What is the current state of Procure-to-Pay?
According to the 2020 report from The Hackett Group, not much has changed over the last two years when it comes to Procure-to-Pay process optimization. Procurement cost structures have been fairly stagnant and automation is far from reaching the 100% target all Chief Procurement Officers dream of.
Why do most Procurement organizations still struggle with full Procure-to-Pay process automation?
Part of the answer has already been unveiled by Forrester in their report from April 2019. Against all odds, supplier and user adoption of procurement digital technology were greater barriers to automation than implementation issues themselves. This is a big barrier with P2P automation overall.
The Hackett Group’s Procure-to-Pay report takes us a step further and identifies the root causes of poor adoption and how to overcome this. Hackett points out that a comprehensive and efficient Procure-to-Pay process which addresses all types of users is often something that is not well thought out.
In fact, Procurement organizations tend to focus on large and visible volumes, but it is the exceptions that still happen offline via non-compliant channels which create confusion and inefficiencies.
They poorly impact the Procure-to-Pay user experience and therefore their adoption. On the other hand, imposing the same rigid digital channel for all suppliers does not match the supplier market diversity and capability to respond.
What is the Best-in-Class Procure-to-Pay Solution?
The winning procure-to-pay solution already adopted by best-in-class Procurement organizations is a tailored multifaceted approach for procurement and invoicing channels as well as for supplier onboarding methods. This is what we will explore in this article.
Why All Suppliers and ALL Spend must be included in the Procure-to-Pay process
If we look at the tail spend portion of the Procure-to-Pay process, it is most likely conducted outside the “system” and is off policy. How tail spend is handled can contribute to the digital gap between best-in-class and peer groups. However, for the least mature Procurement organizations, it will take more than just reintegrating tail spend into a “formalized” digital channel. It will require a redesign of the full procure-to-pay buying channel strategy.
If users do not find what they need within the Procure-to-Pay application that you offer them, they will turn their backs on it and find their way via other channels. You will then end up with many non-PO invoices or non-compliant expense reports which will lead to further inefficiency and cost.
This is why it is critical to determine an electronic procure-to-pay buying channel for each spend type. These P2P buying channels must go beyond the traditional catalog/non-catalog alternative.
Hackett suggests a certain classification of spend per channels which would be a good starting point to fully re-integrating your spend into an optimized digital channel.
Re-integrating orphan spend is a major improvement towards automation, but so is digitizing offline parts of the process.
Before jumping into the downstream part of the process where most of the manual work still happens, let us dig into a key part of the Procure-to-Pay process which is often neglected: Purchase order updates. How many times do you see these back and forth with a supplier who has just been dispatched a purchase order?
Either there is an error in the product name, or the delivery date is not accurate any more or the article is out of stock. Many reasons arise for discussion between a supplier and their customer at this stage of the process. Reintegrating those reasons into an amended reapproved PO usually takes a good amount of time and effort, which is why it is not done most of the time.
Accounts Payable eventually finds itself with an invoice which impairs its straight through matching process as it does not match the initial PO. The solution here is to offer digital collaboration capabilities to users and suppliers at the PO level.
Non-electronic invoices are another type of friction in the process which can undermine automation efforts
In fact, 80% of organizations possess e-invoicing solutions but all transactions are not flowing through them. Even though electronic invoices are the most efficient way, having 100% of suppliers through this invoice to pay channel is often a challenge.
This is why best-in-class have adopted a three-fold strategy for invoice automation, key to a sound procure-to-pay solution strategy:
- They endeavor to eliminate invoices through the use of purchasing cards, open marketplaces and consolidated invoicing.
- They employ advanced invoice to pay strategies such as electronic data interface (EDI), supplier portals and file uploads when appropriate.
- Finally, they resort to invoice data capture technology which receives invoices sent in a non-electronic format (paper, email, fax) and converts them into data through scanning (e.g., OCR).
The winning strategy here is about segmenting suppliers and assigning them to a dedicated e-invoicing channel based on their ability to meet expectations.
For high volume suppliers, Procure-to-Pay organizations should proceed with traditional electronic invoice methods like EDI. Remaining suppliers should be assessed according to two criteria: 1) their importance and 2) their technological maturity.
Those that are relatively important and technologically mature will transact through supplier portals. Smaller suppliers or those with low technology capabilities, may be better suited for outsourcing or scan-and-capture solutions.
Optimizing Procure-to-pay channels will eventually have a positive impact on your supplier master data management.
First, electronic data will increase quality by reducing manual data entry and consecutive mistakes. Second, all the invoicing optimization strategies (purchasing cards, marketplaces) will reduce the number of suppliers that you need to onboard. Following these guidelines, top performers have about a third as many suppliers per billion as those in the peer group.
Your master data will finally provide actionable data for analysis instead of scattered, meaningless data. It will also allow you to get into deeper levels of detail. This is a true differentiator: top performers have visibility into 93% of line-item spend, versus 41% only for peer group.
Showing the analytical value that you can get from clean data turned into insightful analysis will help reinforce adoption.
Important to note that this multi-channel approach for purchasing and invoice transactions also applies to supplier enablement, which if not done correctly limits the ROI from a procure-to-pay solution. You do not onboard a supplier sending thousands of invoices a year in the same manner as a one-time consulting project provider.
Consequently, you should ensure that suppliers receive only the level of oversight necessary for their corresponding category of spend and that their onboarding channel matches their technological maturity.
Having a multi-channel approach is vital to acknowledge the diversity of spend channels and suppliers’ capabilities. Yet, multiplying these channels, especially buying ones, will certainly confuse users and damage their buying experience.
This is why accompanying the former with a stakeholder-centric approach is vital. The multi-faceted approach for procurement, invoicing and supplier onboarding channels must come down into a simple, unique user experience.
This is what is expected from procure-to-pay solutions. Hackett’s research confirms this point: technology platforms and streamlined policies are the most effective ways to improve the experience for buyers, shoppers or suppliers.
This is where Ivalua’s digital spend management software highly differentiates: Our Procure-to-pay solution is flexible enough to embrace the full complexity of multi-channel approaches for procurement, invoicing and supplier management and onboarding while ensuring an intuitive e-commerce user experience and simple enablement experience for suppliers.
Senior Product Marketing Manager
Arnaud has over 10 years’ experience in procurement across both sourcing and procure-to-pay. His experience comes from working with major international technology and media groups, where he was responsible for overseeing solution deployments as well as ensuring business value is achieved through technologies. Arnaud has a Masters in Finance from ESCP Europe – a top Business School in France and a European MSc in Management from London City University.