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How to Kill Purchase to Pay Touch Points - What Successful Organisations are Doing to Automate

Organisations across the world are beginning to map their Purchase to Pay process and the response to this long exercise is typically the following: shock.

Historically

Most Finance and Procurement functions were too busy growing in the 90s to really care about the efficiency of their processes. The speed at which most companies were growing meant that it was a triumph in itself if finance was on one system. To go to the next level and talk about the possibility of having a single P2P process, which was clean and ready for automation, left most Finance Directors in a daze. To talk about automating P2P and having a touchless process would qualify you as a fantasist.

Today’s View

Skip forward to 2008, and the landscape is very different. Most companies are now realizing that Procurement and Finance need to hold hands for once and tackle a process which crosses both their functions. Most companies have at least started to map out existing process flows and realised that the number of touch points, reaching well into double figures, simply does not need to exist, and the financial cost for these inefficiencies can be measured in USD millions.

Visualising the Dream

It is possible for there to be just 3 touchpoints (PO raised, PO approved and issued, and Goods Receipt booked in) at the Buyer side, and the beauty is that none of these need to be in Accounts Payable. Companies that started the P2P ‘clean up’ in the last 10 years are now seeing touchless transacting become standard.

The Stark Reality
The reality is that the gap between the ‘as is’ process today in most P2P organisations, and the P2P dream is startlingly wide. The key reason is the lack of rules within the process, or, if the rules exist, the lack of compliancy with these rules.

The price paid by Accounts Payable for the lack of compliant behaviour upstream is high. If you think of the cost of a paper PO invoice versus the cost of a non PO invoice, some shared services centers in Europe talk of a difference between €2 and €30. Surely if Procurement religiously raises a correct PO, and surely if the receiver of goods checks in the GRN, and the supplier, without fail, quotes the correct PO, then invoices costing €30 to handle will die a welcoming death? Surely then the horror stories you commonly hear today will become more like urban myths in the future?

Some early adopters of automation technology believed that tools would help fix the process problem. The truth is, that in most cases, if a process wasn’t cleansed before automation kicked in, the number of touch points remained the same, they just looked different. Technology can help police compliancy, but on its own might not be enough to help you reach your touchless targets.

The Rewards to Fixing the Problem
Hundreds of EUR millions. This is what one company is realising each year because of a clean and automated P2P process. If your hundreds of thousands of invoices dropped into your ERP electronically, 3 way matched perfectly (automatically of course), and post in SAP ready for payment, then the benefits are significant:

Productivity per FTE perhaps triples

Instead of 30 staff keying you just need 10 handling the exceptional piece of paper and exceptional query

Your average cost per invoice drops by 50%

Receipt-to-post cycles reduce meaning more accurate visibility of your commitments meaning more control over cash flow and optimisation of working capital

Because invoice data is in the system quicker, suppliers can be paid earlier in return for the buyer taking an early payment discount

How to Kill the Touch Points – Changing Behaviour
Like most solutions, there is a sequence of events which may be most appropriate to meet your goals. In order to optimise automation, processes need to be ‘mature’, and this comes from a certain journey being taken. Here is a typical journey:

1. Implement Shared Services! It is generally agreed that shared services is a tool applied to tone up Purchase to Pay through centralisation, standardisation and consolidation on to a single system
2. Once P2P is ‘on line’, measure the process country by country so you can assess its true state
3. FACT! Touch points down stream are generated by lack of compliancy upstream

– First fix the ‘Behavioral’ Issues
– Enforce PO compliancy with Buyers through:

Education – do they know how much their non-compliancy costs the company?

Charging business units based on good and bad invoices (ie €18 for a non PO invoice and €5 for a PO invoice)

Naming and Shaming to the highest level

sero Tolerance to Non PO invoices

– Ensuring GRNs are booked in

Education – does everyone understand why GRNs are needed and how much a non-GRN transaction costs?

Do they have the systems available when required to book in GRNs? (ie if you are in the construction industry what is the last thing on and first thing off site? Computers? So how will goods be booked in?)

Does the business know the consequences of Suppliers being paid late? (ie Suppliers stopping deliveries, stocks unavailable, customers’ orders unfulfilled, customers switching to your competition?)

4. When over 80% of your invoices are clean it means you have a healthy P2P process, which is now automation-ready
   

How to Kill the Touch Points – Automating Clean Processes

This is where much confusion can lie. Do you go for:

a. A hybrid solution which tackles all transactions in P2P but may focus on the horizontal (ie automating the raising of POs through to issuing the payment), rather than the vertical (ie getting 90% of suppliers' invoices on an e-invoicing solution)?

b. Implementing a best of breed solution to tackle each slice of the P2P process (ie sourcing the best tool to manage supplier onboarding for electronic invoicing, buying the best solution to manage automatching)? This might mean you end up with a tool box of 10 solutions in your P2P process (Catalogues, Supplier Portals, PO Flip functionality, P Cards, Scanning and OCR (or Scanning and keying), outsourced scanning and workflow, EDI, electronic invoicing, automatching and workflow) and that you have relationships with 10 different providers, but this may set you up for the better results.

c. Outsourcing the majority of the P2P process to a BPO provider who can use their incumbent tool set to automate P2P.

Considerations are:

Process maturity

Scale of transactions

Geographical coverage

ERP infrastructure

Your Supplier database and relationship

View on risk

The relationship between IT, Procurement and Finance

Business requirements

Business case

Objectives

What Are the Critical Success Factors?
Regardless of which solution is adopted to increase compliancy, or automate clean processes, there are some factors which are generally needed if success is sought as a given. If you are rolling out e-invoicing, or trying to force PO compliancy on your Buyers, here are some suggestions for securing success:

Ensuring a tight collaboration between Finance, IT and Procurement

Securing senior level buy in so the Executive knows and supports this project

Releasing strong messages to Buyers and Suppliers so they understand the consequences of non-compliance

Issuing remuneration packages so compliant users are rewarded if Touchless Targets are met

Want to find out more?
sharedserviceslink.com specialises in sourcing and sharing case-study information on Purchase to Pay and Finance and Accounting Shared Services. Founder and Director Susie West has been in this market for 10 years working with hundreds of P2P organisations, all trying to solve similar problems, and all striving to attain similar objectives.

On the 18th and 19th June in London sharedserviceslink.com is presenting Toning Up Purchase to Pay to Attain Touchless Processing at the Millennium Knightsbridge. To find out more click here.

Susie West can be reached on +44 (0)20 7359 5355 or susie.west@sharedserviceslink.com. If you want to find the latest information, news, white papers, reports and conferences on Shared Services, Purchase to Pay and BPO visit www.sharedserviceslink.com and subscribe to our monthly newsletter.

 

 

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