According to a brand-new report from The Hackett Group, not much has changed over the last two years when it comes to Procure-to-Pay process optimization. Process cost structures have been fairly stagnant and automation is far from reaching this 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 adoptions of procurement digital technology were greater barriers to automation than implementation issues themselves.
The Hackett Group’s report takes us a step further and identifies the root causes of poor adoption and how to overcome them. They point out a lack of comprehensive, efficient procure-to-pay strategy which would address all users’ needs. In fact, Procurement organizations tend to focus on large and visible volumes, but it is these exceptions that still happen offline via non-compliant channels which create confusion and inefficiencies. They significantly worsen 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.
The winning strategy already adopted by best-in-class Procurement organizations is a tailored multifaceted approach for purchasing and invoicing channels as well as for supplier onboarding methods. This is what we will explore in this article.
If we look at the upstream part of the P2P process, tail spend, which is most likely to happen offline and off policies, is a substantial contributor to the digital gap between best-in-class and peer group. However, for the least mature Procurement organizations, it will take more than just reintegrating tail spend into a digital channel. It will require to redesign the full procure-to-pay channels strategy.
If users do not find what they need within the digital tool that you offer them, they will turn their backs at it and find their way offline. You will then end up with many non-PO invoices or non-compliant expense reports which will give you harder time to re-integrate into your standard digital process.
This is why it is critical to determine an electronic buying channel for each spend type. These buying channels shall go beyond the traditional catalog/non-catalog alternative. Hackett suggests a certain classification of spend per channels which would constitute 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 P2P process which is often neglected: purchase orders update. How many times do you see these backs 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 anymore or the article is out of stock. Many reasons arise for discussion between a supplier and its 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 invoice-to-pay processing 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 undermines most of automation effort.
In fact, 80% of organizations possess e-invoicing tools but all transactions are not flowing through them. Even though electronic invoices are the most efficient way, having 100% of suppliers through this invoicing channel is not realistic on the short run.
This is why best-in-class have adopted a three-fold strategy for invoice automation. First, they endeavor to eliminate invoices through the use of purchasing cards, open marketplaces and consolidated invoicing. They also employ advanced invoice processing such as electronic data interface (EDI), supplier portals and file uploads when appropriate. Finally, they resort to scan-and-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 electronic invoice channel based on their ability to meet expectations.
For high volume suppliers, P2P organizations should proceed with traditional electronic invoice methods like EDI. Remaining suppliers should be assessed according to two criteria: their importance and their technological maturity. Those that are relatively important and technologically mature shall transact through supplier portals. Smaller suppliers or those with low technology capabilities, may be better suited for outsourcing or scan-and-capture solutions.
Optimizing invoicing and purchasing 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.
Obviously, this virtuous impact of a multi-channel approach for purchasing and invoice channels shall translate into a multi-tier, multi-channel approach to supplier onboarding as well. You do not onboard in the same way a multi-thousand invoices per year supplier with EDI capabilities and 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 procurement technology. 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 solution highly differentiates: it is flexible enough to embrace the full complexity of multi-channel approaches for procurement, invoicing and supplier onboarding while ensuring a unique shopping-like user experience and simple enablement experience for suppliers.
Want to learn more about true procure-to-pay automation? Contact Us today!