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Frictionless P2P: A Dream or Reality?

Blog - Frictionless P2P: A Dream or Reality?



by Staff Contributors

Author: Hubert Verweij, Head of Procurement Transformation, Capgemini Invent Sweden and Finland
Previously published on Capgemini’s website

Nowadays, Procurement practitioners primarily talk about emerging topics like the reduction of scope  3 emissions, supplier-enabled innovation and supply risk management. These discussions are fed by researchers and thought leaders who emphasize the changing role of Procurement to unlock value potential, mitigate risks and reduce total lifecycle costs. Of course, I can only agree with their insights  and the critical role of Procurement in solving business and societal problems, but one process is often  overlooked. Procure to Pay is the process where much of the value potential is actually created…or  where much value is leaking! 

Many large organizations implement a Procure to Pay platform with the aim to deliver efficiency,  visibility, simplicity, and compliance. The ultimate goal is to realize contracted savings and ensure that  suppliers ‘perform to contract’. You could ask the question: how difficult could that be with P2P  platforms that reached a mature status now?! In practice, the greater part of organizations is not satisfied with the adoption and performance levels of their P2P practices. The full potential of the  contract is not realized while internal stakeholders and suppliers are complaining about the lack of  speed, simplicity, and reliability. Calculating value leakage is a complex assignment, but we estimate that value leakage amounts to 2-4% of total spend reflected by: 

Over, early, and late payments 
Unmaterialized rebates & discounts 
Hidden costs due to late deliveries or quality issues 
Maverick buying 
Claims & disputes 
Internal re-processing costs 

The slightly good news is that most organizations do not know what their value leakage is: what you  do not see or know, does not exist. But clearly represents a significant improvement potential if  organizations get more grip on their P2P practices. In the blog, I will share ten best practices that any  organization can adopt when implementing or improving their P2P practices.

1. Procurement policy as a strong instrument to execute your P2P strategy 

Policies are often seen as administrative documents with no added value. They contain much  procurement jargon, are lengthy by nature, and are owned by a supportive function. As a result, hardly  anybody knows the content and there is no structured monitoring and follow-up on compliance. What  companies caught in this trap fail to realize is that if well designed and communicated, a procurement  policy provides a great measure to realize your P2P goals and put your strategy into execution. We  recommend using simple language which can be tailored to user groups. Some companies create  separate documents for the business versus procurement community considering their specific role  and requirements in the P2P process. More important is how communication about policies is  structured and executed. We strongly recommend starting at the top where the CFO and CPO together  sign-off and launch the policy to executive management after which communication is cascaded top down through the organization.

2. Procurement as end-to-end process owner  

With so many stakeholders engaged in the P2P process, one function must take the lead in preventing  functional sub-optimization. In my opinion, it is Procurement that is best positioned to fulfill this role  being the organization’s ultimate relationship owner towards suppliers. This does not mean that  Procurement is responsible for the execution of any activities but is given the authority to optimize 

processes so that the interests of the entire organization are protected. Procurement also takes the  final decision in case of conflicting priorities with suppliers.

3. Easy to say, but go for standardization  

Being involved in many P2P engagements, I hardly encounter any organizations that do not aim for the  standardization principle at the beginning of a P2P initiative. However, this mindset often changes  when the initiative progresses. People try to convince me and, more importantly, their colleagues that  their organization is special when it comes to P2P, but their arguments are often driven by opinions  while trying to keep the current way of working in place. As a result, platforms are tuned to the current  ways of working resulting in customizations and many exceptions which embed much complexity in  running and improving P2P practices. My personal advice: don’t customize your P2P platform and fully  adapt your ways of working. Exceptions relate to external reasons only like national legislation. Sticking  to the standard across your organization will save you costs, frustration, and dissatisfied internal and  external stakeholders. Your leadership team plays a central role in steering this principle, from the  start when launching the procurement policy and during operations. 

4. Treat your supplier as the expert, also in P2P-related matters 

Suppliers exactly know what they will sell to you, including product & price information. With typically  10.000+ suppliers, it is undoable for any organization to keep this information up-to-date without a  large administrative organization. I recommend your organization to fully embrace the concept of  supplier-service when it comes to master data and content management. Most of the procurement  platforms provide solid functionality to enable supplier self-service if your organization, no matter if  your organization has one or multiple ERP platforms. Supplier self-service does not mean that your  organization is completely at the mercy of the supplier, but it requires another approach to managing  supplier relationships. Trust plays a central role where past collaboration and experiences often  jeopardize trust levels. When implementing supplier self-service, spend sufficient time on engaging  the supplier and establish a structure to monitor product & price information changes by the supplier.

5. ‘Fit for Purpose’ buying channels with guided buying 

The products and services, that your business stakeholders need, are so diverse resulting in different  process requirements as well. The way how these needs are managed are defined as buying channels.  Buying channels take into account different product characteristics (e.g. predictability,  commoditization, complexity, importance, etc.) while optimizing the needs for efficiency, simplicity,  visibility, and compliance. Any product or service is assigned to a preferred buying channel which is  embedded in any enabling technology. But there are two issues in practice. First, co-workers do not  know which buying channels are relevant and as a result, often follow the channel that is most  convenient and easy for them. Secondly, co-workers have difficulty finding the right products and  services on any platform and choosing the easiest solution again. As a result, purchases are linked to  the wrong sub-category which jeopardizes the quality of spend analyses while it creates rework in the  downstream process. While enabling technology is mature, usage of the right buying channel, and thus  deploying the most cost-effective process scenario, can only be realized through blended and tailored training approaches during and after the project phase. Guiding buying functionality definitely helps  in selecting the right channel, but it still maturing. Again, compliance monitoring is key to changing  behavior and improving adoption levels.

6. Centralize operational procurement 

With Procurement as an end-to-end process owner, your organization will keep a grip on spend and  compliance. In case a call-off against a contract by a requestor is not possible and a sourcing activity is  required, I recommend centralizing these activities so that all spend goes through the hands of  Procurement. Centralization of operational procurement activities enables Procurement to prevent  maverick buying while it brings efficiencies to other disciplines, ensures compliance to policies, and 

drives cost savings. If operational procurement activities are well-established and stable, your  organization can consider outsourcing these activities to a third party, including other transactional  activities like accounts payables and master data management. Too often, organizations are  outsourcing operational activities with the hope that the third party solves all existing process frictions.

7. One integrated S2P platform enriched by RPA 

I personally believe that any global vendor (e.g. Ivalua, Coupa, SAP Ariba, Jaggaer) provides solid  functionality to properly manage the end-to-end Source to Pay process. Some vendors provide above average functionality in S2C versus P2P, while other vendors excel in specific industries. If possible, I  recommend your organization to implement the full suite of one S2P vendor minimizing the need to  integrate while working from one data model. During your RfX process, pay much attention to the  latter point, because the S2P suites are not always as integrated as presented. If there is a good reason  to select best-of-breed applications from different vendors, I recommend realizing full integration for  several reasons. Lack of integration means lack of comprehensive insights, manual work, and thus  errors and additional costs, and difficulties to manage contract and process compliance. Integration  also helps you to reduce value leakage so ensure that integration enables you to match in legal &  operational contracts, price lists and/or catalogs, purchase orders & goods receipts, invoices &  payments, and complaints, disputes & claims. After standardization and optimizing your existing  platform(s), take any opportunity to replace manual and repetitive work with robotization. RPA technology is also a good measure to automate activities if integration between core procurement  platforms is lacking.

8. Leading & lagging KPIs focused on value chain optimization 

Most KPIs, that are used to monitor P2P performance, are typically not key by nature and encourage  functional sub-optimization. With establishing end-to-end process ownership at Procurement and structuring cross-functional collaboration between Businesses, Procurement, and Finance, it is also  time to revitalize your performance measures. Personally, I am in favor of the Balanced Scorecard  concept which provides a great opportunity to link lagging measures (financial and customer  satisfaction KPIs) with leading measures (process and learning & development PIs). The latter is a much  stronger predictor of future performance levels but is usually overlooked. Another perspective is to  bring the interests of different stakeholders (e.g. Businesses, Procurement, Finance, and Suppliers)  together which provides a 360 performance dashboard and enables your organization to optimize  decision-making that is good for your organization and not for one functional discipline only. I also  mention here the adoption of process mining as a measure to deeply understand the underlying root cause of low-performance levels. Performance dashboards and process mining go hand-in-hand during  continuous improvement.

9. Prioritize continuous improvement from day one 

Being engaged in so many P2P engagements, I noticed that performance management is often deprioritized. Starting with good intentions, available capacity and knowledge is (un)consciously  focused on process development, system configuration, and training & communication so that new  platforms can ‘go live’ according to planning. But lacking the appropriate (K)PI dashboards, there is no measure to show success to the organization or to drive behavior if performance levels are below par.  As a result, co-workers complain about and blame the system while the underlying root cause is related  to lack of adoption. My recommendation is to give the development of (K)PI dashboards priority from  day 1 and ensure that a cross-functional governance structure is established at the go-live date where  business stakeholders, procurement, and finance together drive continuous improvement.

10. Leader-led change to maximize adoption levels 

Anybody has an opinion about procurement, anybody wants to buy, and anybody wants to buy without  the Procurement department. Although this statement is somewhat exaggerated, I want to make a  point that following a people-centric approach is key to maximizing adoption levels and ensuring that 

your objectives to deliver efficiency, visibility, simplicity, and compliance are actually realized.  Leadership plays a central role by providing the right direction and support (“allowed to change”) and  showing the right example behavior. How often does it happen at your organization that a CxO asks  his secretary to call his preferred supplier without a purchase order? When the conditions for success  are set by management, co-workers should get sufficient time to get trained and practice new ways of  working (“capable to change”), while tailored communication and coaching will increase appetite  (“willingness to change”). The same logic applies after the project when new co-workers get engaged in the P2P process and keep adoption and performance to expected levels. 

I hope this set of ten best practices gives you and your organization ‘food’ for thought’ when you are  implementing and improving P2P practices. Capgemini Invent developed an online methodology and  tool to map any friction within your organization. Please contact me if you are interested to get more  grip on your P2P process. 

Hubert Verweij has 20+ years of Procurement experience working as a management consultant and  working in the industry. At Capgemini Invent, he is the Head of Procurement Transformation in Sweden  & Finland where he led assignments around digital procurement, sustainable procurement, and strategic procurement. Capgemini has partnerships with Ivalua, Coupa, and SAP Ariba–helping their clients implement S2P platforms and improving the adoption of their S2P platforms.

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Contributing writers from inside and outside Ivalua occasionally add items and information to this blog. We are a team who share an interest and curiosity about procurement and spend management.

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