In improving procurement operating efficiency and effectiveness, process usually comes first. But sometimes systems should trump processes, especially when talking about solutions that bridge accounts payable (A/P) with purchasing transactions. In this case, a “bottoms up” approach based on leveraging underlying technology to build procurement and finance alignment can be the place to start. That being said, while the “plumbing” is critically important, don’t discount the importance of process alignment and change management as secondary steps.
Building on the Systems Foundation
Systems may provide a foundation, but they still have to be properly integrated into processes that make sure the right data is captured, analyzed and made available to the right people at the right time, who can then use it to capture savings or generate value. An example: while e-invoicing, supplier performance monitoring and cash flow optimization provide an organization with opportunities to identify and implement savings, they don't capture all of the potential savings that come from process alignment.
Systems can capture the savings associated with eliminating time-consuming tactical tasks like invoice review, supplier scorecard creation and automated cash flow mapping. They don't, however, capture other opportunities, such as:
- Savings associated with getting unmatched invoices reviewed and approved faster, so they can be processed for early or timely payment
- Correcting supplier performance issues faster, so expedited shipments can be eliminated and returns minimized
- Running cash flow optimization models with timely data from accounts payable and procurement and putting policy into action — for example, either self-, third-party- or hybrid-funded early payment programs
A full spectrum of savings will only materialize from aligned processes. For example, once an invoice is flagged for manual review, it has to get to the right person in procurement who can fully or partially approve, or deny, with reasons, and flip it back to accounts payable for timely processing. Procurement and A/P processes need to be integrated for this to happen.
Similarly: If A/P detects a large number of expedited shipments, which would become clear from larger volumes (and dollar volumes) of transportation invoices, that data has to get into the right system and the primary supplier account manager needs to be alerted so that the issue can be investigated. All of the current PO, invoice and contract data needs to get from procurement and accounts payable to the CFO. At that point, the CFO can ensure that the data gets into the working capital optimization model at the right time so cash flow can be optimized based on what are likely higher-than-budgeted unit and transportation costs.
These activities require more than systems integration. Process integration and change management are critical so the right people are notified across departments, the right actions are taken at the right time and the appropriate outcomes are monitored. This is even more critical in the case of direct materials or goods for resale (GFR) suppliers in retail. As an example, see what Zappos has achieved in this regard, with 50% of invited “trade” suppliers using a common portal for sharing and receiving information, which then cascades to internal users and workflow.
Stay tuned to Spend Matters and Trade Financing Matters as our series continues and we turn our attention to foundational alignment and change management.
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