Automation Can Improve Procure-to-Pay Process

Spend Matters welcomes this guest post by Becky Partida, research specialist, supply chain management,  from APQC.

In any organization, procurement and accounts payable activities are inextricably linked. Becoming efficient in both types of activities should result in clear benefits to the entire procure-to-pay process, from the procurement function to accounts payable. APQC has identified business drivers of an integrated procure-to-pay process that lead to improvements and business results. One of these drivers is the automation of procure-to-pay activities. As illustrated by data from APQC’s Open Standards Benchmarking in procurement, organizations that do not take steps to automate transactional processes simply cannot match the speed, efficiency and effectiveness of those that do.

Automation’s primary influence is on the efficiency of procurement staff. The adoption of automated purchase order processing allows procurement staff to be more efficient and productive. This in turn can reduce staffing costs associated with purchase order processing. It can also allow the organization to shift employees from the more basic task of processing purchase orders to more value-added activities within the procurement function.

APQC’s data shows how organizations that automate the procure-to-pay processes achieve faster cycle times and more efficient purchase order processing. The figure below shows that, among top performers, those that have invested in e-procurement systems to place purchase orders have a much shorter purchase order processing time ­– 2 hours versus 7 hours for organizations that have not adopted e-procurement. The systems adopted by these organizations can quickly route information to the correct individuals, which reduces the amount of time needed to place a purchase order. These systems also ensure that information transferred within the organization is not lost.

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In addition, the number of purchase orders processed per procurement full-time equivalent employee (FTE) rises significantly with the use of e-procurement systems. As shown in the figure below, top performers with e-procurement systems process over 2,000 more purchase orders per procurement FTE than their peers without these systems.

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Along with shorter purchase order cycle times and more purchase orders processed per FTE, organizations with automated procure-to-pay processes have shorter supplier lead times. As the figure below shows, there is a 2 day difference in supplier lead time among top performers. The difference is even more prominent at the median, with organizations that have invested in e-procurement having nine fewer days of supplier lead time than their counterparts without automated procure-to-pay processes. The increased data visibility created by e-procurement systems between organizations and their suppliers is a key contributor to this difference.

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It can be challenging for organizations to determine how to approach moving from manual procurement activities to an automated focus. Professional services firm McGladrey has identified several steps to effectively guide the transition to an automated procure-to-pay process.

s  Develop an overall strategy for managing procurement and accounts payable within the organization.

s  Assess what technology is currently available in-house. Many organizations already have procurement automation modules available as part of their ERP systems. Using a module from an already deployed system will come with the added benefit of integration.

s  Look outside the organization to leverage specialized procure-to-pay solutions that take advantage of lessons that others have already learned. Many of the existing best-of-breed solutions for procurement come with effective best practices programmed into the package. Solutions to consider include document management tools, e-invoicing and automated requisition systems with tracking for workflow and approvals tied back to internal controls.

Organizations that have automated their procure-to-pay processes through the use of e-procurement systems clearly have advantages over their counterparts that have not adopted automation. These organizations have faster and more efficient purchase order processing, which can allow them to shift their procurement staff members to other activities that provide a higher value to the enterprise. They also have more mature supplier relationships that can reduce the amount of lead time taken by their suppliers for ordered materials.

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