I interviewed Andrea Stroud who discussed Improving the Procure-to-Pay Processes.
What benefits can organizations see by taking steps to improve their procure-to pay-processes?
In any organization, procurement and accounts payable activities are inextricably linked. Becoming efficient in both processes and improving the communication between the processes should result in lower costs, fewer personnel, and improved cycle times. Organizations with high-performing procure-to-pay processes examine how these activities interact in order to boost productivity and efficiency. In doing so, they ultimately reduce process cost and improve their cash flow.
What are some business drivers of integrated procure-to-pay processes that lead to specific improvements and business results?
We are often asked this very question. In conducting a recent analysis using data from APQC’s Procurement Open Standards Benchmarking Survey, we identified five key characteristics within organizations with high performing procure-to-pay processes.
- The first driver is associated with Goals, Objectives, and Measures. Top performing organizations understand the relationship between procurement and payables and have integrated goals and objectives for procure-to-pay processes. These goals are explicitly linked to performance indicators for evaluating and improving the integrated processes.
- A common mistake organizations make is to neglect the strategic importance of goal setting and measuring progress and instead focus primarily on tactical tasks. Organizations are going to have to switch from a tactical mindset and retool to a more strategic mind set in order for procure-to-pay processes to be successful.
- A well-defined and adhered-to procure-to-pay process allows for more strategy to be quickly identified and put into action with the appropriate allocation of procurement resources. By knowing when to apply certain strategic procurement practices in lieu of tactical ones on a situation-specific basis, procurement professionals are well positioned to deliver peak performance and outstanding financial results.
- The second driver of an integrated procure-to-pay process is centralization and/or standardization. Top-performing organizations centralize and/or standardize the procurement process and implement cross-functional teams to enable focus on more strategic, value-added processes.
- APQC’s recent research showed that an organization can perform procure-to-pay processes well regardless of how it is structured; however, centralization can help an organization excel by enabling an easier, faster, and less expensive process. In addition to simplifying work for procurement and payables support staff, centralization helps align individuals based on item type or commodity purchases. Centralization and standardization also facilitate the ability to take advantage of early payment discounts, which enables an organization to transform accounts payable into a revenue center by leveraging systems, people, and efficiency gained to take advantage of those discounts and become a more value-added function.
- If an organization cannot centralize procurement and payables, then the second best option is to standardize policies and practices to the greatest extent possible.
- The third driver is supplier management. Top-performing organizations appraise and work with suppliers to assess performance and identify improvement opportunities across organizational boundaries. This can help an organization save money in the long run. Supplier management is a critical aspect of procurement.
- The fourth driver is automation. Organizations can no longer afford not to automate their transactional processes. Those who fail to automate simply cannot match the speed, efficiency, and effectiveness of those that do.
- Regardless of how strong and efficient an organization’s procurement staff is, it cannot optimize its productivity without automated purchase order processing. Automation drives productivity up and, therefore, costs down. As mentioned previously, automation also frees up employee time to be spent on value-added activities.
- The fifth and final driver of an integrated procure to pay process involves securing stakeholder commitment. Having a great procure-to-pay process is only part of the solution. Even if there is a theoretically perfect system in place, it will never reach its full potential if employees and/or suppliers do not buy in. Top-performing organizations evaluate and promote increased participation and decreased rogue behavior from all stakeholders in the official procure-to-pay process.
You talked about centralization, do organizations experience any challenges when trying to centralize or standardize their processes?
Shifting to a centralized model is not without challenges and definitely requires a proven change management methodology. Depending on an organization’s culture, individuals who previously had control over which suppliers they worked with may push back as control is diminished at the field or site levels. As with any change there is resistance, but in the case of centralization within procurement processes and activities, there are significant benefits in the long term. Key to a successful transition is a clear vision, a defined change strategy, and engaged leadership.
What recommendations do you have for organizations who want to improve their cross-functional procure-to-pay processes?
Procure-to-pay processes are designed to provide organizations with control and visibility over the entire life-cycle of a sourcing transaction – from purchasing operations to payment operations and accounting activities. The end-to-end process visibility allows for effective management of working capital and reliable views on cash-flow and financial commitments.
It is important for an organization to begin by mapping its procure-top pay processes. Once processes are mapped, organizations should establish governance over the procurement and accounts payable functions. Organizations govern and improve cross functional procure-to-pay processes by initiating more conversation between the two functions. And some organizations identify a single process owner or process group that oversees the cross-functional processes, which has proved to be very effective in improving processes.
To see more of the research being conducted on procure-to-pay processes visit www.apqc.org.
About Andrea Stroud
Andrea Stroud, a research program manager with APQC, a Houston-based nonprofit that focuses on benchmarking and best practices. Her focus is on uncovering and sharing supply chain management, product development, and innovation benchmarks and best practices.
Research Program Manager APQC