Friday Rant: Should Finance Own P2P?

In this rant, I'll purposely be contrarian. In 99% of organizations today, procurement owns the P2P technology platform, perhaps in collaboration with IT (or at least the first "P" in it). The second "P," if it exists in a technology-automated manner, usually reports directly into finance with a dotted line to procurement -- or, in the minority of cases, AP sits within procurement, but has a dotted line into finance (and in the true minority of cases, P2P platforms reside entirely within IT, but with procurement and finance as stakeholders). To date, few organizations have questioned the more popular structures that I suggest. But I think there might be a case to make for P2P to rest within finance with procurement influence even though it's clearly not happening yet. Before you flame me in a comment, hear me out -- this is, after all, a Friday Rant! Consider the following reasons why finance should consider taking ownership of P2P:

  • At the moment, working capital is a giant concern for companies and their suppliers. Procurement organizations sit entirely in the wrong seat when it comes to understanding internal working capital strategies and requirements (but procurement can serve as a useful intermediary with finance when it comes to articulating the working capital needs of the suppliers they manage)
  • Finance and internal audit groups are taking on an increased role in two distinct areas: supply risk and procurement fraud. By owning the P2P environment instead of just serving as a customer or user, finance can help design the right systems, controls and processes around specific needs in these areas
  • P2P is not procurement (or sourcing or supply management). Rather, it represents an extension of transactional systems designed to enforce policy, improve audit trails and provide greater visibility and transparency into indirect spending (and the invoice automation and payment processes of all types of spend)
  • Procurement does not focus on payment or contract management. The function focuses on sourcing, buying and supplier management. There is a subtle but important distinction here. Under the current procurement-led setup, organizations seem to be following the PO and invoice versus following the money or cash, if you read between the lines of what most are trying to do with P2P. Moreover, given that legal reports into finance and legal groups quite often own more advanced contract management selection processes -- or are at least one of the primary stakeholders -- it is not unprecedented for finance to extend influence into another technology buying area
  • Recent Hackett Group research (contact Pierre Mitchell for more details) is fascinating in that it suggests that more organizations are better able to forecast sales (ironically, outside their control) than their own payment obligations. Specifically, companies are much more likely to accurately forecast earnings and mid-term cash flow than they are their top line. This suggests that finance might consider getting more involved in the P2P process to gain greater forecasting accuracy, because today, procurement is clearly not addressing finance's needs
  • Procurement understands negotiating software contracts, but not total cost of implementing IT systems; one of the reason so many Ariba, SAP and Oracle transactional procurement systems went so over budget was a failure to understand the total systems and supplier enablement costs involved. I doubt finance would make the same mistakes (especially given the vested interest in the CIO kissing the CFO's you-know-what, offering oversight of P2P implementations gratis)
  • Finance -- and specifically the treasury function within finance -- groups are far more likely than procurement groups to determine an optimal working capital and cash management strategy when it comes to early payment and potential third-party (i.e., bank and non-bank) involvement in these types of programs through P2P environments
  • Finance groups are looking more closely at audit, VAT, tariff/customs and other recovery opportunities, all of which are areas that procurement organizations are typically not well versed in. Moreover, invoice data (which does not come from the A/P system) is essential in the auditing and recovery process
  • And last ... more advanced procurement leaders secretly, I believe, don't want anything to do with P2P transactional systems, aside from having input in their initial selection. Except from a working capital and compliance perspective, P2P systems are completely un-strategic for procurement compared with spend analytics, e-sourcing, optimization, contract management, supply risk management, supplier performance management, supplier information management and other toolsets that procurement leadership should own; yet P2P is strategic for finance -- get it?

OK, now that you've heard me out, flame away. Or, if you're running a P2P environment, go work for finance ... 😉

Jason Busch

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