When costs come under scrutiny, companies look for more creative cost-saving solutions. The traditional options – optimizing operations and increasing efficiency – are reliable, but they can only be improved by looking at a company’s purchasing behavior. Profiling a company’s procurement and accounts payable departments is an excellent way to better manage a company’s finances by allowing executives to take the pulse of their organization’s financial health.
Procurement deals with an organization’s spending plans and commitments. Accounts Payable deals with the implementation of an organization’s spending plan. Procure-to-Pay takes these insights a step further by automating the analysis of these critical areas of cost tracking and cost containment. Merely formulating and executing policies will no longer provide the kind of overall operational efficiencies that many organizations seek to increase their competitive advantage. By automating procurement and accounting policies, they can better enforce them and drill down into the organization’s spending patterns, including cash flow and working capital.
The following best practices are offered to achieve greater cost savings and efficiencies in Procure-to-Pay.
1. Go for the underdogs.
These are the buyers who like to color outside the lines. Instead of making their purchases through normal channels, they tend to buy indirectly outside of the system. While they may have good intentions, they hamper operational efficiency by making it impossible to see or control their spending patterns. Implementing an easy-to-use purchasing system that encourages widespread adoption is one way around this problem.
If you think your organization is too big for that, consider Helsinki. The City of Helsinki e-procurement system enables over 7,000 users and 50 professional buyers from 30 different departments to manage hundreds of thousands of purchasing transactions each year and achieve a match rate of over 80 percent (1). Complex accounting standards, general ledger rules, organizational business rules and policies are all automated.
2. Run reports to uncover hidden cost savings.
Spend analytics can help realize significant savings by: 1) realizing volume and early payment discounts, 2) optimizing contract terms, and 3) eliminating redundant payments and/or costly late payment fees.
3. Be honest about strategic purchases.
Selecting suppliers based on cost is not enough for strategic purchasing. In areas such as research and development, companies need to consider the total value of suppliers and invest in appropriate technology to support those relationships.
4. Improve efficiencies and processes.
How can you streamline operations? Are there tools to make process improvements that you haven’t implemented yet? Using Key Performance Indicators (KPIs) is a tool to reduce costs through better analysis and monitoring of purchasing behavior by examining how current performance is measured against targets, which can shed light on areas for improvement in purchasing departments.
5. The Big Picture of Procure-to-Pay.
How are things going with your suppliers? Probably not too hot if AP consistently late pays them due to invoice processing delays. Automating the procure-to-pay system, from needs assessment to budgeting and planning to procurement and payment, can avoid the kind of damaging and inefficient patterns that proliferate when these issues are not properly and systematically addressed ( 2). This high-level visibility of the financial supply chain is critical to improving overall operational efficiencies.
6. Don’t settle: find a solution that offers immediate cost savings and benefits.
Rather than long-term re-engineering projects that offer an ROI at some indeterminate point in the future, a technology that can substantiate claims of an ROI within a few months is a more prudent option.
1. Ari Salonen, “Six Best Practices for Procure-to-Pay in a Recession”, Supply & Demand Chain Executive, http://www.sdcexec.com/article/10269431/six-best-practices-for-procure- pay in a recession.
2. “Procure-to-Pay Process Management in SAP”, Dolphin Corp., http://www.dolphin-corp.com/business-process-management/procure-to-pay.