Procure to Pay processes more important than ever in effective procurment practices.
This past June, SDCE’s “100 Great Supply Chain Projects” awards highlighted successful and innovative supply chain implementations that utilized best-in-class processes and solutions to deliver bottom-line value to small, medium and large enterprises. For procurement, understanding the components of true Procure to Pay with regards to today’s technology and standards can serve as a roadmap for procurement transformation success.
Over the years, the face of procurement changed to become a strategic part of one’s business processes. And while the basic steps of purchasing remained the same, technology greatly changed how they are accomplished. Automation of purchasing and the subsequent collection of procurement data provide more power in the hands of procurement professionals, thus making them an important voice in the corporate world. Armed with this data, it is why the CPO now has a seat at the corporate table; and why true Procure-to-Pay solutions are a vital component in today’s growing supply chain.
What is a true Procure-to-Pay solution?
Procure to Pay encompasses the entire purchasing process from requisition to payment, including purchase orders (POs); receiving; invoice reconciliation; and management of vendors and suppliers. A good Procure-to-Pay solution comprehensively automates all of these processes to make them flow seamlessly while collecting the data necessary for CPO/CFO business planning.
Follow the right steps
Procure to Pay is flexible enough to adapt to any type of industry, regardless of requirements and despite the numerous components it encompasses below.
Requisition and Approval Workflow—The requisition is step one in the procure-to-pay process. It should be an easy-to-use, intuitive process for all levels of personnel to create, track and review requests. All types of requisitions should have the flexibility to support industry specifications. A good workflow will allow rules to personalize the requisition process for an organization, but still allow for the standardization of the procurement process across the entire enterprise. Look for speed in entry, accuracy and validation as key elements to a requisition workflow. Once a requisition is created, it must be approved. If properly configured, approval workflows keep spend within budget and prevent maverick spend. Again, look for a flexible approval workflow that allows your organization to define the structure.
Sourcing—The ability to call upon your supplier base and determine the better provider in terms of time, quality, support and not just price alone is a very important tool for the modern procurement department.
Purchase Orders—This is the heart and soul of a procure-to-pay process. This process effectively creates binding agreements and is the main means of communication to a supplier on what goods and services are needed. Once a PO is created, tracking and visibility of spend is enabled.
Contracts—Negotiating better contracts is the calling of the modern procurement professional. Creating POs is just paper-pushing whereas negotiating contracts can provide the mechanism for an organization to become self-sufficient and efficiently order a good or service from a pre-approved source using a pre-negotiated contract. This is the tool that will differentiate true procure-to-pay systems.
Receiving—The other component of a procure-to-pay solution is the ability to record receipt of items. Accurate receipts ensure compliance to contracts and vendor/supplier agreements.
Invoicing/Reconciliation—True procure-to-pay solutions automate the receiving and recording of invoices, minimizing the need for manual data-entry and creating a process to match the invoice to the purchase order and receipt transaction. This process ensures that the correct goods and services are paid for. The benefits of this process are increased accuracy, fewer reconciliation disputes and dramatic decrease in data entry time.
Accounts Payable—It is increasingly important for organizations to link procurement and accounts payable (AP). This combination of procurement and AP and the recognized complimentary service they provide each other is a feature of a true Procure-to-Pay solution.
Payments—The payment component is becoming the new add-on and soon, very likely, the new requirement for procure-to-pay. Automating payments allows for better cash management; the introduction of a Payment Terms program; and ensures good supplier relationships with timely payments.
Procurement Policies—Automation alone is not very effective without the support of corporate management. Organizations that utilize a “No PO, No Pay” rule in conjunction with the use of the procure-to-pay solution witnessed much higher success rates.
Implement Procure to Pay for achieved success
A Procure-to-Pay solution will affect many people of all types in an organization including users, managers and corporate personnel. In order to be successful, the benefits must be understood by all involved and the process must be seen as a more efficient and effective means of accomplishing set goals. A thorough understanding of how the procure-to-pay process is utilized within the organization—in addition to the components mentioned above—is essential to a company’s success.