Category Archives: Procurement Innovation

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.

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.

What Procurement Processes Should Be Automated?

The big push in Procurement Automation is typically the automation of invoice processing: automatic matching, verification, and when possible, payment because paper-based invoice processing in an average organization can cost $30 or more (with some estimates that paper-based invoice processing can cost an organization as much as $60). But when an organization switches to automated invoice matching, processing, and payment with a best-of-breed system that can automate processing the 85%+ of invoices that are problem free can reduce invoice processing costs to somewhere between $3 and $8 an invoice, depending on the system and the overhead costs.

And while this cost savings is great, it shouldn’t distract from the other cost savings opportunities that can come from automating other procurement processes, which eat up valuable time and resources. In this post we will discuss three other areas of Procurement that should be automated.

Requisition Approvals

Not every requisition needs a manual review. A requisition for a standard office supply reorder from the office manager, a requisition for a standard setup for a new hire, or a requisition for standard travel expenses for a pre-approved conference can all be automatically approved if the expenses are within the expected range and budgets are not exceeded. A requisition system that supports the definition of rules that can allow requisitions to be auto-approved can save the organization a lot of time and resource energy.

Automated MRO re-orders

A system that can support the definition of minimum stock levels, maximum stock levels, and perfect re-order levels can allow stock to be automatically re-ordered when a threshold is met. This negates the need for an MRO clerk to regularly check inventory levels and compute re-order levels.

Supplier Profile Maintenance

Supplier profiles need to be kept up to date to enable the organization to contact the right people, select the right locations, keep track of current products and services, and make payment. People change roles, and jobs, office locations move, products get discontinued, and so on. Keeping this information up to date takes a lot of time and effort – with a good portal, that reminds suppliers of their need to auto-update, suppliers can maintain their information, upload insurance certificates and certifications, and provide the organization with requested information on an as-needed basis.

Good Procurement systems automate the tactical and allow procurement professionals to focus on issues, not paper pushing.

Intenda – A Trusted Platform for Public Sector Procurement

Intenda is another name you might not know, as they are a South African Enterprise whose primary global customer base centred around South Africa, the UK, and Australia, but they are a very strong provider of Source-to-Pay in the public sector with tens of thousands of users across multiple global sites that collectively serve customers in over 30 countries.

Intenda is one of the unique, odd-ball, providers in the Source-to-Pay world. Like b-Pack (now part of Determine) and iValue, it’s development was heavily influenced by its initial customer base and in addition to standard S2P functionality, it also has

  • inventory & asset management,
  • GRC (governance, risk, and compliance) and Traceability, and
  • GPO / central service centre support.

From a Source-to-Pay (S2P) perspective, the strength of the platform lies primarily in its Purchase Order (PO) and invoice management capability and secondarily in its sourcing management capability. The requisition management capability is among the most powerful and most flexible on the market. Not only can requisitions be very detailed with complete part information (if known), multiple lines, cost breakdowns, detailed headers for proper (approval) routing and budget assessment, but different requisitions, with pre-defined headers, processing, and routing information, can be created for each type of purchase, each business unit, each geography, and each special case that the organization needs to support.

The system also supports detailed RFQs/RFBs, the ability to compare them side-by-side using multiple weighting schemes, and do calculation scenarios on sub-bids using any set of filters or restrictions that are required. The platform also supports basic e-Auctions for those clients that want it, but this feature is optional. A user can create an extensively detailed requisition, flip it to a (senior) buyer who can use it as the basis for a detailed RFP, get quotes, and then run an auction and/or make an award.

But the biggest strength of the platform is the audited and government approved security. The solution supports defense clients and revenue service clients in multiple countries, and has gone through just about every security and certification test that one can think of for a SaaS based solution. The solution, which supports fine-grained role-based security, heavy encryption, and multiple levels of authentication, including LDAP integration, if required, has been verified as secure by the most demanding of organizations. Very few platforms have gone through the level of security validation that Intenda has.

If you are a public sector body, or a large multi-national private sector organization that needs an inclusive S2P platform, Intenda is another platform you need to know about. For a detailed review, check out the recent Spend Matters Pro series (membership required) by the doctor and the prophet (Part I). The insights are worth it.