Maximize ROI by focusing on the procuring and the paying.
If procurement wants to succeed in 2020, we need to measurably improve all of procure-to-pay (P2P). Of course, in order to do that, we have to improve how the company purchases goods and services and also how it handles supplier payments. While that seems logical and straightforward, most procurement teams neither procure nor pay. What we are left with is a situation where we need to empower those who will ultimately carry out the work.
This is a classic management situation. A team leader can only increase their impact so much without achieving scale, delivering a multiplier effect by supporting and incentivizing the actions of others. What can procurement do to make distributed buyers (procure) and accounts payable (pay) more effective? We can provide them with the information they need, coherent processes and fully rounded supplier understanding.
The reason we’re all so familiar with “P2P” instead of “P” and “P” is because procure-to-pay delivers the greatest ROI when it is managed as an overarching process. And what makes it a process? The fact that all of the transactions in that process contribute to one, centralized data set. Procurement owns and manages that data set, and so we can serve as the conduit, ensuring that everyone has the information they need and that everyone’s information is captured by the system.
- Procure: They need to know where to go to make purchases, how the approval process works, what to do when they have a new or non-standard need.
- Pay: They need to know which payment terms are in effect with each supplier, when there are performance problems that may affect payment schedules, and when there is a discount-based advantage to early payment.
I’ve already alluded to the importance of process in my comments about centralized information, but an effective process doesn’t just happen. Someone needs to be mindful of the overall flow as well as the alignment between P2P and other business processes. Procurement has an advantage here because while we don’t procure or pay, we do understand what procurement and payments are supposed to achieve for the enterprise as a whole. We’re ‘above the fray’ you might say, and that point of view is very powerful.
- Procure: They need to know how to request new product or service contracts, modify or issue new statements of work, when changes in actual or projected demand justify contract alterations.
- Pay: They need to know if paperwork is in order to justify payment, what might be holding up a payment approval, which new suppliers need to be onboarded for payment.
Although I’ve primarily focused on the internal interactions associated with P2P, both P’s are effectively externally facing activities. Having easy access to the latest information about supplier selection, status, performance, and diversity is critical to making sure purchases are fully informed and payments are timed correctly.
- Procure: They need to know when suppliers are added to the database, even if they are primarily added for the sake of other business units, when quality or performance issues are identified and when they are resolved, when suppliers are designated as strategic, certified diversity, or local – and when it makes sense purchase from them because of that status.
- Pay: They need to know when raw material market shifts justify renegotiation before payment, when performance issues or ongoing issue resolution require a delayed payment, or when (such as in the case of small suppliers) payments should be issued as soon as possible to protect supplier cash flow and solvency.
Procurement spends so much time on spend analysis, strategic sourcing, contract management, digital transformation, supplier performance / relationship management and results tracking that it is easy to forget that it is in the procuring and the paying that our work turns into tangible results. While these activities are the domain of others in the organization, we have a vested interest in making sure they are easy to execute and that all procurement-related activities make sense in the larger business context.
If we want to maximize the ROI of P2P as well as the “P” and the “P” independently in 2020, we need to leverage the fact that we are objective and can take an overall view, making sure that the processes and technology are in place to ensure that our P2P “customers” are happy and empowered.
If you’re ready to start investing in the “P” and/or the “P” of procure-to-pay, schedule a no-obligation, personalized demonstration of our integrated, modular Procurement Solution on the Determine Cloud Platform.