e., touchless) processing Invoicing processes are harmonized and tightly integrated with receiving, purchasing, and users Payments to suppliers are electronic Metrics indicate performance overall and at key steps of the AP process
Users
-
- Purchasing
- Suppliers
- Suppliers Receiving Users
- Suppliers
- Accounts Payable (AP) Receiving Users
- Purchase request identified
- Source of supply determined and PO processed
- PO received and processed
- Materials and services delivered and received
- Invoice prepared and sent
- Invoice received and verified and payment processed
P2P Process Maturity Model
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- ScottMadden has a maturity model to differentiate the phases that companies pass through on their journey to a fully integrated P2P process. The model is divided into three stages, each representing a greater degree of performance effectiveness and efficiency.
- Stage 3
- Stage 2
- Stage 1
- Where does your company fit?
- P2P Process Maturity Model
- Centralized organization with ownership of all key processes Extensive standardization Automated full-function processes Extensive performance monitoring and reporting Customer satisfaction high again
- Centralized organization with ownership of most processes Considerable standardization Mostly automated processes Little performance monitoring outside of budget control Customer satisfaction mixed most difficult phase as process ownership is transferred Costs begin decreasing
- Decentralized organization where the business units own most processes Little standardization Rudimentary manual processes with little systems support Little performance monitoring, tracking, and reporting Customers generally happy (can do whatever they wish) High cost, inefficient operation (but costs often not visible)
How
ScottMadden Can Help
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- ScottMadden provides a number of services to help organizations improve their P2P processes P2P strategy and governance Leading practice assessment Feasibility analysis and business case development Organization design Building P2P process maturity provides significant benefits Reduced staffing levels Improved liquidity Managed payment terms and discounts Cash recovery from aged credit notes, incorrect payments, debit balances, etc. Savings through improved use of approved vendors Greatly improved supplier service levels and relationships Better tracking of vendor timeliness, quality, and delivery accuracy Reduction of user/management time spent on transaction administration and approval Improved internal control and audit traceability
- Process redesign Performance metric definition Technology design, selection, and implementation
For more information on improving
P2P performance, please contact us.
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