Orange Business Services: Looking forward to a P2P future

One problem with procurement savings is that you only get them when you spend - so is it any wonder some people don't get them? Another stumbling block is proving that the savings are real. If a great deal is negotiated with a supplier and the organisation doesn't, or worse can't, take advantage of that great deal, then no savings materialise.

This is where purchase to pay (P2P) can provide a solution. P2P isn't just the boring back-office function that oils the wheels of the supply chain, it's the set of processes and practices that turns great procurement negotiations into a real financial saving; it's the e-procurement tools that offer access to the people in the organisation that need to buy things; it's the 'no PO, no pay' policy that enforces compliance and makes sure that suppliers are paid on time; it's the set of rules and principles that make sure that all of the savings don't go up in smoke when the auditors arrive and impose corrective actions.

P2P is the important component that makes the headline procurement savings a reality. Without it, procurement has no value. Procurement without P2P is like a violin without a bow, a bottle of fine wine without a corkscrew. P2P needs to be taken seriously as a critical component within every organisation. It's the piece that brings it all together - and taking a holistic view is critical.

Delivering synergy

Taking a holistic view of P2P delivers synergy, but you need to take a step back to see how. By embracing the whole of the end-to-end process across finance, procurement and the supplier's organisation, benefits can be unlocked that remain hidden when these elements operate in isolation. Apparently unconnected projects within the P2P spectrum can be joined together to deliver better results.

For instance, the management of supplier master data - names, bill-to addresses, delivery addresses - is a fairly routine operational matter. It's often undervalued and under-resourced, leading to duplicate, out-of-date or incorrect records. Yet by taking a wider view and looking at the effect it can have on an AP automation programme, investing in good supplier master data can pay for itself many times over. Accurate supplier data can dramatically increase the straight-through processing rates for scanned invoices where intelligent data capture is employed.

Similarly, there's a perennial headache in finance concerning the correct allocation of spend. Purchasing people have little knowledge of its importance in terms of the general ledger and sub-ledgers, and neither should they, but incorrectly coding capital expenditure as operational or attaching the wrong GL code can have a very serious impact on an organisation. Where an e-procurement system is managed within the procurement function, inviting finance colleagues to play a central role in the design of product hierarchies and categorisation can eliminate time-consuming and expensive reworking within finance.

Too often, a strategic relationship with a supplier at a procurement level is frustrated by an entirely separate and dysfunctional relationship at a payment level. It's easy for purchasing to blame finance when invoices don't get paid, and in the worst cases it can escalate to a point where supplies are halted. But the reasons for delayed payment are often complex and the root causes can be found in many places. Incorrect or missing PO details on the invoice, poor receipting processes within the business, or shortcomings within accounts payable - they can all contribute. For commercially critical suppliers in particular, joining up the purchasing and AP with the suppliers' account management team and accounts receivable ensures there is constant visibility of payment issues and their root causes, helps to reduce the number of issues, and can eliminate commercially disastrous escalations.

The P2P pay-off

It doesn't take a mathematical genius to understand the business case for some P2P initiatives. Dynamic discounting - exchanging a discount in return for early payment - can give a return on capital of more than 30%. Reverse factoring and other supply chain finance methods can substantially increase DPO, and AP automation can reduce costs by 50%. But despite the compelling arguments, most companies remain firmly in the 20th century when it comes to P2P optimisation.

If the benefits are so great, why are more businesses not grasping the opportunity? It's not for the want of trying to improve things because there are plenty of failed P2P projects that illustrate the difficulties: legacy IT systems that just don't cut it in the 21st century; siloed organisations where purchasing and finance don't speak; dysfunctional supplier relationships. Fixing these issues is not a trivial matter.

However, P2P is not about getting purchasing processes Sarbox-compliant and it is not about managing an AP process. It is a means to eliminate waste and to unlock cash from within a business, and it is also a partnership between buyers and suppliers and between purchasing and finance - and getting it right can be highly lucrative.