P2P: Don’t Throw Out the Beautiful P2P Baby with the Old Vendor Bathwater (Part 1)

My colleague and friend Jason Busch recently wrote an article titled A Relationship That Should Never Have Happened: P2P (eProcurement and E-Invoicing). Although it might not always be apparent, whenever we write more substantive or opinionated pieces for the blog, and certainly for Plus and PRO, we get each other's feedback to help bulletproof the content and ensure that our peers are not smoking something. Well, Jason must have visited Colorado recently with the aforementioned piece, so I had to throw down the challenge and call bullsh*t.

I would also like to thank him for going first in this debate so that I can properly dismantle his argument. Let’s proceed…

To paraphrase Jason's argument, P2P has been sold as “a nirvana that can only come from the close linkage of eProcurement and e-invoicing technology, but trying to find a vendor that does both is folly because of poor current P2P support from providers – and that P2P is not really a segment in the market anyway. Jason says: “P2P is dead. And it’s about time to bury it for good.”

To Jason’s credit, he does (halfheartedly) acknowledge that there is a business case to link eProcurement and e-invoicing, but then he retreats to a position that they are separate groups and should be allowed to stay in their silos and be able to buy their own siloed applications. I will echo and amplify Jason’s view that managing P2P as a cross-functional business process is indeed not only valuable, but also an undeniable trend (without even bringing the “e” into the equation yet).

There are dozens of reasons for the business case. AP is dependent on upstream procurement activities. Procurement is dependent upon downstream AP spend data and performance (impact of DPO, on-time payments, payment visibility, etc. on supplier health and satisfaction). If you have issues with 1) AP setting up vendors without proper procurement involvement, 2) “No PO – no Pay” policies, 3) after-the-fact Invoice-to-PO “flips”, 4) payment terms rationalization/conversion, or 5) managing desktop receipts for non-catalog indirect spend, etc., you are acutely aware of this issue.

There is increasing focus on P2P as needing “global process ownership” as an end-to-end “service” in a shared services and GBS (Blobal Business Services) environment. This has been going on for over a decade, and I’m amazed how much this seems like new news to many folks. What’s happening is that since AP (and supplier master file maintenance in particular) has been arguably the most popular area in finance shared services, the “invisible hand” and scope has crept upstream to transactional procurement.

Similarly, some progressive purchasing groups who can get credit for early payment discounts have been looking at, or implementing, this area (e.g., dynamic discounting in particular).

“End-to-end” P2P management is required for the bigger end-to-end value of S2P (Source-to-Pay). You can’t do category management without P2P. Category management is not just category sourcing. Category strategy must include execution strategy – and that means P2P strategy to ensure spend/supplier/regulatory compliance and stakeholder satisfaction. When Jason rattles off the various mega-spend categories for direct goods, telecom, services, marketing, etc., even when you look at the automation piece of it, it’s an argument for end-to-end process management of these smaller spend segments. We’ll return to technology later.

But, the biggest argument for integrated P2P is the cold hard data on the economic benefits. When I was at The Hackett Group, we studied the impact of single process ownership / accountability of P2P (and also the impact of transactional purchasing reporting to finance or vice versa), and for nearly a decade, the former (not so much the latter) has shown to statistically correlate with the effectiveness and efficiency metrics of both purchasing operations and of cash disbursements. You can even go back to the following 2006 Hackett presentation on this – see slides 14-21. To this day, the majority of firms have purchasing and payables reporting separately from each other (due in large part to separation of duties concerns), including those with single process accountability of P2P. To do this, you need to be able to manage the matrix and be able to have single process definition, shared end-to-end process KPIs, bi-directional SLAs of sorts, process standardization or segmentation of buy-pay processes (or “transactional channels”) that tie back to category and stakeholder requirements, and yes, even to the technology services that support those process segments.

If you can’t manage the matrix, and have given up hope, and feel that you have no choice but to live in your silo and adopt a worst-practices mindset from the 20th century, then you do have the freedom to consider providers that have similarly resigned themselves to those silos. But, I don’t call it pragmatism or realism. I call it defeatism and challenge you to do better and raise your game.

Now that we’ve established the clear and obvious benefits of end-to-end P2P management from a strategy, process, organization, metrics, and practices standpoint, let’s now turn our attention to the technology aspect of this where the shaky remainder of Jason’s argument resides. Stay tuned for Part 2!

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Voices (3)

  1. Pierre:

    Craig, the principles are dead on, and I have seen it work well at many firms (call me offline and I’ll name names). Now, whether Hackett is a great implementor, or you are a great implementor, I can’t comment.

    Your arguments in fact support explicit P2P channel design – and include your preferences on that design (lots of p-card, minimize invoices, etc.). Tactically, the debate of what $ for limit for what spend to put on p-cards is very situational, so I can’t comment. It’s whatever works best for you that optimizes efficiency, cost of controls, spend mgmt, cost mgmt, etc. I only argue that someone should design it explicitly like you have.

    I also don’t argue for one group to report to another – just for common / aligned KPIs across both groups – a ‘balanced scorecard’ for P2P. So, yes, manage the matrix to get alignment within P2P and then also back to S2P by ensuring that P2P supports category needs of the spend/stakeholders. Sourcing must have process channel design too – i.e., when to use 99 steps vs. 3. Procurement processes need industrialization as much as Mfg. processes. Mfg is at six sigma, and Procurement is at 2 sigma. But, that’s another topic!

    Thanks for writing in.

  2. Craig Meadors:

    Sorry – on Jason’s side for this one. Hackett has been pushing this non-real-world approach for too long. I don’t doubt that there are industries that benefit from it, but Financial Services is not one of them. Managing the matrix is not an issue, and actually serves as a checkpoint on one function against the other. Simplify PO payments into P-Card (instant match), define policies / processes to minimize the quantity of invoices, and focus on payment terms for cash flow (not too important now, but wait for inflation…). Opinions are my own.

  3. Bertrand Maltaverne:

    At last someone with some common sense!!!

    Thanks for that!!!


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