Daily Archives: May 17, 2016

Procurement Is Dead! Long Live Procurement! Part III

In Part II we left of noting that not only is Mr. Smith right and Procurement really dead, having passed away peacefully in the night long after everyone had forgotten about it, it’s dead and buried with the radio star (because Video Killed the Radio Star) 6 feet under. The internet has killed the purchaser just like the industrial revolution laid waste to the armorer, blacksmith, glassblower, and dozens of other occupations.

But I’m sure you’re all shocked that in yesterday’s argument we left out the most important fact of all about the purchaser:

He could process a mountain of paperwork that instills fear and loathing in even the most die-hard career AP clerk.

Paper? Who cares! The only paper (not counting the unnecessary printing of e-mails by managers who can’t read on the screen) any organization with a modern platform needs is the signed contract in jurisdictions that still need ink on the page to recognize a contract. Modern platforms take requisitions from anyone in the organization, allow a buyer to flip them into a purchase order to the under-contract or awarded supplier, allow the suppliers to flip them into invoices when the goods have been issued, queue the invoices for processing upon goods receipt from the warehouse, auto-match the invoice to the goods receipt and the PO, and if everything matches (or is within pre-defined parameters), send it to AP for (pre) approved payment (who make an ACH to your bank account). No paper required.

And while we recognize that, historically, up to 15% of invoices will come in with errors and the exceptions need to be processed even in e-form, the reality is that modern rules-based workflow driven cloud-based m-way match system will auto-detect (and sometimes auto-correct) the discrepancies, flip them back to the supplier for correction (or acceptance), and then, when they are correct (or at least within pre-defined tolerances), send them to AP for (pre-approved) (automated) payment. Since most suppliers will correct an (honest) error, and since most omissions (PO Number, address, routing number, etc.) can be filled in with corresponding documents, at the end of the day, less than 2% of invoices will need to be manually processed.

When you look at all of the innovations the internet has given us, not only is there no need for a purchaser, there’s no desire for his resurrection either. After all, it’s so much better to be able to find any product you could ever need with a single search at any time and have it within one business day then it was to have to wait. In the old days, if you discovered at 6 pm on a Friday you needed a part Monday, and the purchaser had already left for the weekend, what could you do? Typically nothing. Today, you do an internet search, place an order, request expedited same-day shipping, it ships out first thing Monday morning, and you have it late Monday afternoon. Maybe you are a day late in delivery, but if you had to wait for the purchaser to return, get his attention, maybe he gets the order in Tuesday and maybe you have the part Wednesday. And today, if you really have to have it now, you can order it Friday night, request special courier shipping on Saturday, finish the product on Sunday, and still make the Monday morning deadline. (It will cost more, but it can be done.)

And who would give up the automated m-way matching? It used to be that a large organization needed a roomful of AP clerks to process the 20K to 40K invoices it got a month, and even then it could only verify 10% of them 100%, leading to an average overspend (on overpayments, duplicate payments, and fraudulent payments) of 1.5% to 3%. Today, all invoices are processed 100% in real time, missing data is automatically appended, and erroneous invoices are flipped back to the supplier (with explanations of errors and acceptable corrections) … leaving less than 2% to be manually processed by a junior clerk who can get through all of them.

The purchaser is no longer needed.

Procurement is Dead!

But with Procurement’s death, we have a new beginning.

Long Live Procurement!

To Be Continued.