Are You Getting the Best Return from Your e-Procurement Investment?

We welcome this guest post from David Dolan, Principal Consultant at Xoomworks Procurement.

Once you have made a significant investment in a Source-to-Pay (S2P) system, it is important to check after go-live that you are getting the best return on your investment. Implementing a new system doesn’t automatically change behaviours, and technology on its own won’t transform your processes. So unless you take the time to examine what is actually happening with your spend you may be missing opportunities to realise your original business case benefits.

By giving your system a health check you may find that controls may be less effective than you planned, requisitioners may not be taking advantage of hard-won contracts, momentum generated by the implementation project team has ended, and users may have settled into less effective ways of working or costly workarounds.

The top five scenarios we have seen are:

  1. High levels of retrospective purchase orders

Requisitioners are still placing orders informally, bypassing both approval processes and the negotiated deals with preferred suppliers. The first that Accounts Payable or Procurement know of a purchase is the receipt of an invoice from a supplier. This creates work for your AP team, chasing up requisitioners and requiring fast-track POs to enable payment of invoices. These retrospective POs can demonstrate the level of non-compliance within an organisation, specifically: pre-approved spend, ensuring the appropriate T&Cs are set out and agreed as part of the PO, inefficient AP processes due to multiple touches handling unbacked Invoices, and risk of increased maverick / off-contract spend.

The reasons for retrospective POs vary, but there are things you can do. You need to identify the requisitioners who are buying in this way, what they are buying and from whom. You can then address this by providing follow-up education or training, discuss with suppliers why they shouldn’t accept orders without a PO and make buying from a catalogue the preferred or easier option.

  1. Large amounts of free-form purchase requests

Most S2P system implementations set out to cater for all requisitioners with controlled catalogue or punch-out facilities, ensuring compliance. However, not all scenarios may have been anticipated during the implementation, and requisitioners who can’t buy this way may generate free-form PRs. They could be for any product or service from any supplier, so may not represent best value for the organisation. Analysis of this spend can be difficult as each order is unique. Items don’t fall within pre-defined categories and suppliers may not be contracted to provide these goods or services. The financial impact to your business could be significant if users are placing high volumes of spend in this way.

You need to analyse the spending profile of free-form POs to enable you to change this behaviour. Identify commodities that have been omitted from your catalogue or punch-out facilities, and widen the range of items available through these channels. With user-friendly facilities you can bring your spend under control and deliver your planned benefits.

  1. Payment terms opportunities

Maintenance of master data is an often-neglected task and supplier payment terms are no exception. Terms are usually entered when a relationship is established and it’s lucky if these are ever subsequently reviewed. Busy procurement specialists typically don’t have the bandwidth to periodically revisit payment terms. We have seen large numbers of suppliers with very short or immediate payment terms. In one case an organisation had placed £80m spend over 18 months on immediate terms! This significantly affects your cash flow and could impact operational borrowing costs.

So you need to identify those suppliers and the amount of spend that is placed with them. You may be able to prevent requisitioners offering preferential payment terms to suppliers, or contact suppliers to get acceptance of your terms and conditions. Discounts for earlier payment can be built into contracts to offset the cashflow impacts.

  1. Low level of electronic purchase orders

POs can be sent to suppliers in a number of ways, from free-format emails to formatted electronic POs. Invoices can be received through a number of channels including paper invoices through the post. Failing to send electronic POs to a destination that can process them automatically can create bottlenecks in the purchasing process, increase the level of manual interventions, and risk duplicate POs being issued or sent to the incorrect person or department.

Again, identify the suppliers who are not taking advantage of this facility, enabling you to agree the routing of electronic POs and update supplier contact details. Getting the supplier to accept these POs and identify the right email address or shared mailbox can speed the buying and fulfilment process for everyone. Onboarding suppliers to be able create Invoices electronically from the original PO creates a more efficient AP process, allowing suppliers to get invoices into the system more quickly – enabling quicker payment – and increasing the accuracy of details.

  1. Low leverage of new functionality in procurement systems

The project team you established for your implementation doesn’t live on after go-live. We often find that subsequent software release management doesn’t extend beyond testing and applying the upgrades. No structure exists to review releases and assess the applicability or desirability of new features. This means workarounds that were necessary at implementation may live on where more elegant and effective solutions are now possible. These scenarios represent lost opportunities to leverage the benefits that may be available, and perpetuate inefficient or ineffective practices.

So take the opportunity to review the changes that have been incorporated in your procurement system since you went live. Assess these new features and develop a business case for a mini-project to update the business processes and documentation.

 

Disclaimer: The opinions expressed are those of the author and do not necessarily reflect those of Spend Matters

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