A/P and Procurement Savings: Capturing and Realizing Negotiated Sourcing Value

procurement savings Brian Jackson/Adobe Stock

While many organizations believe that savings originates from a good contract, it really comes from good execution. A negotiated rate reduction of 5% is just a hypothetical savings number if the organization fails to implement and then capture the savings in practice. On average, Spend Matters research suggests that companies typically do not capture 30% or more of negotiated savings.

There are a variety of reasons for this, including maverick spend and expedited shipping, but a big reason is simply overspending based on a failure to align functions and systems. For example, invoices may not be updated with the proper rates, which are then not caught by procurement, payments are made for products or services that are partially delivered or not at all and duplicate invoice payments are made unknowingly. (For related coverage and some great facts and figures, see the posts in this series here, here, here, here, here and here.)

Fortunately, these are all easily fixed with an integrated P2P process combined with an e-invoicing solution that matches invoices to purchase orders, contract rate tables and goods receipts; bounces erroneous invoices back to suppliers; and insures that the right people receive invoices in a timely manner in cases of manual review requirements.

Together, these efforts can prevent a significant amount of overspending that, in some organizations, can equal over 1.5% of total expenditure for a variety of reasons we’ve explored in this series already. And we shouldn’t ignore process-based savings either — or the willingness and enthusiasm of suppliers using tools that drive them to self-service and automation.

Coca-Cola Bottling found that 87% of invited suppliers enrolled within 6 months of an initial invitation to use the system, and 90% of those actively use the portal-based system to check on accounts payable status. Others often realize similar results, and we should note there are numerous great systems to explore in the market which can help.

As our analysis continues, we will explore collaboration-driven savings based on savings efficiency and effectiveness from procurement and finance collaboration. Stay tuned!

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