P2P For Beginners: Let’s Get our Basics Straight Before We Hit The New Financial Year
A typical procurement organization is involved in the sourcing of a lot of materials – direct & indirect purchases. As the organization grows and spreads so does its purchases and the number of suppliers from whom the purchases are made. As the volume increases, it increasingly becomes difficult to monitor each and every purchase happening within an organization.
This translates to following 3 key imperatives for procurement:
While the past decade has seen many companies make enormous progress in establishing spend visibility, the coming decade will see companies taking more holistic approaches to procurement visibility. The most competitive procurement organizations will become capable of connecting information – generated both internally and externally.
Driving business performance from procurement means convincing employees to line up with and adopt preferred procurement processes, strategies, standards and decisions. A recent in-depth Zycus study covering some 600 procurement organizations worldwide finds compliance n general growing from a platform that combines alignment of objectives, communication, collaboration and consistent technology adoption. Of course, relying on solutions to promote compliance assumes people can easily adapt and use the solutions.
Generating Savings through procurement initiatives
Requisitioning – Procurement’s core performance focus – minimizing costs – can often feel at odds with other business objectives. Procurement’s imperative is to make sure the results of its work materialize either on the top or bottom lines of the business in highly quantifiable ways.
Benefits of adopting P2P in the organization
P2P benefits stem from automating procurement activities and streamlining the purchasing workflow, both internally and with vendors. Automation solutions contribute to processing efficiency. Buyers can order products from online catalogs, purchases can be reviewed and approved electronically using sophisticated workflow tools and orders are delivered to suppliers in electronic format.
Hackett benchmarks suggest that world-class P2P efforts yield significant results for companies (compared with average performers)—World-class organizations:
Impact on compliance
Compliance entails policies that drive users to the company’s channel of choice (use the tool or adoption) and those that ensure that the negotiated savings show up in the bottom line. For channel compliance, spend visibility, including assignment to the department or budget centre where the spending resides, is critical. Too often, senior executives want to insulate their organization from the need to comply because “they are different” or “Procurement doesn’t understand” and thus become the root cause behind e-procurement spend channel policies.
It is seen that best-in-class companies (characterized by 80% + spend under management) with implemented P2P solution show 85% orders compliant with contracts and 75% of spend compliant to contracts i.e. reduction in maverick spending.
Impact on transaction processing
Manual processes and paperwork concerned with Purchase order (PO) processing are characterized by human errors, inaccuracies and reworks. Automating approvals, escalations and triggering events ensures that POs are expedited quickly. Issuing a PO is quicker when it is generated and submitted automatically. Finding products is easier when vendor catalogs and product information are available online and amenable to searches. It can be seen that P2P implementation has a significant impact on the cycle time for requisition to order. The main reason for this impact can be related to automation and process-based workflow. Also, as discussed earlier it is seen that organizations with implemented P2P solutions are better able to manage the catalogs which increase compliance
Impact on Invoice processing cost
Automating the purchasing process lowers transaction costs per PO and reduces the administrative overhead of the purchasing organization. Let’s consider the impact of these figures based on an example. Consider an organization using scanning and workflow (which involves $5.41 processing cost per invoice). If the organization moves to OCR they ill save 18% on processing cost per invoice while at the same time if the organization implements eInvoicing they can look at a potential savings of 42% in the processing cost per invoice.
As organizations across the globe are increasingly banking on procurement to deliver on hard dollar savings to counter the challenging macroeconomic conditions, it has become important for procurement to not only develop a strategic outlook towards its sourcing & supplier management initiatives but also to back its strategies by ensuring its savings initiatives are realized.
P2P solutions by automating all or most of the components within a procurement function provide procurement with the much need visibility into its processes and most importantly increases compliance to processes to have a direct impact on the targeted savings. Here’s an interesting video for better understanding: