Daily Archives: August 15, 2006

Procure-to-Pay cycle Best Practices

I’ve been thinking about the P2P cycle in general and how it could be improved across the board. Remembering that CAPS published a piece on the issue relatively recently, I decided to look it up. The piece, titled Best Practices in the Procure-to-Pay Cycle: Perspectives from Suppliers and Industry Experts, was published back in March in the Practix series and described key findings that can lead to improvement in the P2P cycle.

Even though there were no surprises in this piece, as all of the suggested improvements were essentially just good business processes adapted to the procurement cycle, the report is worth a read as it was based on a study that collected the major problems as identified by your suppliers, not third party consultants or analysts.

The Procure-to-Pay cycle, which generally consists of the following steps:

  1. Forecast, Plan & Coordinate
  2. Need Clarification / Specification
  3. Sourcing Decision
  4. Contract / PO Generation
  5. Receive Materials & Documents
  6. Settle & Pay

contains many opportunities for errors without good, documented, processes streamlined and managed by appropriate technology. Furthermore, an organization in non-compliance may be incurring significant costs without even realizing it (through maverick spending, late payments, etc.).

If a broken P2P process is not fixed, the following problems can arise:

  • deteriorating response time from suppliers
  • lower service levels from suppliers
  • deterioration as the customer of choice
  • delivery delays
  • higher pricing (due to cost attributed to late payment)
  • increased manpower on non-value-added activities
  • loss of the supplier as a critical supply chain link
  • higher internal costs

Therefore, a company should review its processes regularly, fix any problems it identifies, and make effort to streamline processes. A good place to start is by insuring that your P2P cycle does not suffer from the top four problems identified by suppliers.

  • manual workarounds / high manpower requirements
  • long cycle time / late payments / aged invoices
  • no central point of contact
  • PO / invoice match problem

These problems are often the result of the following root causes:

  • poorly designed process
  • no relationship manager / point of contact
  • lack of system / portal interface
  • too much complexity in the catalog / too many line items

Furthermore, as per the report, these root causes can often be addressed by the following solutions:

  • redesigned P2P process deployment
  • dedicated relationship management position
  • a supplier portal
  • spend analysis and a catalog line item reduction initiative

In addition, the report also presents six key findings that can lead to improvements in the P2P cycle. These are:

  • robust processes and training
  • onsite relationship managers to allow field maintenance to focus on doing its job
  • robust technology using a single point of contract; i.e. a supplier portal
  • improved forecasting for maintenance and planning for emergencies that can “flex” with different situations that arise
  • reduced complexity in catalogs and buying channels to streamline procurement
  • top management support