Balance Risk and Control for P2P to Deliver ROI

Spend Matters welcomes a guest post from Ian Dagg and Simon Hurst of Xoomworks.

It’s rare that anyone cites “a need to increase risk to the business” as a reason for buying a procurement solution such as e-sourcing or P2P. The more traditional (and more sensible) goals tend to include greater compliance, cutting costs, and increasing visibility of spend – many of which are through greater control, not greater risk.

The issue with control is that there is a sweet spot – too little and you can miss out on one of the in-built benefits of a technology solution, but too much and you make it so hard and frustrating for people to use the solution that you jeopardise success.

Our experience shows a recurring theme of over-control in organizations implementing procurement systems, with 95% imposing so much control that it impacts the desired benefits outlined in their business case. While no one wants to increase risk, applying too much control is often counter-productive, as too much control turns people away, and it means they’ll find other ways of doing things. And this in turn leads to reduced compliance, less spend flowing through the systems (hence, less visibility), and a maintenance overhead as minor issues need undue attention.

The following examples highlight some of the more common areas of over-control within P2P, although it is probably not a massive leap of imagination to apply these to overly complex sourcing solutions too. By thinking about a better balance between risk and control in each of these areas, it is possible to increase efficiency with minimal risk.

Does it make sense to force a three-way invoice match process for every single order? P2P technology can make significant improvements on ordering and invoice processing efficiency – if the appropriate processes are put in place. With users’ receipting habits often not living up to the great expectations of a Visio process flow, automating or removing the receipting process can make the world flow better.

For low value, highly commoditized items can dramatically decrease the number of invoice exceptions that AP has to deal with, without a huge increase in risk and liability. In fact, Hackett states that “top performers” only three-way match around 40% of spend and implement other processes for the other 60% (such as assumed or automated receipting for around 12% of spend). If the idea of removing receipting is too big a leap, consider supplier audits or two-way matches for certain commodities below a certain level of financial spend.

Automation - It's rare to manage all of your buying processes in one system, and while automating the data flow between systems is efficient on its own, thinking about how you integrate intelligently takes things to another level.

For example, if you approve a transaction in one system, let's say a time sheet for temporary staff, think about whether you need to approve that again when it hits your P2P or finance system for payment. You'll probably have already approved the contract value up front and then the timesheet for a given week or month. Rather than water down the benefit by adding extra steps back in to the process, how about employing self-billing?

Approval flows - Many companies over-engineer their requisition approval chains with some requests needing up to 10 separate approvals. These are not only frustrating for the requester but also extremely cumbersome and time consuming to maintain – sometimes meaning that the goods or services required move into a critical status and require disproportionate offline effort to push through.

Invoice tolerances - Employing a zero-percent tolerance on invoice matching will cost money. If an invoice exception costs around $10 to $20 to process and resolve, allowing a small tolerance of a dollar or two will save you money overall. Again, this doesn’t need to be a blanket rule - you could flex these levels with different types of trusted suppliers.

New Suppliers – While you don’t want large volumes of new suppliers each month, making the process of creating a new supplier long and arduous can be counterproductive. As with your transactions, the more requests for new suppliers that are logged in the system and therefore visible, the more control you have over volumes and the ability to match the request to an existing preferred supplier if relevant. If overly complex, people will find an easier way to do things, which can drive bad behaviour and maverick spend through suppliers that you don’t even have in your system.

So in summary, when you transform P2P or implement new procurement technology, it is essential that you clearly define what the overall goals of the programme are and keep referring to them throughout. This sounds like a component of basic project management but is so often overlooked.  Remember the big picture, and don’t feel too bad if you don’t use every bit of functionality in the solution you’ve bought.

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