Procurement Should Make a Takeover Bid for Accounts Payable

Over on Spend Matters PRO, we’ve started to feature a series on the evolution of the e-invoicing and related supplier network markets, including buying trends we’re seeing emerge in 2013. One of these analyses was more subjective than others, and featured a review of why we (Peter Smith and I in this case) believe the time is right for procurement to take a more serious look at making a run for accounts payable, either as a close working partner with a dotted line relationships or to take over the function entirely.

Many folks in procurement have not always felt this way. We observe that:

“On an historic basis, Procurement and Accounts Payable have been slightly awkward bedfellows in many companies. They’ve been loosely coupled through the both the front-end (e.g., vendor on-boarding, registration process) as well as the back-end (e.g., approvals, dispute management, discounting, payment, invoice auditing) in both online and offline worlds when it comes to various aspects of supplier engagement and management.”

Yet a number of things have changed in recent years. In fact, we identify twelve distinct reasons in the brief contributing to the opportune timing for a closer alignment of the functions, with procurement in the driver’s seat. Five of these include:

  • P2P is forcing the issue from a technology perspective given the integrated link between the two functions exposed by the tools and processes (especially in indirect procurement)
  • Supplier fees impact procurement organizations and cost (and should be examined in the context of eProcurement and e-invoicing systems selection, even those which AP may lead)
  • Early payment discounting is a significant opportunity to potentially even impact the topline; but there is an opportunity for AP to fail execute on the procurement agreement. Failure to execute kills the opportunity to generate value through prompt payment discounting, dynamic discounting, etc.
  • For the first time, the integrated business case for investment and action makes sense to look at the whole process on an end-to-end basis; looking at procurement and AP as a coherent whole/sum, it makes it easier to justify investment but also measure the returns together (i.e., no excuses). This also breaks down artificial barriers that get in the way of doing the right thing because of concerns over protective budgets and internal walls go up over budgets and costs
  • AP-driven Supplier enablement can be a Trojan horse for broader connectivity and visibility with vendors

 

We (somewhat seriously) jest that if what we’ve written thus far is logical, if procurement does not make the pitch for bringing in AP, then perhaps finance can (and should) make the pitch for bringing in procurement. PRO subscribers that read this analysis will be armed to make the business case to do just this!

For those who don’t, well, perhaps they should be considering what procurement might look like as a subset of a much larger finance organization where AP might be driving P2P and broader decisions! Now that would be a whole lot of fun, reporting to a controller, now wouldn’t it?

Procurement, the move is yours. Get smart on how to build the business case and all the levers to pull in doing so on Spend Matters PRO.

Voices (2)

  1. Thomas Kase:

    Jason and Peter,

    Good analysis – although I think you are beating around the bush too much – I would simplify the business case (and add a few things) this way:
    • Inherently, the A/P function has no value-add – it is strictly about transactional throughput, and of course accuracy
    • This makes it a perfect target to be consumed by process and technology
    • The logical owner is procurement – since finance doesn’t care (or even understands) about the non-financial data points that go into vendor records
    • Put A/P inside procurement, and then process the tar out of it, tailor any technology platform(s) around this area and add/buy what is missing
    • Finally, come up with a captive shared service model for what remains

    Ta da! The A/P knot cut to shreds.

    Thomas

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