Exploring A/P and Procurement Best Practices at P&G: Lesson 3

Here’s lesson #3: The invisible hand needs to make invisible opportunity visible.

Even when companies strive to simplify the value chain, there are still opportunities, though finding them becomes harder. P&G has employed many typical strategies for creating value in the P2P process, including the use of:

An ERP backbone “wrapped” with appropriate best of breed solutions (e.g., CVM Solutions for diversity) to provide automated workflow, master data management, and P2P process-specific approaches such as VMI, ERS and p-cards. P&G does well on traditional metrics for automation, on-time payments, touchless processing and more.

A supplier portal strategy. P&G was actually a forerunner here, as they were thinking about this area in depth well over a decade ago!

Shared services and BPO relationships. P&G used HP for BPO in AP back in the mid 2000s – and just recently penned a relationship with Infosys for BPO on sourcing and procurement to similarly support their Costa Rica operations. There will always be pressure for productivity improvement. As Rick Hughes (P&G’s CPO) said, “We are focused on improving our productivity across the entire company.” P&G, like Alcoa, uses the “Global Business Services” (GBS) moniker for “shared services on steroids,” and like Alcoa, is very progressive in its use of the GBS concept. We’ll be writing a lot more about GBS trends in the near future.

However, finding hidden opportunities increasingly means using highly granular analytics and benchmarking, especially with a global spend/transaction profile. I spent a fair amount of time at The Hackett Group analyzing the working capital transformation methodology that our REL business unit used to “liberate cash.” It was very broad and deep. Part of that depth in finding opportunities is combining detailed spend-weighted payment timing analysis per existing terms AND against supplier-specific benchmarks on DSO and cost-of-capital to determine where there are opportunities.

"The Invisible Hand is less effective than multiple hands working together."

The notion of Adam Smith’s invisible hand is that society is ultimately to benefit from individuals' efforts to maximize their own gains in a free market. However, within a large organization, this type of laissez-faire approach means poor coordination and poor leverage. Most important, it doesn't allow for intelligent trade-off decisions when multiple agents in multiple silos are making their own decisions on behalf of the enterprise (known in economics as the “agency problem”).

This post is based on content contained within the following Spend Matters paper: P&G: A Case Study of Supply Management’s “Non-Invisible Hand” in 10 Easy Lessons. The paper is free to download in the Spend Matters Research Library.

 

See also:

Lesson #1 – No Rest For the Best

Lesson #2 – More Complexity Means More Rocks for the Invisible Hand to Look Under

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