The digital dream: the belief that transforming the front office (also called the customer experience) will lead to success while overlooking back-office transformation will only help to hit the wall faster.”
– Bertrand Duperrin
When it comes to digital transformation, integrating core enterprise workflows— including invoice files, commitment control, solution implementation, and suppliers and other operational players—can be the difference between ‘check the box’ success and having a substantial impact on your ROI.
On January 5, 2017, Bertrand Duperrin, Business Director at Emakina France, shared his dreams for digital transformation in the quote I shared above. His connection of front office and back office transformation brings to mind the Theory of Constraints (TOC). Although we don’t discuss it often in procurement, the Theory of Constraints states that any manageable system is susceptible to being held back from achieving its high-level objectives by a number of relatively small constraints.
When we apply the Theory of Constraints to Procure-to-Pay transformation, it becomes clear that we cannot achieve the full ROI associated with digitizing a process if small constraints (such as non digital steps) remain in the process. These seemingly small details must be taken seriously, as should the limiting factor(s) of the organization as espoused by E.M. Goldratt: throughput, operational expense, and inventory. Releasing the flow of information upstream will reveal hidden malfunctions of all kinds downstream, from calculating performance to supplier onboarding.
You can’t digitize just a piece of end-to-end corporate processes and expect to achieve dramatic results. As with most areas of P2P and S2P, thinking holistically from one end of the process to the other, and even across different processes, is where the greatest potential for success lies.
Case in point: Digital Invoicing
Digital invoicing projects that don’t take commitment requests into consideration will see their ROI negated by the errors and exceptions created by non-integrated ‘silos’ in the business. The essence of Procure-to-Pay is to create objects whose status changes throughout the process so that the object itself does not need to change forms or undergo a manual transition between systems. What starts as a request becomes a purchase order, invoice, and payment order, each relating to requestors, approvers, and suppliers. Maximum ROI is found by working inclusively with third parties and ‘de-siloing’ the invoice processing chain into a continuous improvement relationship that stands out by reducing exceptions.
While a digitization project might focus on supplier invoices, the Procure-to-Pay process addresses whole invoice files. A digitized invoice file includes information in addition to the invoice, that increases the operational scope of the invoice and offers a clear ROI. The first task in invoice digitalization is processing the paper invoices – from opening envelopes to scanning the invoices. The average person can do this with about 75% accuracy, but invoice BPO exceeds 95%. Since the invoice file also contains dispute management, price discrepancies, and missing receipts or orders, ROI is maximized when invoices are managed through integrated Procure-to-Pay and digitized in their more holistic form.
Commitment control, applying contracts and negotiated conditions, and tracking and reviewing budgets, are all ways to create ROI before invoices are issued. The three associated and complementary functions – accounting, purchasing, and management control – come together around the Procure-to-Pay process to generate ROI. Each company will need to decide how to orchestrate this, based upon whether your organization has a centralized or decentralized structure.
ROI at the Speed of Implementation
How a Procure-to-Pay solution is implemented also reflects the company’s organizational model and management structure – again, either centralized or decentralized. While digital transformation is a continuous process, the solution implemented must immediately meet 90% of the objectives for creating ROI. A company can implement the best solution on the market, but if it is not used the ROI will be constrained to near zero. Avoiding this requires the implementation team to set and meet adoption criteria, set process automation targets, have the ability to collaborate internally around system requirements, and secure stakeholder buy-in from both senior and middle management.
Implementation success and user adoption go hand-in-hand. Because in-house users have developed workarounds or avoidance strategies to adapt to the current situation, success depends on their adopting new habits. Securing sustainable ROI is about showing users the advantages to working differently compared to how they do things now. Since today’s Procure-to-Pay solutions are easy to learn and use, there is little training involved. With effective communication and buy-in, a well-managed implementation can accelerate ROI.
Don’t forget suppliers
Suppliers are critical participants in the external resource acquisition process, but they are often forgotten during digital transformation. Supplier portals provide an incentive for involving suppliers in digital transformation. They will be most concerned with the information the portal provides them with: Has my invoice been accepted, and when will I be paid? The ability to create catalogues is also a major part of the equation. It allows supplier to control their transaction costs, and if catalogs are available they are often happy to promote goods and services through your company because of the improved visibility of their offerings. Catalog Management also increases supplier access to group contracts, order/invoice information, and more.
While they may seem like tiny operational details, any component of the Procure-to-Pay process that is not digitized can serve as a barrier to ROI. Don’t make the mistake of limiting your focus during a transformation effort to the large areas of improvement, leaving them on a shaky foundation of ‘constraints’ that will undoubtedly rear their ugly heads when you least expect it.
In Part 2 of this series, I will dig deeper into the Procure-to-Pay process, and talk about how organizational constraints and digital transformation apply at a more detailed level to processes like Contract Management, Supplier Performance and Information Management, and the Strategic/Operational Sourcing.