The State of P2P: Less Than Halfway There

Spend Matters welcomes this guest post by Richard Waugh, VP of corporate development at Zycus.

After 15 years (or more) of e-procurement or procure-to-pay (P2P), the progress made by first-generation adopters in the use of tools to automate ordering of indirect materials and services is, on average, only halfway – or less – toward realizing e-procurement’s true potential, according to the results of a new P2P benchmarking market study conducted by Zycus. A sobering picture emerges of the current state of P2P, based on the responses from over 450 global procurement organizations, due to the fact that the average performance hovers at or below the 50% threshold. That is, most organizations capture 50% or less of indirect spending through a compliant P2P process – spending with preferred vendors at negotiated pricing – and have accurate line-item visibility to just 45% of their indirect spend.

FREE Research: A Foundational Look at P2P Technologies

These statistics also indicate that the glass is half full. While progress to date has been meager, there is significant upside potential for next-generation P2P adopters. Despite the fact that average performers have attained less than 50% indirect spend coverage and compliance through P2P so far, it does not mean that the objective is unattainable. On the contrary, a small but significant minority of respondents – the top 10% on average – report achieving 80% or more control of indirect spend with:

  • Preferred, contracted suppliers at negotiated prices
  • Compliant process and approvals
  • Accurate line-item spend visibility
  • Available discounts and rebates captured

Beyond capturing substantially more of their indirect spend through a compliant P2P process, the benchmark study results indicate that most organizations also stand to realize additional upside potential through transactional process efficiencies. Whereas better than 7 out of 10 purchase orders are properly approved on average, only about two-thirds of the time is a PO correct on the first pass, properly coded to the general ledger and matches the invoice on the first pass. The results – far from the ideal of the “perfect order” – mean that at least one-third of all orders require some rework or manual intervention to complete the entire order process.

While the benchmark data showed large gaps remaining in purchase order accuracy and efficiency, the incidence of “No PO” invoices is lower than expected, with just 19% of invoices not matched to a corresponding PO on average, indicating strong purchasing controls. Equally surprising is the fact that almost half of all invoices – 47% on average – are being received electronically, and more than 30% of respondents say they get more than 60% electronic invoices. As e-Invoicing is a relatively newer development in the P2P market evolution, it is likely that these higher than expected volumes indicate that many consider an email attachment of a PDF or Excel file an “e-Invoice.” This is not really true because, unlike an EDI or XML e-invoice transaction, email attachments still require scanning and data entry, just like paper invoices.

On balance, the benchmark study indicates that most organizations have yet to realize the full potential from first-generation P2P. The fact that few users have truly optimized P2P, gives us reason for optimism. Consider that less than 1 of 4 respondents – just 24% - indicate that they are currently utilizing an organic P2P solution, that is, a best-of-breed P2P tool specifically designed for the purpose. Far more – better than 50% - are still using first-generation P2P tools either from their ERP (Enterprise Resource Planning) provider or legacy applications developed in-house. The other half of respondents is divided into 2 groups: 24% saying that their P2P process remains entirely manual, and 24% saying that they have already adopted an organic P2P or next-generation solution.

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