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Procure to Pay Process | The Ultimate Transformation Guide

By Procurement Bloggers
In Procure-to-Pay
Jul 17th, 2020
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A seamless and efficient procure-to-pay (P2P) process is central to the growth of your enterprise.

Different departments need different goods and services on a day to day basis. In addition, there are hundreds of suppliers and product variations. Also, you have to adhere to internal and external compliance. At the same time, speed is essential. But without compromising with quality or accuracy.

The larger your business, the more likely it is that you need to advance your procure-to-pay process. It has to match the expectations of today’s millennial users and comply with all your procure-to-pay policies.

New age expectations from your procure-to-pay process

The idea of purchasing has changed drastically over the last decade. B2C shopping trends have infected the B2B purchasing behavior. Buyers want on-screen convenience, self-services, and real-time visibility into the entire purchase to pay cycle until the loop is closed.

Intelligent suggestions on eCommerce sites like Amazon have caught the imagination of procure-to-pay users in enterprises across the world. They are looking for a one-stop-shop to fulfill their purchasing, operational, and reporting needs.

Emails are inefficient as modes of maintaining, exchanging, and tracking purchase-related documents, communications, and insights. And excel sheets are no better. These are non-collaborative, siloed, and non-automatable.

The result is a series of broken pieces of information tucked away in multiple places, with different people, and with nobody having a consolidated view into it all.

A perfect case for fraud, human errors, missed discounts, and supplier defection to thrive.

Sooner or later, your ability to manage and forecast expense data gets affected. Your business operations suffer from delayed product and service deliveries, poor supplier relationships, and decreased negotiation power.

All of this can be prevented – with suitable investment in upgrading your existing procure-to-pay processes. And by turning them into world-class operations, highly intelligent and automated.

It will not only solve today’s efficiency problems but also immunize your enterprise against complexities that future growth will bring.

Three key benefits of a world-class procure-to-pay process

a) Speed and scale

The purchasing of goods and services for your enterprise should consume the minimum amount of your precious time and dollars.

If creating a purchase order takes more than a few minutes, something is wrong. With world-class procure-to-pay processes, you can happily say goodbye to week-long purchasing cycles.

b) Transparency

To get a hold on your expenses, you want direct visibility into the dollars flowing out of your enterprise. If you and your team currently spend an entire day or more on gathering monthly expense details, the whole purpose of the exercise is defeated.

When you upgrade your procure-to-pay processes, you will be delighted to access purchasing data, reports, etc., across your enterprise.

c) Democratization

Does your procure-to-pay process feel like it fitted better in the 19th century? Do your business users often experience frustration and fatigue each time they have to raise a requisition and get something ordered?

Then a world-class procure-to-pay process will feel like a fresh breeze of democratization for your employees.

Steps involved in a comprehensive procure-to-pay cycle

To fully understand the complexities of a procure-to-pay process and find automation and cost savings opportunities, let us take a typical procure-to-pay cycle from start to finish.

Requisitioning

  • A business user sends an official communication of ‘requirement for some goods or services’ to the procurement team.

Review and approval

  • Relevant approving manager carefully reviews the requirement and assesses it for cost implications and purchase justifications.

Purchase order creation

  • The purchasing team now received a formal purchase order along with budget estimates for the validated purchase requirement.

Vendor shortlisting and requests for quote

  • The purchasing team shortlists suitable vendors for the specified goods and services based on their vendor policies. They also seek quotes from vendors for the specified requirement.

Negotiation and vendor selection

  • The purchasing team negotiates with the shortlisted vendors, compares them against criteria such as cost, quality, credibility, past relationship, and selects the right vendor.

PO confirmation from the vendor

  • A formal confirmation from the vendor comes to the purchasing team for the specified good and services. It covers the exact quantity, quality details as well as shipment date.

Receiving of Goods and Services

  • The vendor supplies the required goods and services, and the enterprise confirms receipt of the same.

Receiving Invoice

  • The vendor sends the invoice for the payable amount against the details of goods and services supplied.

Invoice matching and approval

  • The accounts payable team reviews the invoice for data and cost accuracy and then forwards it for approval and payment.

Payment

  • The vendor gets paid as per the invoice terms, and thus the procure-to-pay cycle is complete.

Challenges with traditional procure-to-pay processes

In such a complex cycle, many challenges arise in managing the procure-to-pay process in the absence of an automated SaaS-based solution. Let us look at these challenges.

Communication challenges

The procure-to-pay cycle involves multiple stakeholders – requisitioners, approvers, purchasing managers, vendors, and accounts payable employees. The communication across all of these people has to be seamless and prompt for timely and smooth completion of the procure-to-pay cycle.

Without an advanced cloud-based tool, different stakeholders remain siloed and have to take to resort to phone calls and emails to ‘get things done.’ Such ways of communication lead to loss of critical data and accountability.

Compliance challenges

The entire procure-to-pay cycle involves an exchange of ‘value’ between the vendor and the enterprise. This value is objective and monetary. Hence, procure-to-pay processes are highly vulnerable to fraud and unethical practices.

If all the document level details, financials, units of goods and services ordered, etc. are not tracked, cross-verified, or confirmed, the business loses money through the cracks. And often, this may go unnoticed.

Thus, you need records of documents at every step in a centralized, standardized, and consistent fashion – easily accessible and understandable by one and all. That demands a simple SaaS-based user interface.

Cost challenges

Time is money for businesses. The faster your company takes its ideas and products to market, the more it adds to the bottom line. Thus, your procure-to-pay process acts as critical infrastructure for your business operations. (When you buy fast, you sell fast.)

However, in the absence of world-class procure-to-pay solutions, you end up behind schedule on even the most business-critical projects. That creates a clear business case for procure-to-pay transformation.

Seven steps to building a world-class procure-to-pay process

So how do you transform your purchasing cycle and adopt a world-class procure-to-pay process? Let’s take a look at the seven key steps to take:

procure to pay process

Publish standardized catalogs

  • It should be simple for internal users to search for the right purchase item. And your system should automatically pick the correct cost classification. A standardized, digital, and flexible catalog can save your team from the need to review or re-enter data when processing this information across the procure-to-pay cycle.
  • You can start with the right information pieces in the format of your business regularities, and ERP needs them. It is paramount to extracting efficiencies throughout your procure-to-pay process.
  • Another benefit of a centralized catalog is that it improves your ability to command better prices from your suppliers because you know what different suppliers charge and how much paid them for the same item the last time.

Democratize requisitioning

  • When business users have direct access to the enterprise-wide procure-to-pay interface, templates, catalogs, and status updates, the headache for the purchasing team gets reduced dramatically. If you have heard of the term guided buying, you will know what we mean here.
  • The system should make it extremely simple for your internal users to search, select, and raise the requisition for the right purchase item.
  • Self-serve capabilities in an on-cloud purchasing software enhance the requisitioners’ capacity to take control of their requirements, trigger approval reminders, coordinate with their suppliers. They begin to play a proactive and positive role throughout the purchasing cycle.

Portalize your suppliers

  • You do not want to reinvent the wheel with similar purchase requests by shortlisting supplier anew each time. That’s a lot of precious business hours wasted, especially when you can quickly access all your supplier data in an instant through the cloud.
  • Your vendor checks, compliance records, performance, and quality trends should be available at the tip of your fingers without having to dig through lines of master data from your backend ERP systems.
  • You can also use supplier portals in combination with autonomous tracking AI bots that scan through the purchasing inbox for expected supplier communications (such as consignment details) and follow up with them as the case may be.
  • Such a centralized supplier collaboration channel smoothens and quickens your supplier communications, exchanging POs, receipts, invoices, and status confirmations related to them. In this ecosystem, your supplier relationships naturally thrive.

Automate quote inquiry

  • Let’s face it. Gathering quotations for different purchase items from different suppliers, and making sense of all that data is very time consuming and exhausting. You have to send dozens of emails, make several phone calls, and seek various clarifications.
  • With advanced procure-to-pay software, you can handle all of these complexities easily through automation. Zycus procure-to-pay cloud, powered by Merlin AI Suite, positions your purchasing team in the driver’s seat where they have all the information to make the best purchase decisions.

Flip PRs to POs to Invoices

  • With effective digitization comes converting initial documents and data into successive ones without losing validity, consistency, and integrity from one user to the next.
  • Human errors and data entry work get replaced with user delight, and at the same time, your business gains from cycle-wide reportability, visibility, and accountability.

Intelligentize cost booking

  • Based on historical purchase data, tagged cost centers, and expense heads, the system can easily tag new purchase requests, orders, and invoices to the correct category. Advanced applications, such as the Zycus procure-to-pay solution, enable this for every purchase line item.
  • Auto-detection of cost center saves time during month-end reconciliation and helps provide an accurate expense estimate, for every department and business unit, which is dependable for analysis and decision making.

Report and analyze

  • A world-class procure-to-pay process rests on learning from the past and not repeating the same mistakes. That goes true for your choice of suppliers, best price benchmarks, negotiated savings, and internal functional KPIs such as cycle times and cost of procure-to-pay operations.
  • In addition, your ability to track all these metrics regularly depends on the performance reporting capabilities your procurement system offers. However, converting data into insights and deriving strategic value from it begins with having data in the first place.

Characteristics of a world-class procure-to-pay process

When looking to build a world-class procure-to-pay process, you can assess your choice of software and technological transformation on the below parameters:

Flexible

  • Does your application serve all your use cases, fit in with your business rules, and have room for newer revisions, changes, etc.?
  • You must choose a configurable platform across its breadth and depth so you can make it your own.

Fast

  • Does your application help you trim down your procure-to-pay cycle times from weeks to days? Does it save your team time and effort and offer scope for scalability?
  • With the new age AI innovations in procure-to-pay, you can cut short your process time substantially. Also, you must aim for business growth without having to increase your team size drastically.

Visibility

  • Does your application give you the insights to do your job well? Based on your role, function, seniority, and job description, it should provide you all the information you need to reduce follow-ups with multiple stakeholders – both inside and outside your organization.

Load sharing

  • Does the application help distribute purchasing tasks evenly amongst your team? With AI-powered procure-to-pay solutions, you can auto-assign requisitions to the right buyer according to their expertise and past purchase history, and leverage domain knowledge.

Mobility

  • Does the application allow you to perform key purchasing actions on the go? Today, voice-recognition bots can help kick off procurement processes via mobile, and leading solutions come with procure-to-pay mobile apps for review, approvals, and status updates.

Supplier communication

  • Does the application help you collaborate with your suppliers and offer them self-service status checks on quote approvals, invoices, payments, and more?
  • You could look into the benefits of a supplier portal.

Some world-class procure-to-pay (P2P)  benchmarks

Below are some of the procure-to-pay benchmarks based on the 2019 Purchase-to-Pay Performance Study by The Hackett Group. Compare your metrics against these to get an idea of your potential for improvement in different procure-to-pay areas.

Cost Metrics

  • Top performers exhibit a process cost of $4.40 per order compared to $15.10 among peers. Similarly, top performers show a process cost per invoice of $2.18 compared to $4.57 shown by peers

Cycle-time Metrics

  • The PO processing cycle-time among top performers is 5 hours compared to 9 hours among top performers
  • Similarly, invoice processing cycle-time among top performers is 2.8 days compared to 6 days among peers

Cash-flow Metrics

  • Days Payable Outstanding among top performers is 46.8 days compared to 33 days among peers
  • Early payment discount as a percentage of spend among top performers is 0.10% compared to 0.02% among peers

Technology Metrics

  • Electronic purchase orders make 96% of total orders among top performers compared to only 36% among peers
  • Similarly, electronic invoices make 85% of total invoices among top performers compared to only 30% among peers
  • And electronic payments make 84% of total payments among top performers compared to only 55% among peers

Conclusion

To conclude, your procure-to-pay solution is one of the most business-critical technology stacks. Also, it is also the one that touches every function – and a significant percentage of your employees. What’s more, it extends beyond your enterprise and involves suppliers.

Therefore, it is no wonder that it is one of the most challenging parts of your business to transform.

Also, there is widespread adoption to take care of. In addition, there are different business processes to integrate with and multiple business rules and policies to follow.

However, today, you have the tools and artificial intelligence advancements to solve all of these problems and are ready your procure-to-pay function for the 21st-century world.

Takeaways

  • The age of self-service and eCommerce have infected business-to-business purchasing
  • However, with a world-class procure-to-pay process, there is the benefit of speed, scalability, transparency, and democratization
  • Furthermore. a typical procure-to-pay process is long and complicated. Additionally, it involves roughly ten steps – requisitioning, review and approval, purchase order creation, vendor shortlisting, negotiation, PO confirmation from the vendor, receipt of goods and services, invoice receiving, invoice processing and payment to the vendor
  • Also, In a traditional procure-to-pay setup, various challenges exist, related to communication, compliance, and cost
  • Hence, an enterprise can transform its procure-to-pay process in seven key steps
    1. Publishing catalogs
    2. Democratizing requisitioning
    3. Portalizing suppliers
    4. Automating quote inquiries
    5. Flipping PRs into POs into Invoices
    6. Automating cost detection
    7. Reporting and analyzing
  • Also, a world-class procure-to-pay process exhibits flexibility, speed, visibility, effective request distribution, mobility, and supplier collaboration
  • Though the procure-to-pay process is not the easiest to transform, with today’s technology advancements and artificially intelligent bots, the returns on investment are fast and only get better with time

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