Monthly Archives: October 2016

How Do You Maintain Coherence Between Sourcing, Procurement, and Accounts Payable

This spring, Spend Matters UK published a great paper on The Five Principles of Sourcing by the public defender which outlined five key principles that must be followed for successful sourcing. They were alignment, openness, rigour, commerciality, and coherence. Coherence is key — if the entire sourcing process doesn’t work together, it doesn’t work at all.

But while a successful sourcing event is a necessary condition for a successful Supply Management, or Procurement, organization, it is not sufficient on its own. It doesn’t achieve any of the organizational goals, which always revolve around savings, profit, or brand recognition. Identifying 10% savings does not realize 10% savings. Identifying a free value-added service offered by a new supplier does not realize the value of the value-added service. And identifying a product or supplier that can provide a brand boost does not realize the brand boost.

Savings (which don’t really exist) only materialize when they are captured, and they are only captured when the plan is adhered to during the purchase process. Value from a value-added service is only realized when the service is utilized, and delivered, according to plan. And brand recognition is only achieved when the right products are maintained and the right messaging is put out.

But all of this only happens if there is not only coherence within the sourcing, procurement, and accounts payable process but between the processes as well. Procurement not only has to pick-up as soon as Sourcing leaves off, but has to continue in the intended way at the intended time. And when the invoice is delivered and goods are received, accounts payable needs to pick up and process the invoices at the right time in the intended manner against the right POs or payment plans.

So how do you insure coherence at the hand-off points? Make sure the needs are well documented and well-understood.

You can’t just throw a contract price list over the wall and expect success. The optimal award depends on ordering the right product from the right supplier location at the right time in the right quantity and making sure the right transportation company does the delivery using the right vehicles on the right routes. The optimal award, defined using intensive analysis and optimization, is only optimal when all of the required conditions are satisfied.

Typically it’s a matter of balancing unit costs against transportation costs against tariff costs against storage costs and taking into account transportation constraints against warehouse constraints against regulatory trade constraints, and if all of these costs and constraints are not respected during the Procurement process, then the optimal award — which is necessary to achieve the savings, value, or brand potential — will never be realized.

Coherence between Sourcing and Procurement isn’t a price-list or a contract, it’s a detailed step-by-step execution plan combined with a set of instructions on how to handle variances or minor disruptions and business continuity and/or disaster recovery plans that detail what to do when things go terribly wrong (after notifying Sourcing that an emergency sourcing event may need to be conducted) to allow for operations to continue in the short term.

Similarly, coherence between Procurement and Accounts Payable isn’t just giving AP access to the purchase order system and contracts with monthly invoices and expecting them to process invoices accurately. It’s working with them to set up the automated invoice matching and payment rules, making sure all payment plan contracts or agreements against which invoices will be received are properly defined along with rules for automatic acceptance, and defining how to handle missing information or exceptions. If the tolerance is low, maybe the invoice can be automatically approved, or flipped back with a suggested correction for automatic approval and payment. And it’s creating a process for AP to flip an invoice back to the right buyer when it cannot be matched, or approved, and a dispute needs to be started that should be handled by Procurement, not AP.

It does not matter how coherent the Source to Contract, Contract to Receipt, or Receipt to Pay processes are because success is realized only when all the processes sync up. So make sure there is coherence between as well as within.

Basware: P2P for the Global “E” Part V

When we last discussed Basware two years ago, we did a deep dive into their solution, particularly with respect to their invoice and payment plan capability, their Basware Commerce Network (BCN) and supplier/buyer portal, and their analytics offering. You can review this coverage in our four part series: Part I, Part II, Part III, and Part IV.

Since that coverage, there have been a few updates to the platform in these areas, but the biggest news is the recent Verian acquisition that extended their procurement offering, and we’ll cover this shortly.

From an invoice processing point of view, the match algorithm has been improved, as has the interface to the invoice. The upgraded UI makes it very easy to see not only unmatched invoices, but unmatched data, the closest match purchase orders, and all associated history of both. The pop-up windows allow a user to view the invoice and PO side by side, as well as the full audit trail if need be. From a payment plan point of view, the solution supports very powerful rules that allow a payment plan to match as many invoices as needed, and be automatically paid and approved subject to the rules.

From the BCN point of view, it’s growing year over year, at a transaction growth rate of 37%+, and should be processing 250M invoices by the end of 2018 and continues to add digital signature and tax compliance as more and more countries add regulations and allow digital signatures. The supplier portals have gotten a face lift, and it’s easy for a supplier to not only manage all communication, but multiple versions of their catalog for multiple buyers, as well as multiple price lists for different order volumes.

Their analytics offering keeps getting extended and improved as well, with the standard reports and dashboards now meeting 90% to 95% of what a typical buyer or AP clerk would ever need to look at. The reports have been grouped into three categories: spend, which are focussed on actual spend; procurement, which are focussed on overall process metrics and quality; and AP, which focus on financial data, process metrics, and overall end-to-end P2P KPIs.

The spend reports capture actual invoice data and payments and summarize, among other things, spend under control in a reference period, spend by supplier, spend by category, percentage of supplier spend under control, payment terms, and top n suppliers. The Procurement reports are focussed on quality and metrics. The quality reports focus on supplier quality and summarize active suppliers, (average) quality metric summary, rank by quality, rank by category, etc. The metrics focus on value. PO counts, by supplier, and by value. Average total order time by supplier, by category, and geography. Average procurement task time (for requisition approval, PO flips, etc.) and duration. The AP reports focus on finance, process, and KPIs. The financial reports summarize cash flow, cash flow forecast, discount availability, discounted invoices, discount trend, and similar financial data. The process reports summarize invoices — open, exception free, resolved exceptions, and average resolution time; tasks and durations; and average supplier acknowledgement/response times. The KPI reports summarize overall e-Invoice metrics, spend under control, auto-match performance, on-time payment, and average cycle times. It’s a very complete set of reports.

In other words, even though everything discussed above was quite good when we reviewed it back in 2014, Basware has kept developing and improving and streamlining, but that’s not all Basware has to offer. In our next post in this series, Part VI, we will discuss the other capabilities Basware has to offer.

London Bridge is Falling Down

But this time, it’s not the vikings*, it’s the procurement. And this is not a good thing. Bridges need to be built, not put on indefinite hold while enquiries are made into funding proposals. But then again, why does a foot bridge cost £185M?

As per a recent post by the public defender over on Spend Matters UK on how Procurement and Funding [is] To Be Reviewed, while a previous internal review by Transport for London did not find any evidence that would suggest that the final recommendations did not provide value for money from the winning bidders, the report did find major breaches of good procurement process. From allowing a supplier to submit a bid after the formal deadline, to a lack of documentation, to changing the evaluation process once bids were received, to treating suppliers differently – as we said, if any unsuccessful bidder had challenged in court there is no doubt that they would have won their case.

While this is bad, and provides a solid reason to put everything on hold for further examination and inquiry, this situation should never have happened in the first place. With so many resources on good public procurement available from the EU, the OECD, and private government oversight organizations, there’s no excuse, and no call, for any government procurement body in any advanced country to conduct an event like this — especially when there are good public procurement platforms (including, but not limited to Intenda, Causeway, Perfect Commerce, and others) to prevent situations like this from happening (and some are custom built for big procurement projects). Modern platforms block late submissions, allow evaluation criteria to be locked down before the bid goes out, allow initial submissions to be reviewed blind, and so on.

So, we beg you, before any more bridges fall down (or literally fall down because the funding to fix them has to be put on indefinite hold while the Procurement process is reviewed), learn the rules, follow the best practices, and put good platforms in place that prevent bad processes from ever happening in the first place.

* While the popular rhyme has to do with London Bridge falling down, the reality is that the rhyme might be the result of the destruction of (a) London bridge by Olaf the II of Norway somewhere between 1009 and 1014.

One Hundred and Eighty Seven Years Ago Today

Stephenson’s The Rocket wins The Rainhill Trials. An important competition in the early days of steam locomotive railways for the nearly completed Liverpool and Manchester Railway, The Rocket was the only locomotive to complete the trials and became the template for the railway.

The Rocket, which brought together several innovations to produce the most advanced locomotive of its day, was so revolutionary at the time it is now on display in the Science Museum of London. While not the first steam locomotive, it was the foundation for the steam locomotives that would become a major means of transport in the UK in the nineteenth century and should not be lost to the annals of history.


What do you think, LOLCat?


Choo! Choo!

No Environment is too Challenging or too Unique for Procure to Pay

Pete Loughlin recently penned a great post over on the Purchasing Insight blog that asked Is This the Most Challenging Environment for Purchase to Pay where he discussed whether or not the entertainment industry (and movie making in particular) was the toughest environment for Purchase to Pay there is.

As per Loughlin’s post, where he quoted Bogdan Tomassini-Büchner from digitalpurchaseorder.com, on a movie set it’s complete chaos. You’re hiring lots of people for a short time at short notice, there’s no time, there’s no money — even for multi-million dollar projects — buying stuff is a nightmare. There’s no time for a requisition approval process — the stand-ins, the set, the food is needed now. But with the right system, all purchases can be put through (approved) and all spend can be tracked.

Regardless of whether or not cost is critical, or incidental (because the biggest profit potential is in increased revenue and not cost reduction), cost still needs to be tracked, understood, and opportunities for significant savings identified. For example, even in entertainment, if, at the end of the year, the same provider is providing a significant amount of product across multiple sets or budgets, the parent company can negotiate an across-the-board discount off of the standard rate sheet for the following year (and all purchase orders to the vendor can automatically use that rate).

The same situation exists in the hospitality — or tour — industry, especially when products or services have to be acquired, or re-acquired (because the restaurant was closed for a health violation, the bus broke down, etc.) at the last minute. But all costs needs to be tabulated, tracked, reported, and when possible, appropriate taxes reclaimed.

However, the biggest challenge is in an old-school manufacturing or logistics company where everything is paper and fax and e-mail based, the process has to be “done this way”, and no Procurement system meets the need. If a vendor is trying to go into one of these environments without a highly configurable, adaptable, customizeable workflow — they will be as challenged as a first generation procurement system in the high-speed hospitality and entertainment industries.

However, as Pete has pointed out, there is no environmnt too complex for a highly configurable, adaptable, customizeable workflow. So if you don’t have a good P2P system, there is no excuse not to get one.